Tesla’s Bitcoin Strategy Is Working, Annual Report Suggests

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In brief

Tesla first revealed it bought Bitcoin almost exactly one year ago.
The company’s annual report shows the overall financial return has been worth it so far.

On Tuesday, it will be one year since Tesla first revealed it bought $1.5 billion worth of Bitcoin. The news sent the markets into a tizzy and made CEO Elon Musk, whose tweets can trigger billion dollar price swings, one of the most influential figures in crypto.

Now, one year later, it’s worth asking: Tesla’s influence on the crypto markets aside, have the Bitcoin purchases been good for the company?

The short answer is “yes.” On Monday, Tesla published its 10-K, a detailed annual report that all public companies must file with the SEC.

The report—some details of which have been disclosed in quarterly filings—states that, as of December 31, Tesla had made $128 million in profit by selling some of the Bitcoin it bought early last year, but that it has also recorded a loss of $101 million on its position.

At first blush, this suggests that Tesla’s dabbling in Bitcoin has earned it a net profit of $27 million. But due to the quirky accounting rules surrounding crypto assets, the story is more complicated than that—in a way that benefits Tesla.

Specifically, those accounting rules mean that companies must record a so-called impairment loss if the price of Bitcoin dips below the purchase price—even if the price shoots back up again. Meanwhile, even if the price shoots through the roof, a company can’t report a gain unless they sell the Bitcoin.

All of this obscures the true value of a company’s crypto holdings, especially in a year like 2021 when prices went up. Fortunately, Tesla makes this clear in the 10-K when it notes the fair value of its Bitcoin was worth nearly $2 billion as of December 31—which means the company’s Bitcoin position was up around $500,000 million (and that’s on top of the $128 million it make from selling some last March).

Here’s a key paragraph from the report, which not only states the value of Tesla’s Bitcoin holdings, but suggests the company is sticking with its new policy, introduced a year ago, of adding non-cash assets (such as crypto) to its balance sheet:

“We continue adapting our investment strategy to meet our liquidity and risk objectives, such as investing in U.S. government and other marketable securities, digital assets and providing product related financing. In the first quarter of 2021, we invested an aggregate $1.50 billion in bitcoin. The fair market value of our bitcoin holdings as of December 31, 2021 was $1.99 billion. We believe in the long-term potential of digital assets both as an investment and also as a liquid alternative to cash.”

That $1.99 billion figure reflects the value of Bitcoin on December 31, when the price was around $46,000, so Tesla’s holdings as of today would be slightly less given the current $43,000 price—but still well above the original purchase price.

Some Tesla shareholders might prefer that Musk stop dabbling in crypto and focus instead on shipping the cars that are the company’s main business. But from a pure financial perspective, the annual report shows that the Bitcoin purchases have been an overall boon—meaning crypto is likely a permanent part of Tesla’s future.

https://decrypt.co/92275/tesla-bitcoin-annual-report

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