tl;dr Summary: Tesla let go of 75% of their bitcoin holdings in the second quarter of 2022, making a small profit on the sale. CEO Elon Musk stated that this should not be taken as any form of comment on bitcoin, and that the sale was merely undertaken to improve the company’s cash reserves.
The relationship between Elon Musk and cryptocurrency is tumultuous to say the least. The Tesla CEO caused huge waves in February 2021 when it was revealed that the company had made a $1.5 billion investment in bitcoin, and were to start accepting the world’s biggest cryptocurrency as a form of payment.
Just three months later, Tesla put a halt to their bitcoin payment scheme. Musk cited environmental concerns as the reason behind the decision, yet remained positive on the longer-term future of the cryptocurrency, stating that Tesla would “never sell” their bitcoin holdings. The Tesla CEO then went on to sell 10% of the company’s holdings just the next month!
Musk brushed off criticism surrounding his mixed messages at the time, and stated this sale was performed to “prove liquidity of Bitcoin as an alternative to holding cash on balance sheet.” In their Q2 quarterly update released this week, it was revealed that Tesla had sold over 75% of their remaining Bitcoin holdings in the last quarter.
Why did Tesla sell?
During Tesla’s earnings call, Musk stated the sale was undertaken to boost the company’s cash reserves “given the uncertainty of the COVID lockdowns in China.” Tesla’s Shanghai Gigafactory is their largest, and was affected by another prolonged shutdown earlier this year as China continues to press on with a COVID-zero policy. This has led to a fall in revenue for the car-maker, with profits down from the record levels hit in Q1.
Musk has stated he wants to cut 10% of jobs at Tesla, and has a “super bad feeling” about the economy going forward. It is common in the business world for companies to sell off liquid assets during times of stress, and after proving the liquidity of bitcoin last year, it is perhaps unsurprising to see a larger sale in the face of looming recession fears. In the earnings call, Musk was clear to state that the move “should not be taken as some verdict on Bitcoin.”
Did Tesla profit on their investment?
It has widely been touted that Tesla were able to sell their Bitcoin for a small gain. Tesla CFO Zach Kirkhorn clarified the company’s position on the earnings call:
“We converted a majority of our bitcoin holdings to fiat for a realized gain, offset by impairment charges on the remainder of our holdings, netting a $106 million cost to the P&L.”
This confirms that Tesla’s net position is in fact down, with the losses of the remaining 25% of their coins offsetting the small ‘realised gain’ from the sale.
Tesla’s quarterly filing to the SEC for the period ending June 30th 2021 reveals the company held Bitcoin with a market value of $1.45 billion at the time of filing. The market value of one bitcoin on exchanges on June 30th 2021 was around $35,000. Some rough math can be used to estimate that Tesla held just over 41,000 Bitcoin on that date.1 Tesla stated that bitcoin was sold for $936 million, so some more rough math can be used to estimate that the bitcoin was sold at a market value just over $30,000.2
What does this mean for Bitcoin going forward?
After a quick initial sell off, the market easily shook off the news of Tesla’s Bitcoin dump, with Bitcoin resuming a general upward trajectory in the days following the news. It appears that this move is more related to Tesla’s business needs rather than any long-term comment on Bitcoin. Musk has been notably quiet on Twitter, but noted in the earnings call that he remains open to holding more Bitcoin in the future.
1. $1,450,000,000 (Dollar value of Bitcoin assets Jun 30 2021) / $35,000 (Price of 1 Bitcoin in USD Jun 30 2021) = 41,428
2. $936,000,000 (Dollar value of Bitcoin sale) / 31,071 (Estimated number of Bitcoin sold) = 30,124.
