A filing with the U.S. Securities and Exchange Commission (SEC) revealed that Tesla, Inc. acquired a total of $1.5 billion in bitcoin during 2021, recording a $101 million impairment loss and $128 million in gains during the year from their BTC holdings.
Tesla’s Bitcoin Holdings
In their 10-k form for the fiscal year of 2021, Tesla stated that the company holds and “may acquire digital assets that may be subject to volatile market prices, impairment and unique risks of loss.”
Tesla updated its investment policy in January last year to be able to “diversify and maximize returns”, which allowed them to invest a portion of the company’s cash –that is not required to keep “adequate operating liquidity”– in alternative reserve assets like cryptocurrencies, gold bullion, and others.
“We believe in the long-term potential of digital assets both as an investment and also as a liquid alternative to cash. As with any investment and consistent with how we manage fiat-based cash and cash equivalent accounts, we may increase or decrease our holdings of digital assets at any time based on the needs of the business and on our view of market and environmental conditions.”
$1.5 billion of said cash destined to alternative reserve assets was invested in bitcoin in the first quarter of 2021. These holdings reached a fair market value of $1.99 billion by December 31, 2021, as BTC closed the year trading below $43,000. The filing further noted that the company had started to accept bitcoin as a form of payment but suspended the activity in May citing environmental concerns.
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Risk And Volatility
The filing describes digital assets as a “relatively recent trend” with unpredictable long-term adoption by investors, consumers, and businesses, adding that the high volatility, risks, malicious threats, and uncertainties surrounding them could persist in time.
It also added that is unclear how securities laws and other regulations could apply in the future, thus digital assets might be affected by unforeseen changes, and the company’s holdings could decrease in value.
“Moreover, there is no guarantee that future changes in GAAP will not require us to change the way we account for digital assets held by us.”
Regarding impairment charges, the company notes that they recorded approximately $101 million of impairment losses in 2021 from changes in the value of Bitcoin and $128 million in gains from sales of bitcoin holdings in March 2021. The digital coin’s value had fallen to $30,000 in July as investors responded with fear over China’s ban on cryptocurrencies, but then rallied over $68,000 by the end of November.
As CNBC explained, Tesla does not account for Bitcoin as a mark-to-market asset, thus a slump in the price should not compromise the company’s earnings unless they had decided to sell off a portion of their holdings at the time.
Furthermore, in Telsa’s 2022 outlook it is stated that they may increase their digital assets holdings at any time viewing “the needs of the business and our view of market and environmental conditions” as they continue to adapt the investment strategy to meet liquidity and risk objectives.
Tesla added that “digital assets may be subject to volatile market prices, which may be unfavorable at the times when we may want or need to liquidate them.”
Moreover, the company will supposedly allow Bitcoin as a form of payment again “when there’s confirmation of reasonable (50%) clean energy usage by miners with a positive future trend,” CEO Elon Musk had tweeted.
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