Tesla, the US electric car manufacturer, released more details about why it invests in bitcoin (BTC). This is no small investment either, as Tesla currently holds 42,902 BTC making them the 2nd largest Bitcoin holder of all companies globally, with MicroStrategy the largest. However, it's worth noting that MicroStrategy is a company that exists to invest in digital assets.
These new disclosures on Tesla's belief in crypto come in their latest quarterly report filed with the SEC, where they state:
"In the first quarter of 2021, we invested an aggregate $1.50 billion in bitcoin. 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 our view of market and environmental conditions.
Digital assets are considered indefinite-lived intangible assets under applicable accounting rules. Accordingly, any decrease in their fair values below our carrying values for such assets at any time subsequent to their acquisition will require us to recognize impairment charges, whereas we may make no upward revisions for any market price increases until a sale. For any digital assets held now or in the future, these charges may negatively impact our profitability in the periods in which such impairments occur even if the overall market values of these assets increase. For example, in the first quarter of 2021, we recorded approximately $27 million of impairment losses resulting from changes to the carrying value of our bitcoin and gains of $128 million on certain sales of bitcoin by us."
Their crypto investments come up once again in the document, where companies are required to disclose any risks to the business. It's important to understand this section is where a company gives the absolute worst case scenario to investors. Here, Tesla included everything from being unable to make more batteries because of material shortages, to hackers being able to 'gain control of' their vehicles and the public panic it would cause.
So, with that tone in mind, they explained the risks they take by holding crypto, saying:
"In January 2021, we updated our investment policy to provide us with more flexibility to further diversify and maximize returns on our cash that is not required to maintain adequate operating liquidity, allowing us to invest a portion of such cash in certain alternative reserve assets including digital assets, gold bullion, gold exchange-traded funds and other assets as specified in the future. Thereafter, we invested certain of such cash in bitcoin. 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.
The prices of digital assets have been in the past and may continue to be highly volatile, including as a result of various associated risks and uncertainties. For example, the prevalence of such assets is a relatively recent trend, and their long-term adoption by investors, consumers and businesses is unpredictable. Moreover, their lack of a physical form, their reliance on technology for their creation, existence and transactional validation and their decentralization may subject their integrity to the threat of malicious attacks and technological obsolescence. Finally, the extent to which securities laws or other regulations apply or may apply in the future to such assets is unclear and may change in the future. If we hold digital assets and their values decrease relative to our purchase prices, our financial condition may be harmed."
In other words, fairly common fears like potential security threats, which have hit companies far more experienced in holding large amounts of crypto. Another risk highlighted is the the possibility of future government regulation, which could hurt the whole ecosystem if poorly implemented or too broad.
So far, even with the latest dips, Tesla is well into the profit zone. They acquired their Bitcoin in January 2021, when prices were as low as $29,000 and peaked at $34,000.
At the time of publishing, Bitcoin is trading at $38,350, meaning their profits are a minimum of $186,623,700.
So, where things currently stand, Tesla has no regrets.
Author: Mark Pippen
London News Desk
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