Elon Musk and Tesla (TSLA) bring very bad news for Bitcoin.
And it must be said that the timing is bad as the cryptocurrency market tries to rebound after months of falling prices, which saw more than $2 trillion evaporate in just nine months.
Bitcoin, for example, has lost more than 67% of its value since hitting an all-time high of $69,044.77 on Nov. 10, according to data firm CoinGecko. Ether, the second-largest digital currency by market, has fallen 69% from its November all-time high of $4,878.26 as well.
But in recent days, prices seem to be stabilizing. However, it is possible that the news just announced by Tesla, the manufacturer of electric vehicles, will put an end to this attempt to rebound. As part of the publication of the earnings for the second quarter ending on June 30, Musk's firm indicates that it has sold 75% of the Bitcoins held in its balance sheet.
Tesla Sold 75% of Its Bitcoins
"We have converted approximately 75% of our Bitcoin purchases into fiat currency," the maker of the Model Y and Model 3 said in a press release. "Conversions in Q2 added $936M of cash to our balance sheet."
Tesla still held about 42,000 Bitcoins in its balance sheet for a value of $1.26 billion at the beginning of the second quarter, according to a SEC filing. If the group therefore sold 75% and collected $936 million from this operation, it therefore appears that the company sold its Bitcoins at an average price of $29,000. Bitcoin ended the second quarter around $19,400 per unit. From April 1 to June 30, which equates to the second quarter, the king of cryptocurrencies lost at least 58% of its value. Basically, by selling its Bitcoins at an average price of $29,000, Tesla was able to avoid a large impairment charge.
The company did not provide the amount of the impairment charge, just saying: "Bitcoin impairment." But the company based on the data it provided it looks like it lost $106 million overall because Tesla said it still has Bitcoin worth $218 million.
It's hard to say whether Tesla lost money investing in Bitcoin, because, in 2021, the prices of the digital currency had reached levels never seen before.
The sale of 75% of its Bitcoins is a spectacular about-face on the part of Tesla, which still said it believed in cryptocurrency in a document filed with the Securities and Exchange Commission on April 25.
"We believe in the long-term potential of digital assets both as an investment and also as a liquid alternative to cash," the company wrote in the filing.
Company Had Warned
But, the company had warned that: "As with any investment and consistent with how we manage fiat-based cash and cash-equivalent accounts, we may increase or decrease our holdings of digital assets at any time based on the needs of the business and our view of market and environmental conditions."
"Digital assets are considered indefinite-lived intangible assets under applicable accounting rules. Accordingly, any decrease in their fair values below our carrying values for such assets at any time subsequent to their acquisition will require us to recognize impairment charges, whereas we may make no upward revisions for any market price increases until a sale."
Tesla continued: "For any digital assets held now or in the future, these charges may negatively impact our profitability in the periods in which such impairments occur even if the overall market values of these assets increase. For example, in the first quarter of 2021, we recorded approximately $27 million of impairment losses resulting from changes to the carrying value of our bitcoin and gains of $128 million on certain sales of bitcoin by us."
Tesla invested $1.5 billion in virtual currency on Feb. 8, 2021, and said it was beginning to accept it as payment for buying Tesla cars.
The move came days after Chief Executive Elon Musk temporarily changed his Twitter mini-description to simply #bitcoin. The announcement was a mark of confidence in cryptocurrencies
Bitcoin prices then jumped past $42,000.
Tesla claimed that this investment in bitcoin was aimed at diversifying its sources of liquidity and gaining flexibility in order to be able to largely remunerate its shareholders.
But a few months later, in May 2021, Tesla indicated that it no longer accepted bitcoin as a means of payment. It cited as a reason that it wanted to preserve the environment since minting of bitcoins consumes enormous amounts of electricity.
According to a Nature study, if nothing is done, China's IT mines will produce 130.5 million metric tons of carbon dioxide emissions by 2024, nearly the total annual greenhouse-gas emissions from greenhouses in Italy or Saudi Arabia.
Musk recently said he was personally buying meme coin Dogecoin despite the dip.
