Is Tesla's purchase of Bitcoin a sign that the currency is going mainstream?

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Bitcoin’s value hit another record this week after Elon Musk’s electric car company Tesla announced its $ 1.5 billion (£ 1.1 billion) investment in the cryptocurrency, and customers will soon be able to would buy their vehicles with it.

The value of the virtual currency rose 372 percent in the past year to over 45,000 US dollars and is still well ahead of other digital currencies.

But what does buying Tesla mean for Bitcoin and the broader cryptocurrency market? Is this investment a sign of how the business world will change?

Bitcoin’s value hit another record this week after Tesla announced its £ 1.1 billion investment in the cryptocurrency and customers would soon be able to use it to purchase their vehicles

Why did Tesla put its money in virtual currency?

In a report to the US authorities, Tesla said it had changed its investment policy to “allow us more flexibility to further diversify and maximize the return on our cash that is not required to maintain adequate operational liquidity.”

Buying Bitcoin and pledging to accept it in payment soon are part of this strategy, as is a possible investment in other reserved assets such as gold bars.

Tesla believes its Bitcoin holdings are “highly liquid” but admitted that digital currency prices can become very volatile and could hurt if they have to be liquidated.

Simon Peters, a cryptocurrency analyst at eToro, believes Tesla’s actions “cement a long-term interest in Bitcoin’s potential,” in part through its use as a bulwark against traditional currency devaluation.

Will other big company names follow Tesla?

Digital currencies are becoming increasingly popular with companies both as a means of transaction and investment.

Twitter founder Jack Dorsey has a ton of Bitcoin on the balance sheet of his mobile payment company Square, while Silvergate Bank revealed in its latest earnings report that it has around $ 5 billion in digital currency, most of it in Bitcoin.

Says Peters, “Twitter announced that it has laid the foundation for the integration of Bitcoin into its business and strengthened the long-term prospects for the world’s largest crypto asset.”

‘With all the doubts about its use in the real world, the simple fact is that people want alternatives to the existing financial system. They want money to be democratized, and Bitcoin and other cryptoassets offer a chance to make that happen. ‘

“We would expect a lot more companies to follow suit, adding Bitcoin to payroll or investing in Bitcoin as part of diversifying their balance sheets.”

Tesla’s announcement increased its stake in other virtual currency investors, such as software giant MicroStrategy, which bought $ 250 million in Bitcoin in August and now has over 71,000 of them available.

Many analysts, including Eric Turner of cryptocurrency research firm Messari, also believe Tesla’s investment will encourage more companies to follow suit.

Rumor has it that Apple and Google want to get involved, while PayPal is already rolling out full Bitcoin integration for millions of users.