Image CC BY-NC-ND 2.0 via NASA/Keegan Barber
Big news this week that you’ve no doubt heard: Elon Musk has been declared the world’s first trillionaire, a term so new that I had to tell my spellcheck app that it is a real word, not a typo.
It’s a pretty extraordinary thing, if you think about it. This is a guy who is (hypothetically) worth more than a one followed by twelve zeros dollars.
I say hypothetically because for him to actually have a trillion dollars in cash or in a bank account to access, nearly all of his stock would have to be liquidated at today’s price. And we all know that selling that much of his company’s stock all at once would tank the price, meaning that he quite literally cannot turn that trillion dollars of hypothetical net worth into a trillion dollars of cash.
Of course, his trillion dollar net worth came about because of SpaceX’s huge IPO.
Along with those announcements came a point that SpaceX owns quite a bit of cryptocurrency, including enough bitcoin to make the company the world’s eighth largest owner of bitcoin.
That’s impressive!
And when you’re talking about those kinds of details and numbers (dollars in the kinds of numbers that most individuals will never have in their hands during their entire lifetime), someone is bound to ask something like, “Is Elon a trillionaire because SpaceX owns a lot of crypto?”
And to answer that question, we need to start by making the point that…
The details matter
The first detail is SpaceX’s valuation, or what investors think the company as a whole is worth today. NBC reports it at $2.65 trillion recently.
But that number does not represent a giant pool of money sitting in a SpaceX bank account. It reflects what investors believe the company’s rockets, satellite network, technology and future growth will ultimately be worth.
To understand the role bitcoin actually plays inside the company, it makes more sense to look at SpaceX’s balance sheet – the accounting record of what the company owns and owes.
Those assets include cash, short-term investments, property, equipment, inventory and, according to Forbes, 18,712 bitcoin worth about $1.2 billion dollars.
On the one hand, that’s a lot of bitcoin worth a lot of money by anyone’s standards.
On the other hand, when your assets are in the hundreds of billions, the SpaceX crypto holdings are a small fraction. Just about 1.3% of the company’s total assets. Compared only with its cash and similar short-term investments, bitcoin accounts for about 5% of the total.
In other words, bitcoin was not the foundation of SpaceX’s current value. But it was not merely loose change, either. It was a meaningful position held alongside much larger operating and financial assets.
But that’s not to say that he isn’t serious about crypto, either. Way back in 2021, Musk’s Tesla announced they’d begin accepting bitcoin payments. (And let’s not forget that dogecoin will be the official currency of Mars…)
Obviously, I’m joking about that last part. The serious point is that, yes, Musk does think crypto is important. On the other hand, he doesn’t follow the popular media idea that crypto investors are wild, fly by the seat of their pants, YOLO-ing on crypto hoping to get lucky with a quick payout that will set them up for life.
What we can learn from Musk’s approach to crypto
First of all, we can probably assume that he’s investing for the long haul (people who have made serious money with bitcoin didn’t look to flip the coin purchase overnight. They bought and HODLed it, meaning that they’ve held on to it for dear life, for the long haul.).
Second, he’s diversified into crypto strategically. It is calculated and rational, and it’s not an all-or-nothing bet with every bit of equity that he could put into crypto. No, he put a portion of the company’s resources into crypto.
And say what you want about Musk, he’s extremely rational about how he approaches business investment.
People may love him or hate him, but you can’t deny he’s an incredible success story. His achievements aren’t the result of a series of impulsive decisions. Instead, he appears to approach his businesses (and his investments) with a calm, rational mind, unconcerned about short-term volatility because he sees the long-term growth potential.
I think that’s the right way to look at crypto! As a strategic segment of your overall retirement savings. Not as an all-or-nothing gamble on crypto prices going to the moon.
If nothing else, I want to impress upon you that crypto diversification is not an all-or-nothing proposition.
SpaceX is a company – as such, it’s not a perfect analogy for a household. But there are still lessons we can take from the SpaceX balance sheet. For example, diversification is important. Along with bitcoin, SpaceX keeps a sizable amount of its reserves in cash and short-term cash-adjacent assets (think CDs or Treasury notes).
Here’s another: The majority of the company’s wealth is tied up in hard assets – factories, equipment, rockets and so on. While these assets are productive (they help generate revenue), they are not liquid. It’s smart to keep your liquidity separate from your productivity.
One more: SpaceX has diversified revenue streams. Yes, they get paid for launching rockets – but also for delivering connectivity worldwide through Starlink, and for their AI and compute infrastructure. It’s not always feasible, but it is always smart to seek to diversify your own revenue streams…
Ultimately, SpaceX isn’t a family saving for retirement, so the analogy breaks down. So let’s wrap up.
Diversification with cryptocurrency can be a strategic decision, rather than an all-in gamble.
The amount you allocate to crypto is up to you – enough to give you exposure to crypto’s growth potential, but not so much that you can’t sleep soundly at night.
Diversify your income streams if you can (without having to follow Musk’s notoriously workaholic 120-work-hours-a-week example).
You can choose to, in your spare time, diversify strategically into crypto in a tax-advantaged way so that you can, ideally, make both investments and tax laws work in your favor as much as possible. To find out more about diversifying into cryptocurrencies in a tax-advantaged way, get our free Essential Guide to Digital IRAs.
If, on the other hand, you’ve already done your due diligence and are ready to diversify into crypto, you can start your own BitIRA account online, right now, in less than 10 minutes.
