Tesla, led by Elon Musk, confirmed that it purchased about $ 1.5 billion in bitcoin in January and expects to start accepting it as a payment in the future.
Artur Widak | NurPhoto | Getty Images
Early last year, Tesla invested $1.5 billion in bitcoin, banking on what the electric car maker called the digital currency's "long-term potential." The company has already sold three-quarters of its holdings.
"As of the end of Q2, we have converted approximately 75% of our Bitcoin purchases into fiat currency," Tesla said in its second-quarter earnings statement on Wednesday. The company said those sales added $936 million in cash to its balance sheet.
It's a rapid retreat for Tesla and CEO Elon Musk, who was a heavy crypto booster during last year's runup, frequently tweeting about various digital currencies. The price of bitcoin has lost half its value in the past four months during what's been dubbed a "crypto winter."
For Tesla, the fair market value of its bitcoin holdings reached $2.48 billion in the first quarter of 2021 and ended the year at about $2 billion. The company didn't say at what price it sold or provide the size of its impairment, but bitcoin started the second quarter at close to $46,000 and ended below $19,000.
Analyst Brian Johnson at Barclays estimated earlier this week that Tesla would see a $460 million bitcoin-related impairment given the selloff.
"The reason we sold a bunch of our bitcoin holdings was that we were uncertain as to when the Covid lockdowns in China would alleviate so it was important for us to maximize our cash position," Musk said in an earnings call on Wednesday. "This should be not taken as some verdict on bitcoin," he said, adding that Tesla is open to increasing its crypto holdings in the future
However, when asked about bitcoin's potential as an inflationary hedge on the earnings call, Musk said that Tesla's main goal is to accelerate the transition to sustainable energy, and called bitcoin "a sideshow to a sideshow."
In the first quarter of 2021, when Tesla went big on bitcoin, the company said the decision was a matter of becoming more flexible, diversifying and picking up returns from its cash holdings. The company quickly sold 10% as the currency ran up, contributing $101 million of profit in the period.
Kirkhorn said at the time that the company's intent was "to hold what we have long term and continue to accumulate Bitcoin from transactions from our customers as they purchase vehicles."
In May of last year, Musk said Tesla would stop accepting bitcoin for car purchases because of the environmental impact of mining, but he added that the company "will not be selling any bitcoin." A week later, he tweeted emojis indicating the company has "diamond hands" when it comes to bitcoin investing, and he credited "our master of coin."
A lot can change in a year.
— CNBC's Lora Kolodny contributed to this report.
WATCH: We're more concerned about Tesla's quarterly results, this time, says CFRA's Garrett Nelson
watch now
VIDEO3:0803:08
We're more concerned about Tesla's quarterly results, this time, says CFRA's Garrett Nelson
I'm an expert in cryptocurrency and blockchain technology with a deep understanding of the market dynamics and the intricacies of major players like Tesla. My knowledge extends to the developments and strategies employed by prominent figures such as Elon Musk in the crypto space. Let me substantiate my expertise by delving into the concepts highlighted in the provided article.
Tesla's Bitcoin Investment:
In January of a previous year, Tesla, under the leadership of Elon Musk, made a groundbreaking move by investing $1.5 billion in Bitcoin. This demonstrated Tesla's recognition of the "long-term potential" of digital currencies, marking a significant shift in traditional corporate treasury management.
Bitcoin Holdings and Sales:
As of the end of the second quarter, Tesla confirmed that it had converted approximately 75% of its Bitcoin holdings into fiat currency, adding $936 million in cash to its balance sheet. This strategic move came amid what has been referred to as a "crypto winter," with the price of Bitcoin experiencing a significant decline over the past four months.
Fair Market Value and Impairment:
During the first quarter of 2021, the fair market value of Tesla's Bitcoin holdings reached $2.48 billion, but by the end of the year, it had reduced to about $2 billion. The company did not disclose the specific details of its sales, including the selling price or the extent of impairment. Analysts, such as Brian Johnson at Barclays, estimated a $460 million bitcoin-related impairment based on the market selloff.
Reasons for Selling Bitcoin:
Elon Musk clarified during an earnings call that Tesla's decision to sell a significant portion of its Bitcoin holdings was driven by uncertainty surrounding the Covid lockdowns in China. The company aimed to maximize its cash position in light of these uncertainties. However, Musk emphasized that this move should not be interpreted as a negative verdict on Bitcoin, expressing openness to increasing crypto holdings in the future.
Tesla's Stance on Bitcoin:
While Tesla initially embraced Bitcoin for transactions and holdings, Musk announced in May of the same year that the company would no longer accept Bitcoin as payment for car purchases due to environmental concerns associated with mining. Despite this, Musk asserted that Tesla had no intention of selling any of its existing Bitcoin holdings. This mixed messaging reflects the dynamic nature of Tesla's relationship with the cryptocurrency market.
Bitcoin as an Inflationary Hedge:
When questioned about Bitcoin's potential as an inflationary hedge during the earnings call, Musk downplayed its significance, referring to Bitcoin as "a sideshow to a sideshow." He reiterated that Tesla's primary focus is on accelerating the transition to sustainable energy.
In summary, Tesla's journey in the crypto space has been marked by significant investments, strategic sales, and a nuanced approach influenced by market conditions and corporate priorities. The story provides insights into the evolving dynamics between traditional corporate finance and the rapidly changing world of cryptocurrencies.
