Did Tesla Make Profit on its Bitcoin Investment?
The electric car maker Tesla sold off 75% of its bitcoin (BTC) holding for “a realized gain” in the second quarter, prompting speculations on how this investment went for the company. The sale is believed to have been made at a price of around USD 29,000, higher than the lows seen during the quarter.
In an earnings report released on Wednesday, Tesla revealed that it had offloaded bitcoin worth some USD 936m during the second quarter. The selling leaves the company with digital assets worth USD 218m, with the bulk of that likely to be bitcoin.
“[…] 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 USD 106 million cost to the [profit & loss],” said Tesla’s chief financial officer Zachary Kirkhorn during the earnings call that followed the release.
“A realized gain” would indicate that Tesla sold the bitcoin for more than it paid for it.
Among observers online, some still said that the bitcoin was likely sold at a loss. However, the overall result could be more or less flat when factoring in a gain made on a bitcoin sale Tesla made earlier.
According to various estimations, Tesla held around BTC 42,000 heading into the second quarter. In that case, after selling 75% of that, around BTC 10,500 are likely left in the company’s coffers. Moreover, the USD 936m proceeds from the sale would indicate a selling price of around USD 29,000 per bitcoin.
Tesla first added bitcoin to its balance sheet in February of 2021, when it bought USD 1.5bn worth of the digital currency. At the time, BTC traded in the USD 30,000 to USD 40,000 range. However, in the first quarter of 2021, Tesla sold 10% of the BTC holdings, claiming that the firm wanted to use BTC to boost its liquidity as and when needed.
The company does not account for bitcoin as a mark-to-market asset, which means that fluctuations in the bitcoin price only affect earnings when it is bought or sold.
In the earnings call, CEO Elon Musk reassured the market that the sale was not due to a loss of confidence in the digital currency, but rather that it came because of a need to raise cash. Musk said COVID-related shutdowns of Tesla’s Shanghai factory had increased uncertainty for the company, and that a stronger cash position was necessary.
He added that Tesla is “certainly open” to increasing its exposure to bitcoin in the future again. “It’s just that we were concerned about overall liquidity for the company given COVID shutdowns in China,” he said.
However, some speculate that Musk also had other reasons for selling off some of the company’s massive BTC holding:
"It makes sense that bitcoin would be considered as an option to sell given the macroeconomic backdrop of rising interest rates. However, Tesla’s decision will not sit well with Bitcoin maximalists, as it gives the impression to many institutions that BTC is not a suitable reserve asset or safe haven," Marcus Sotiriou, Analyst at digital asset broker GlobalBlock, said in an emailed comment.
However, according to Chris Terry, BPSAA (Blockchain Privacy, Security & Adoption Alliance) Board Member and VP Enterprise Solutions at SmartFi, the US-based open lending platform, on the contrary, the decision to sell BTC "proves the utility of bitcoin as a mature financial asset."
Also, according to Sotiriou, this decision to sell BTC "is an example of good risk management from the world’s richest man."
"Without their bitcoin sale, their net change in cash would have been negative USD 89m, which is not desirable, and bitcoin preceded to fall by around 40% after Tesla sold," he added.
Notably, Musk also said during the earnings call that the company has not sold any of its dogecoin (DOGE).
Tesla has never announced a purchase of DOGE, but it is known that the company accepts the meme coin as payment for some of its merchandise. It remains unknown exactly how much DOGE Tesla holds.
BTC fell as the news of Tesla’s bitcoin sale was released on Wednesday after market hours on Wall Street. At press time (09:20 UTC), the coin was down 2% for the past 24 hours to a price of USD 22,951.
At the same time, shares of Tesla were up 2.09% to USD 757.99 in pre-market trading.
"Bitcoin is now a global macro asset and as such is driven by forces much greater than Musk. Granted, the price of bitcoin did have a knee-jerk reaction to the news, but a healthy pullback was actually expected after 7 straight days of gains," Mikkel Morch, Executive Director at the cryptocurrency hedge fund ARK36, said in an emailed comment.
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(Updated at 12:46 PM UTC with a comment from Marcus Sotiriou. Updated at 13:39 UTC with comments from Mikkel Morch and Chris Terry.)