The price of Bitcoin won’t stop falling, which means Tesla‘s Bitcoin holding is now very likely below where the company purchased its position. If that’s the case, an impairment loss will be recognized in the electric vehicle maker’s coming second-quarter earnings report, unless prices recover.
Tesla shares were worth around $200 in mid-2020 when CEO Elon Musk began tweeting Bitcoin and Dogecoin (DOGE) memes in earnest.
Bitcoin’s ongoing surge amid these stock losses could imply that traditional investors were less willing to gamble on Bitcoin’s continued success than those in the crypto space. Bitcoin climbed in value for two more months before hitting its recent peak of $65,000, and then summarily crashed, eventually going on to record 52% losses before a strong rebound. Tesla’s bitcoin holdings helped generate profits in the first quarter, through the sale of 10% of them. But the investment is also exposing shareholders to the volatile cryptocurrency market.
Tesla said it must recognize “impairment charges” if bitcoin prices drop below their “carrying value” which “may adversely affect our operating results in any period.”
But it said, “gains are not recorded until realized upon sales.”
The rapid drop shows what a risky move it was for the carmaker to buy into the digital asset,” said David Kimberley, analyst at investing app Freetrade.
Tesla had briefly allowed customers to pay for cars using the cryptocurrency, before withdrawing that option, citing environmental concerns that hit Bitcoin prices.
Tesla’s failure to retain their gains from their Bitcoin exposure, and Elon Musk’s failure to move markets the way he used to, could be a sign that the crypto space is becoming immune to such corporate meddling (or that the weight of the current market crash is too much for even Musk’s influence to reverse).
Source: Yahoo Finance, Cointelegraph