Tesla released its first quarter 2021 earnings earlier this week. Among other things, the document contains interesting information about the company’s investments in Bitcoin.
The electric car maker disclosed $ 272 million in revenue and $ 101 million in profits from its $ 1.5 billion BTC investment. And although many cryptocurrency lovers saw this as almost a betrayal, there is no reason for concern here. In addition, the company will continue to store bitcoins, which customers will use to pay with it. Let’s talk about the situation in more detail.
Recall that at the beginning of this year, Elon Musk publicly announced Tesla’s major investment in the main cryptocurrency. The amount of investments exceeded a billion dollars, which indicated the serious faith of the manufacturer and its management in the blockchain asset. It is not difficult to understand this attitude: after all, Bitcoin is the first decentralized asset, the capitalization of which exceeded a trillion dollars. That is, it was possible to achieve this without money for marketing, any head office and other attributes of modern giants.
In addition, the supply of bitcoins is limited to 21 million units, which means that it will not work to get additional coins above this threshold. Most importantly, the last BTC will be mined around 2140, so the world has yet to get to know the real shortage of free coins.
Despite all the benefits of cryptocurrency, Tesla sold roughly 10 percent of its Bitcoin balance. At the same time, the company does not plan to tie up with the cryptocurrency in general.
Why Tesla sold cryptocurrency
According to the head of Tesla Elon Musk, this step was made “in an attempt to test the liquidity of Bitcoin as an alternative asset on the company’s balance sheet.” This means that Tesla’s management wanted to make sure that bitcoins could supposedly be sold quickly and easily. Nevertheless, the volume of cryptocurrency at the disposal of the company was huge, which means that such doubts are easy to understand – especially if the representatives of the giant’s management had not encountered this type of asset before.
Tesla CFO Zack Kirkhorn noted that the company plans to continue to keep BTC on its balance sheet while adding additional coins through the sale of its electric vehicles. Accordingly, if a client buys a car for bitcoins, they will remain at the company’s addresses. Here is a quote from Zach, in which he shared his impressions of what happened. The cue is from Decrypt.
From a corporate treasury perspective, we are very happy with how high liquidity is in the cryptocurrency market.
Accordingly, the sale went smoothly, and the liquidity of the cryptocurrency industry was once again confirmed. In this case, we are talking about the fact that Tesla was able to sell the required amount of bitcoins without time delays and a significant drop in the rate. After all, an asset is considered illiquid when they do not want to buy it at the usual price – and this did not happen here.
Bitcoin’s price rose steadily throughout the first quarter, fueled by Tesla’s investment itself, as well as investments from cloud software company MicroStrategy and payments platform Square, led by Twitter creator Jack Dorsey. At the beginning of the year, Bitcoin cost about 32 thousand dollars, but now its price exceeds 54 thousand dollars.
The Tesla news sparked a bit of panic among traders and investors. Some believed that the electric car manufacturer allegedly got rid of a lot more coins. However, Elon Musk himself hastened to reassure everyone: bitcoins were sold only from the company’s balance, and he himself remains a staunch supporter of cryptocurrency and continues to hold BTC as a personal investment. Here is his quote from Twitter.
I didn’t sell my bitcoins. Tesla sold 10 percent of its digital assets, essentially to prove the liquidity of BTC as an alternative to keeping cash on a balance sheet.
Yet Tesla is a public company, and its shares are traded on stock exchanges. Thus, management has a responsibility to the holders of its securities and the board of directors. They cannot simply hold the cryptocurrency despite the course and market behavior. At the same time, the giant’s test of the blockchain asset market has definitely passed.
We checked the actual data: even at today’s bitcoin rate, Tesla’s initial investment went from $ 1.5 billion to the equivalent of $ 2.6 billion.
In terms of strategic management of the company, Tesla’s decision was quite expected. Thus, the liquidity of the market was really checked on the part of the seller, and part of the profit was fixed against the background of the rise in the price of BTC. In addition, the fact that Tesla is ready to continue accumulating Bitcoin on its balance sheet is a prerequisite for the continuation of the global bullish trend in the crypto market and the massive adoption of cryptocurrency.
We believe that in the end, the situation with the sale of bitcoins by Tesla turned out to be positive, and not vice versa. First, the auto manufacturer’s management was convinced of the liquidity and maturity of the coin market. Accordingly, interaction with cryptocurrencies will continue. Secondly, the employees of the giant shared their experience with other companies and, in fact, endorsed Bitcoin as an investment tool. And this is a reason to contact the coins for those who have not yet done so.