Tesla’s Bitcoin investment will shrink by $440 million

Tesla and their Bitcoin investment are going south. In their financial report for the second quarter of 2022, Tesla’s investment in BTC faced a decline of $440 million amid the negative trend in the crypto market.

Tesla Investment in Bitcoin

The value of Tesla’s bitcoin investment in the financial report for the second quarter of 2022 faces a decline of $440 million amid a negative trend in the crypto market that has not yet subsided.

The electric vehicle company led by Elon Musk previously bought $1.5 billion in bitcoin, based on financial statement records in the first quarter of 2021.

This is a step in an attempt to convert some of their cash reserves into the world’s number one cryptocurrency. In addition to Tesla, a number of public companies that have converted some of their cash reserves to Bitcoin include Michael Saylor’s MicroStrategy, Jack Dorsey-led Block Inc. to crypto exchange Coinbase.

Many Bitcoin betting companies have come under pressure in recent months, with the price of Bitcoin plummeting to $17,744.9 on June 19, 2022. This event is the first for Bitcoin since November 2020.

At the end of June, or the last day of the second quarter of 2022, the price of Bitcoin caused Tesla’s BTC investment to shrink to around $820 million.

A heavy blow to the crypto market

Tesla registered its bitcoin holdings worth $1.26 billion in the first quarter of 2022, while their market value was around $1.96 billion. However, accounting practices prevented Telsa from recording a return on its investment until it was sold.

That means Tesla will likely see a drop in its bitcoin holdings of about $440 million, or the equivalent of 7% of the company’s total annual profit in 2021.

Rising interest rates and inflation have dampened interest in Bitcoin, while the selling price has been hit by a series of crises in the crypto market, including the important players involved in it, ranging from the Terra Project, Celsius Network, Three Arrows Capital, Babel Finance, BlockFi, Voyager and CoinFLEX.

Tesla has lost 44% of its value this year amid widespread selling. All the while, Elon Musk’s company struggled to keep up with demand for Tesla. This is partly due to Covid-19 causing a lockdown in Shanghai, China; thereby shutting down the Gigafactory.

Tesla and their Bitcoin value breakdown

Tesla announced that it had purchased $1.5 billion worth of Bitcoin for the first time on February 8, 2021. The company can further diversify and increase returns by investing some of the company’s cash in alternative backup assets. These alternative backup assets include digital assets, gold bullion, gold exchange-traded funds, as well as other assets defined in the future.

Then in the Q1 2021 financial report released on April 26, 2021, Tesla explained that they sold some of their Bitcoin worth $272 million, bringing their holdings to $1.311 billion.

In its financial report for the second quarter of 2021, which ended on June 30, 2021, Tesla reported that the value of the bitcoins it owns is still equivalent to $1.311 billion. Tesla has not bought or sold any digital assets it owns during this period.

Entering the 3/2021 quarter, Tesla again did not increase or decrease its Bitcoin holdings. However, they must report a $51 million drop in the value of the bitcoins they own to reflect the drop in price at that time. This brings the Bitcoin value position they hold to the equivalent of $1.260 billion.

Realized Bitcoin Profits

In this regard, Tesla explained that digital assets are considered intangible assets with an unlimited life based on applicable accounting rules.

Therefore, when there is a reduction below Tesla’s book value for the asset after the purchase, this will require them to recognize the existence of a decline in value. Meanwhile, Tesla cannot make revisions to price increases until the sales take place.

For any digital asset owned now or in the future, these costs could negatively impact Tesla’s profitability in the period that such a decline in value occurs and even if the aggregate market value of those assets increases.

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