It’s Friday so we’re gonna talk about bitcoin because it’s fun (at least to me it is). As more and more people warm up to crypto, turns out athletes absolutely love crypto. Football demigod, Trevor Lawrence, known for back-to-back victories playing for Clemson, got drafted last night into Jacksonville Jaguars. Not only is he moving to Florida (exciting), turns out he also is getting paid in crypto (kinda). From the Morning Brew:
What most of us didn’t expect was that the Tennessee wonder boy would use his signing bonus to invest in cryptocurrency. Lawrence has partnered with Blockfolio, a crypto investment app, to invest his estimated $22,630,055 signing bonus in bitcoin, ether, and yes, dogecoin.
First of all, this man got a $22.6M signing bonus (speechless). But let’s focus on the deal. Why would someone put all their money into crypto? College football players aren’t allowed to earn money, which is a separate subject on its own. So we can assume that this signing bonus is the first time he’s received big money for his work. If crypto is so risky, why put all your eggs in one basket? Also, what if he wants to buy a house or a new car? He’d have to take the money out of crypto to then make the purchase (unless it’s a Tesla). Where have we seen this before?
Actually, Tesla did the same thing a couple of months ago when they announced that they were parking some of their reserve cash into bitcoin. To compare the two, we need to take a step back and think about what cash really is and how businesses (and rich people, including athletes) use it.
Accounting Recap
I apologize in advance for bringing accounting into this, but it’ll help me make my point so stay with me. Cash is an asset on the balance sheet of a company. It’s calculated from taking all the money earned in revenue and normal business operations, subtracting out all the different expenses to debt, equity, and so on, and whatever you're left with is the cash. It’s basically the extra. Some companies keep a lot of cash on hand, other companies try to have little to no cash. Why? Inflation and liquidity risks.
Inflation Risks = keeping cash for too long in large quantities is technically not a good idea because over time your dollar loses value, or rather purchasing power. As more and more dollars are printed, technically the value should decrease. There’s a whole money supply theory behind this and I have an old post about it here. But what you need to know right now is that having cash just parked in a bank account doesn’t grow and that’s bad.
Liquidity Risks = however sometimes it’s not bad. The cash that companies do keep is for quick payments. Some companies will invest cash into the markets through stocks and bonds, or other investments so that it can grow somewhere. However, if an issue arises like a quick acquisition, a huge lawsuit settlement, or some sort of fine, the company needs to be ready to pay. The problem with having your cash invested is that the delay between selling investments and actually getting the money to make the payment is a risk. When you’re dealing with millions of dollars, cash moves really slow.
Back to Crypto
Here’s a recap of Tesla’s dealings with Bitcoin over the past couple of months from Bloomberg columnists, Matt Levine:
At Fortune, Shawn Tully estimates that Tesla bought about 43,000 Bitcoins for $1.5 billion, about $34,700 per Bitcoin, in late January and early February, and sold about 4,800 for $272 million, about $55,100 per Bitcoin, in March.
That generated a $101 million profit on the Bitcoins it sold — meaning that it paid $171 million and got $272 million for them — but it also left Tesla with about 38,000 Bitcoins, for which it paid about $1.3 billion. It carries those Bitcoins on its balance sheet at its cost — at $1,331 million, to be precise — but they’re worth a lot more than that now. (Roughly $2.1 billion at today’s price of about $54,750, or roughly $2.26 billion at $58,960 per Bitcoin, the price at the end of Tesla’s first quarter on March 31.)
So they bought some Bitcoin and sold some bitcoin and made a hell of a lot of money in the process. While many speculate he did this to “pump and dump” the market, Elon actually had a reason for selling and explained it in a response to Dave Portnoy on Twitter:
Tesla sold to prove the liquidity of Bitcoin as an alternative to holding cash on the balance sheet. And just like that, Tesla unlocked a whole new reason to further consider bitcoin as an alternative.
If the main problems with the decision of having to hold cash or not is liquidity and inflation, well suddenly there’s an asset that acts like cash, provides cash when you need it relatively quickly, and it grows pretty fast.
Full Circle
Back to the NFL, Trevor Lawrence might’ve just made a genius move. He, along with offensive tackle Russell Okung, and tight end Sean Culkin, have chosen to instead take their money in crypto first. When they need the cash they simply sell off however much is required, while keeping the rest safe and growing.
Now, I’m not advocating for placing all your savings in Bitcoin. What I’m pointing out is more and more “big money” (what I call business and rich people) is looking to crypto as a place to hold their money. It’s strengthening the argument for Bitcoin to replace gold and it’s proving the whole point for cryptocurrencies as money for the digital age.
Thank you.
If you’re feeling risky, I suggest trying to buy something with bitcoin. Put some cash in a wallet, make a transaction and just test out how it works. I wasn’t really into crypto until I actually started using it. I suggest starting with this video. If you like this post, please share it. I’m trying to grow my user base and would love some ideas on how to grow. As always, if you have any questions or still want more explanations, comment below, follow me on Twitter, or shoot me an email.