Why Tesla sold 75% of its bitcoins

This announcement stunned the entire crypto ecosystem. On Wednesday, during the presentation of his quarterly results, Elon Musk returned to the reasons that forced his company to part 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 in the second quarter of 2022, worth about $936 million, reducing its current holdings to $218 million.

Since January 2021, there have been about 42,902 bitcoins in the company’s treasury, compared to 10,725 bitcoins today. According to the website Bitcointreasuries, which lists companies or states that hold bitcoin in their treasury, Telsa has moved from second place in the rankings behind the giant Microstrategy to 4th place, behind Galaxy Digital and Voyager Digital.

“Covid Restriction Uncertainty”

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

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

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

Elon Musk, however, explained that he is still open to increasing his Bitcoin holdings going forward. “This should not be seen as a condemnation of bitcoin. […] And we didn’t sell any of our dogecoins,” he said. Recall that since January, his company has been accepting payments in this cryptocurrency for certain services.

On social media, the announcement generated a lot of reactions, in particular from one of his competitors, Michael Saylor, the boss of Microstrategy, which has 130,000 bitcoins in the treasury.

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

A decision that goes against his long-term strategy?

In a bleak macro environment, with the cryptocurrency market turning bearish, all companies that invested some of their money in bitcoin suffered record losses.

In mid-June, during the second crypto crash, Telsa and Microstrategy lost almost $1.5 billion due to the fall in the price of bitcoin, respectively, over $900 million for Microstrategy and over $500 million for Tesla. His losses were to be assessed in his next financial results. Was this bitcoin sale done to make up for his losses? A question may arise.

Telsa’s decision is indeed contrary to Tesla’s current long-term Bitcoin strategy. Indeed, according to the latest quarterly report for April, Elon Musk’s company reported that it has not bought or sold bitcoin since the beginning of 2021.

Thus, the value of his bitcoin assets has not changed since September at $1.26 billion. However, that doesn’t mean there haven’t been any moves in its cash flow since Tesla invested $1.5 billion in bitcoin in early 2021.

Indeed, the automaker’s latest quarterly report details that Tesla only bought crypto assets (“digital assets”) in the first quarter of 2021 (for $1.5 billion) and nothing since. On the other hand, it mentions a sale of $272 million worth of crypto assets in the first quarter of 2021. Since then, there have been no sales of these assets.

“During the fiscal year ending December 31, 2021, we purchased and received $1.50 billion worth of bitcoin. […] We recorded a $101 million impairment on these digital assets. We also made a $128 million profit from the sale of some of our assets in March 2021,” Tesla admitted in a financial filing.

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

All companies that have invested some of their money in bitcoin, such as MicroStrategy, face the volatility of this cryptocurrency. According to Tesla, digital assets are considered “intangible assets with an indefinite life under applicable accounting rules.”

“Therefore, any decrease in their fair value below their carrying amount at any time after their acquisition would require us to account for the impairment, while we cannot make any upward adjustments to the market price prior to the sale,” Tesla said in a statement.

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