Tesla (NASDAQ:TSLA) shocked the world on Monday after the electric vehicle maker announced it had invested $1.5 billion into bitcoin (BTC) and would start accepting bitcoin payments for its cars in the near future. Both TSLA stock and the bitcoin price rose on the announcement.

A close-up shot of Tesla (TSLA) CEO Elon Musk.A close-up shot of Tesla (TSLA) CEO Elon Musk.

Source: vasilis asvestas / Shutterstock.com

That makes complete sense. Tesla buying bitcoin is bullish for both Tesla’s stock and BTC.

For the former, it underscores the innovation of the Tesla management team. Innovation is the fuel of growth. Thus, this innovative step should boost investor confidence in the company’s ability to innovatively grow the core energy and transportation businesses long-term.

For the latter, it adds to an increasingly long list of smart big-money backers. For years and years, the bear thesis on bitcoin was that it would forever remain niche. But now that a near-trillion-dollar company is pouring support into the cryptocurrency, that “niche” argument is going out the window. As it does, BTC prices should keep rising.

Big picture: This is a win-win for both Tesla and bitcoin.

Tesla’s Bitcoin Investment

Let’s first clear up what Tesla is actually doing with respect to bitcoin.

Tesla has purchased $1.5 billion worth of the cryptocurrency sometime after a January 2021 investment policy update. That means Tesla has $1.5 billion worth of value that will rise (or fall) with bitcoin prices. If bitcoin doubles, Tesla’s stake will be worth $3 billion. If BTC prices fall 50%, it will be worth $750 million.

That’s the first part of the investment.

The second part (and arguably the more important part) is that Tesla plans to start accepting bitcoin as payment for its vehicles in the near future. That means that Tesla plans to allow consumers to start paying for a Model X in bitcoin.

As stated earlier, this investment is bullish for both TSLA stock and BTC.

Why It’s Good for TSLA Stock

This is good for TSLA stock for two big reasons.

The first reason? It will attract cryptocurrency bulls to TSLA stock, and result in meaningful multiple expansion. See: MicroStrategy (NASDAQ:MSTR). That business intelligence company essentially converted its entire cash balance to bitcoin in 2020. MSTR stock is up 430% over the past year.

The second reason — which is far more important — is that Tesla buying bitcoin underscores the innovative prowess of the management team.

Elon Musk and company have forever been known as some of the most innovative folks on the planet. They pioneered electric vehicles, introduced them to the masses, made them usable in terms of driving range, and made them affordable in terms of price. They are also a first mover in solar energy generation and clean energy storage solutions.

Innovation has been part of the Tesla DNA for years. Tesla buying bitcoin emphasizes that this remains true today.

That’s a big deal, because innovation is the fuel of growth. So long as investors have confidence in the innovation capabilities of Elon Musk and company, they will maintain a robustly optimistic outlook about the company’s long-term growth prospects. So long as that remains true, TSLA stock will keep powering higher.

Why It’s Good for Bitcoin

While this is good news for TSLA stock, it’s arguably even better news for bitcoin. That’s because bitcoin is breaking out of its little corner of the internet.

For years, bitcoin was just a fad cryptocurrency used for mostly niche (and often illegal) activities, and by a small portion of the global population. But over the past 6 months, bitcoin has gone mainstream.

Big money managers like Guggenheim’s CIO Scott Minerd went bullish on BTC. Financial tech companies like Square (NYSE:SQ) and PayPal (NASDAQ:PYPL) have started building out bitcoin functionality on their platforms. Forward-thinking firms like MicroStrategy started buying bitcoin instead of holding cash.

And now, Tesla — a near-trillion-dollar company fundamentally changing the global energy ecosystem — is all aboard the BTC train. Not only is Tesla investing in bitcoin (underscoring the “store of value” idea), but the company is also architecting payment infrastructure for bitcoin (underscoring the “medium of exchange” idea).

This wide variety of smart big-money support implies that bitcoin is no longer a niche cryptocurrency. It’s coming into its own as a global mainstay. As this transition continues to play out, BTC prices will continue to climb.

Bottom Line

Tesla buying bitcoin is a win-win for both TSLA stock and BTC. In the near-term, the outlook for both assets is positive.

On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.

The New Daily 10X Stock Report: Dozens of triple-digit winners, peak gains as high as 926%… 1,326%… and 1,392%. InvestorPlace’s bold new initiative delivers one breakthrough stock recommendation every trading day, targeting gains of 5X… 10X… even 15X and beyond. Now, for a limited time, you can get in for just $19. Click here to find out how.

In addition, you can sign up for Luke’s free Hypergrowth Investing newsletter. Click here to sign up now.