The ad stunned the entire coding ecosystem. On Wednesday, while presenting his quarterly results, Elon Musk returned to the reasons his company gave up its assets.
Thunderbolt in the crypto ecosystem. Telsa, owned by billionaire Elon Musk, announced on Wednesday that it sold 75% of its bitcoin during the second quarter of 2022, worth about $936 million, reducing its current holdings to $218 million.
The company has had approximately 42,902 bitcoins in its vault since January 2021, compared to 10,725 bitcoins today. According to the Bitcointreasuries website, which lists companies or countries that hold bitcoin in their vaults, Telsa has moved from second place in the ranking after giant Microstrategy, to fourth place, overtaken by Galaxy Digital and Voyager Digital.
‘Uncertainty from Covid restrictions’
The company admitted that the decline in the value of Bitcoin (which has lost more than 70% of its value since its peak last November at $69,000) hurt its profitability in the second quarter. During a conference call about his quarterly results, Elon Musk clarified that decision.
“The reason we sold off 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. Uncertainty about restrictions linked to Covid in China,” Elon outlined 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 made it clear that he remains open to increasing his bitcoin holdings in the future. “This should not be seen as any judgment on Bitcoin.” […] And we didn’t sell any of our Dogecoin.” As a reminder, since January, his company accepts payments in this cryptocurrency for certain services.
On social networks, this announcement was the subject of many reactions, particularly from one of its competitors, Michael Saylor, president of Microstrategy which has 130,000 bitcoins in its vault.
At this point, Elon Musk has not spoken on the social network.
A decision that goes against its long-term strategy?
In the bleak macroeconomic context, with Cryptocurrency market in a complete bear marketAll companies that invested part of their money in bitcoin faced record losses.
In mid-June, during the second crypto meltdown, Telsa and Microstrategy lost nearly $1.5 billion due to a drop in bitcoin, more than $900 million respectively for Microstrategy and more than $500 million for Tesla. Its losses were to be assessed in its upcoming financial results. Was this bitcoin sold to make up for its losses? The question may arise.
Telsa’s decision goes against Tesla’s long-term bitcoin strategy. In fact, according to its latest quarterly report dating back to April, Elon Musk revealed that it has neither bought nor sold bitcoins held since the beginning of 2021.
Thus, the value of his bitcoin holdings has been the same since September at $1.26 billion. This does not mean that there have been no movements in cash flow since Tesla invested $1.5 billion in bitcoin in early 2021.
In fact, in detail, the automaker’s latest quarterly report specifies that Tesla only bought crypto assets (“digital assets”) during the first quarter of 2021 (for $1.5 billion for that) and nothing since then. On the other hand, there is mention of $272 million in crypto assets sales in the first quarter of 2021. Since then, these assets have not been sold.
“During the fiscal year ending December 31, 2021, we bought and received $1.50 billion worth of bitcoin. […] We recorded a $101 million impairment on this digital asset. We also made a gain of $128 million from the sale of a portion of our holdings in March 2021,” Tesla admitted in a financial filing.
The company had indicated 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. Tesla said digital assets are considered “intangible assets with an indefinite life under applicable accounting rules.”
“Therefore, any decline in its fair value below its book value at any time after the acquisition would require us to record an impairment fee, while we cannot make any upward revisions to any increase in the market price until the sale,” says Tesla.