Tesla may have to write off a portion of its assets as a result of the Bitcoin market’s poor performance this quarter.
Tesla invested a massive $1.5 billion in Bitcoin in February of this year, according to reports. According to CNBC, that investment could come back to bite them as a result of the recent price drop in Bitcoin.
According to CNBC’s Kate Rooney, Tesla may be forced to liquidate its Bitcoin assets at a loss in order to avoid going bankrupt.
Tesla announced its $1.5 billion investment in the company in February. According to guidelines established by the Securities and Exchange Commission (SEC), holdings of any intangible asset, such as Bitcoin, must be recorded as an impairment charge if the asset’s value falls below the amount paid for it.
As soon as the news of Tesla’s financing became public, Bitcoin’s value rose to around $38,000. Tesla’s stock has since fallen to a low of $31,000, resulting in an impairment charge being recorded on the company’s balance sheet.
To make matters worse, Tesla is unable to mark up the value of its Bitcoin in the event that the value of the cryptocurrency climbs after the investment has been made. However, it is only possible if and when Tesla decides to sell its Bitcoin holdings.
“Analysts I’ve spoken with are expecting Tesla to report a loss of between $25 million and $100 million on paper in the next quarter,” Rooney said, adding that it is not a precise science: “It’s like solving a Rubik’s cube to figure this out.”
As Rooney points out, “The big thing crypto and analyst communities are watching: did Tesla sell any Bitcoin in the quarter to make up for some of those losses?”
According to CEO Elon Musk, Tesla’s Bitcoin holdings were down by 10% in the first quarter of this year, and the company did so “to prove liquidity of Bitcoin as an alternative to holding cash on balance sheet.”
This quarter of 2021 has been particularly volatile for corporations with exposure to Bitcoin, with the price of the cryptocurrency rising to an all-time high of more than $63,000 and falling to lows of less than $30,000 in the course of the quarter.
Generally speaking, it has been one of the most difficult quarters in the history of the cryptocurrency, with Bitcoin’s returns decreasing by 40 percent from their peak of 102 percent in the previous quarter.
Unfortunately, this is bad news for the expanding number of corporations who store Bitcoin in their corporate treasuries; in addition to Tesla, other companies that own Bitcoin include MicroStrategy and Square.
