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Tesla’s (NASDAQ: TSLA) big bet on Bitcoin (BTC-USD) is starting to look like a mistake in the midst of a violent crash for cryptocurrencies.
While adding Bitcoin (BTC-USD -14.6%) in early 2021 seemed like a wise decision throughout the year and even in early 2022, the tables have changed quite quickly in recent months. The price of Bitcoin has specifically fallen a little more than 50% in the current quarter, which is a bad omen for Tesla’s next quarterly report (TSLA -7.1%).
With a 50% drop in shares so far, a drop of more than 7% on Monday, the Bitcoin problem adds another headwind, as a number of adverse impacts affect the carmaker. ‘Austin.
Buy in the bullish market
In the first quarter of 2021, the company invested $ 1.5 million in bitcoins in a new addition to its balance sheet.
“We believe in the long-term potential of digital assets as an investment and also as a liquid alternative to cash,” the company said at the time.
However, there was an issue where digital assets are considered “intangible assets of indefinite life according to applicable accounting standards.” Therefore, any decrease in the fair value of assets should be recognized as an impairment charge, while an increase in its value is not reflected in the same way as a gain.
The exact purchase prices are unknown, but Bloomberg estimated a purchase price of about $ 34.7,000 for Bitcoin for the initial purchase. The automaker also sold about 4,800 Bitcoin for $ 272 million in the same quarter when it unloaded some Bitcoin for more than $ 50,000. Reaching a high of close to $ 70,000 per coin, buying Tesla (TSLA) in the early 2021 bullish market seemed like a clever move from tech-savvy CEO and meme lover Elon Musk.
Correlation, causation and quarterly impact
However, this upward trend was transient.
After a period of hesitation, roaring inflation and the added macroeconomic pressure of geopolitical events led to significant equity sales. While Bitcoin has long been billed as an uncorrelated asset that can function as a hedge of inflation, it has actually crashed just as inflation has picked up strength. In another ironic twist, the currency that was formulated as a new way to trust transactions and verify work has been hit hard by opaque “stable currencies” and the rude behavior of exchanges and lending platforms.
As all these trends unfold, Bitcoin has sold strongly and has left the remaining 38,000 Bitcoin on the Tesla balance sheet (TSLA). Bitcoin had a trend close to $ 22,700 amid a sustained sell-off on Monday evening, implying a loss of approximately $ 12,000 per coin in Bloomberg price estimates. In total, this would suggest a loss of more than $ 450 million in the remaining investment. Since most of Bitcoin’s fall from its previous highs has been since April 1, much of this loss is likely to be recognized in Tesla’s quarterly report July.
Of course, unlike other companies that have significant amounts of Bitcoin on their balance sheet like MicroStrategy, Bitcoin is a kind of side show for Tesla. As a growing car manufacturer, vehicle deliveries and the margins of these cars are clearly the important metrics to control.
However, this can also be questioned, as the company’s key growth market in China is under strong supply chain pressure. According to a leaked email from Elon Musk, the second quarter was a “very tough quarter” due to the country’s limitations and a production boost is needed in late June to improve the difficult quarter.
In the end, the Bitcoin issue adds another headache to a quarterly report that is likely to be incredibly noisy with Elon Musk’s Twitter purchase proposal, a division of shares, China blockades, sexual harassment allegations against the CEO, autopilot issues and more adding to it. to a quarter already challenging for carmakers.
Read more about Tesla’s second-quarter earnings expectations.