Tesla, an American electric vehicle maker has reportedly sold 75% of its Bitcoin reserves, based on financial statements released on Wednesday. The news was first reported by Coin Telegraph and within a few hours, it became the top trend on Crypto Twitter (CT) with many crypto influencers and enthusiasts sharing their views in regards to the matter.
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Tesla invests in Bitcoin
The electric vehicle maker and tech company led by well-known crypto enthusiast and one of the world’s richest men Elon Musk invested $1.5 billion in the number one cryptocurrency in 2021. This was revealed via a filing with the United States Securities and Exchange Commission in February 2021. Also, Tesla began accepting Bitcoin payments for its vehicles in March 2021 but later halted the decision citing environmental concerns related to Bitcoin mining.
Tesla Bitcoin reserves
Tesla held about 42,000 bitcoin in its reserves heading into Q2 of 2022. The company first sold 10% of its total Bitcoin reserves in March 2021 and recorded a net profit of $128 million after the sale. Elon Musk explained that the sale was to prove the liquidity of BTC as an alternative asset to holding cash on its balance sheet, which was quite spot on. Now the big question remains, why did Tesla sell its Bitcoin? Let’s find out next.
Why did Tesla sell its Bitcoin?
Tesla like any company has to make sure its factories and operations keep running optimally despite the Covid19 lockdown in China, rising inflation, and war in Ukraine. We were able to narrow down why Tesla sold its Bitcoin to the following two reasons:
1. Maintaining a positive balance sheet: having positive books is the goal of any company as this would keep operations running optimally, and in return make investors and board members happy even if it comes at a price.
Elon Musk like any CEO had to make the tough call to liquidate 75% of Tesla’s Bitcoin reserves at a time the cryptocurrency market was facing one of its worst bear cycles. This added $936 million of FIAT money to Tesla’s balance sheet further maximizing its cash position.
Taking a look at the electric vehicle maker statement of cash flow below shows it would have had negative cash flow if it didn’t sell 75% of it Bitcoin reserves in Q2 of 2022.
2. Bitcoin is a liquid alternative asset: Tesla initially bought Bitcoin as an alternative asset to holding cash on its balance sheet. Elon Musk proved this by selling 10% of Tesla’s BTC reserves in March 2021. This further 75% sale of Tesla’s Bitcoin goes further to cement the fact that BTC is a liquid alternative asset and also the Bitcoin market is liquid. Therefore, corporations looking to diversify into digital assets as part of their reserves can easily enter and exit their positions.
Based on the company’s present balance sheet, Tesla still holds $218 million worth of digital assets including Bitcoin and Dogecoin in it reserves as can be seen in the image below.
It is safe to say that Tesla sold 75% of its Bitcoin reserves because it views Bitcoin as a liquid alternative asset in place of holding cash on its balance sheet.
Elon Musk still believes in the potential of Cryptocurrencies as alternative assets. Musk said Tesla had not sold any of its Dogecoin and still holds 25% Bitcoin in the company reserves. He also made it clear that Tesla is open to boosting its bitcoin exposure in the future. For us at QryptoCentral we believe the sale further cements the fact that:
- The Bitcoin market is liquid enough for it to absorb $900m+ sale without crashing to zero.
- Cryptocurrencies can be held as reserves or alternative assets like Gold, Diamond, etc.
- More corporations will follow in the footsteps of Tesla and MicroStrategy to buy digital assets shortly