Why Tesla sold 75% of its bitcoins

The announcement stunned the entire crypto ecosystem. Wednesday, during the presentation of his quarterly results, Elon Musk returned to the reasons why his company parted ways with its assets.

Thunderbolt in the crypto ecosystem. On Wednesday, Telsa, owned by billionaire Elon Musk, announced that it had sold 75% of its bitcoins worth about $936 million by the second quarter of 2022, reducing its current holdings to $218 million dollars.

The company had about 42,902 bitcoins in its coffers as of January 2021, compared to 10,725 bitcoins today. According to the Bitcointreasuries site, which lists the companies or states that have bitcoin in their treasury, Telsa has risen from second place in the ranking after the giant Microstrategy, to fourth place, overtaken by Galaxy Digital and Voyager Digital.

“The Uncertainty of Covid Restrictions”

The company admitted that bitcoin’s depreciation (which has lost more than 70% of its value since its peak last November at $69,000, editor’s note) hurt its profitability in the second quarter. Elon Musk explained this decision during a conference call on the quarterly results.

“The reason we sold some of our bitcoin holdings was because we didn’t know when the Covid lockdowns in China would ease. So it was important for us to maximize our cash position given the current situation.” the restrictions linked to the Covid in China,” said Elon Musk.

The move had a moderate impact on the price of bitcoin, which is down about 3% since Wednesday, trading at just over $22,900 at the time of writing.

However, Elon Musk explained that he remains open to increasing his bitcoin holdings in the future. “This should not be seen as a judgment on bitcoin […] And we haven’t sold any of our dogecoins,” he said. As a reminder, since January, his company has been accepting payments in this cryptocurrency for certain services.

On social networks, this announcement has been the subject of much reaction, most notably from one of its competitors, Michael Saylor, the boss of the Microstrategy company that has 130,000 bitcoins in its coffers.

At this stage, Elon Musk did not speak on the social network.

A decision that goes against the long-term strategy?

In a bleak macroeconomic context, with a cryptocurrency market in full bear marketall companies that have invested some of their money in bitcoin have experienced record losses.

In mid-June, during the second crypto crash, Telsa and Microstrategy lost nearly $1.5 billion from bitcoin’s decline, over $900 million for Microstrategy and more than $500 million for Tesla, respectively. The losses would be assessed in the following financial results. Was this bitcoin sale made to make up for its losses? The question may arise.

Indeed, Telsa’s decision conflicts with Tesla’s current long-term strategy towards bitcoins. Indeed, according to the latest April quarterly report, Elon Musk’s company had revealed that it had not bought or sold the bitcoins held since early 2021.

So the value of his bitcoin holdings was the same since September and was worth $1.26 billion. However, that doesn’t mean there hasn’t been a movement in cash flow since Tesla made a $1.5 billion bitcoin investment in early 2021.

In fact, the automaker’s latest quarterly report specifies in detail that Tesla only bought crypto assets (“digital assets”) in the first quarter of 2021 (that is, for $1.5 billion) and nothing since. On the other hand, there are $272 million in crypto asset sales in the first quarter of 2021. Since then, no sales of these assets have taken place.

“During the fiscal year ending December 31, 2021, we bought and received $1.50 billion in bitcoins. […] We recorded impairment charges of $101 million on these digital assets. We also realized gains of $128 million from the sale of a portion of our holdings in March 2021,” Tesla admitted in a financial filing.

The company had pointed out that while the “book value” of its digital assets was $1.26 billion at the end of December, the “fair” market value was $1.99 billion.

All companies that have invested some of their money in bitcoin, such as MicroStrategy, have to deal with the volatility of this cryptocurrency. Digital assets are considered “intangible assets with indefinite lives under applicable accounting rules,” Tesla said.

“Therefore, for any decline in their fair value below their book value, we will have to write impairments at some point after their acquisition, while we cannot make upward revisions for an increase in the market price. Until a sale,” Tesla said.

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