Why Tesla sold 75% of its bitcoins

The announcement amazed the entire crypto ecosystem. On Wednesday, during the presentation of its quarterly results, Elon Musk returned to the reasons that led 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 during the second quarter of 2022, worth about $ 936 million, reducing its current holding to $ 218 million.

The company had approximately 42,902 bitcoins in its treasury since January 2021, compared to 10,725 bitcoins today. According to the Bitcointreasuries page, which lists the companies or states that have bitcoin in their treasury, Telsa has gone from second place in the rankings after the giant Microstrategy, to 4th place, which has been overtaken by Galaxy Digital and Voyager Digital.

“The Uncertainty About Covid Restrictions”

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

“The reason we sold some of our bitcoin holdings was because we did not know when the Covid lockdowns in China would ease. So it was important for us to maximize our liquidity position in light of the current situation. Uncertainty about the restrictions associated to Covid in China “, specified 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.

However, Elon Musk explained that he remains open to an increase in his bitcoin holdings in the future. “This should not be seen as a judgment on bitcoin […] And we have not sold any of our dogecoin, “he said. As a reminder, since January, his company has accepted payments in this cryptocurrency for certain services.

On social networks, this announcement has been the subject of many reactions, especially from one of its competitors, Michael Saylor, the head of the company Microstrategy, which has 130,000 bitcoins in its treasury.

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

A decision that goes against its long-term strategy?

In a gloomy macroeconomic context, with a cryptocurrency market in full bear marketall companies that have invested part of their cash in bitcoin have had record losses.

In mid-June, during the second crypto-crash, Telsa and Microstrategy lost nearly $ 1.5 billion due to the fall in bitcoin, more than $ 900 million for Microstrategy and more than $ 500 million dollars for Tesla, respectively. Its losses were to be assessed in its next financial results. Was this bitcoin sale made to compensate for his loss? The question may arise.

Telsa’s decision goes against Tesla’s long – term strategy towards bitcoins. In fact, according to its latest quarterly report from April, Elon Musk’s company had revealed that it had neither bought nor sold the bitcoins contained since the beginning of 2021.

The value of his bitcoin holdings was thus the same since September and was worth $ 1.26 billion. However, that does not mean that there has been no movement in its cash flow since Tesla made a $ 1.5 billion bitcoin investment in early 2021.

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

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

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

All companies that have invested part of their cash in bitcoin, such as MicroStrategy, are facing the volatility of this cryptocurrency. Digital assets are considered “intangible assets with an indefinite useful life under applicable accounting rules,” Tesla said.

“Therefore, any decrease in their fair value below their book value at any time after their acquisition will require us to record impairment charges, whereas we will not be able to make any adjustments for any increase in the market price prior to a sale,” Tesla said.

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