Tesla Reports $23 Million Impairment From Its Bitcoin Holdings
Tesla, Elon Musk’s electric car manufacturer, released its quarterly earnings results, reporting more than $1 billion in profits for the first time since its launch.
It’s not all fun and games, though. To the delight of Elon’s crypto Twitter fans-turned-haters, Tesla’s investment in Bitcoin made it $23 million in losses after the markets crashed during the second quarter of 2021.
Oddly enough, the only mention of bitcoin appears in the “profitability” section of the report, mentioning the loss.
“Positive impacts were partially offset by growth in operating expenses including increased SBC, Model S/X ram (negative margin in Q2), additional supply chain costs, lower regulatory credit revenue, Bitcoin-related impairment of $23M and other items.”
Tesla Lost $23 Million… But Did It?
The $23 million loss might seem digestible considering Tesla invested about $1.5 Billion in Bitcoin. An almost 50% drop from its ATH could certainly trigger concern among investors, especially those who fear for a continuation of the downtrend that could accelerate upon Bitcoin’s drop below $30K.
However, this stat may be due more to the exploitation of a legal loophole than to an actual monetary loss.
According to the US norms, accountants must record the value of their cryptocurrency investments at the time they are procured. If cryptocurrencies go up in price, nothing happens as long as the company hodl. The business only has to record the transaction in case of a sale. However, when prices go down, the company must record the decrease in its investment as an impairment charge.
Therefore, even though sales gains may be recorded, the tax incidence may be softened by the declines during the time the company hodled its tokens.This is due to the classification of cryptos as an “indefinite-lived intangible asset.”
In short, Elon haters probably don’t have much to celebrate, as it’s really all about a technicality… Although on second thought, $22 million seems like spare change for the world’s wealthiest man.
The Musk Effect
Tesla’s Bitcoin purchase was crucial to the Bitcoin price history.
After a brief exchange of tweets between Elon Musk and MicroStrategy CEO Michael Saylor, Tesla announced a massive purchase that put it on the podium of publicly traded companies with the most significant Bitcoin holdings.
As a result, the price of bitcoin skyrocketed at a frenetic pace, reaching an ATH in April 2021. At that point, Tesla had made more money with Bitcoin than it did with its entire car production.
However, another Tesla decision contributed almost decisively to killing this trend, driving bitcoin to its most significant decline since late 2017. The company’s announcement to stop taking payments in Bitcoin because of its environmental implications caused a panic in the markets that ended with a nearly 50% drop as the days passed.
However, recently Elon Musk acknowledged that Tesla could accept Bitcoin again if the network becomes environmentally friendly enough. After an online conference with the CEO of Twitter and a dose of optimistic rumors related to the possibility of Amazon accepting Bitcoin, cryptocurrencies had a significant rally today.
It seems that the “Musk Effect” is still alive after all.