Black_background_logo_BitcoinWorld-removebg-preview
Bitcoin News

Tesla’s Bitcoin bet could result in significant losses

In the midst of a severe drop for bitcoin, Tesla’s large bet on the cryptocurrency is starting to appear like a mistake. While adding bitcoin (BTC-USD-14.6%) in early 2021 seemed like a good idea for the rest of the year and even into early 2022. The tables have changed dramatically in recent months. Bitcoin’s price has dropped by about 50% in the current quarter. Thus it indicates that Tesla’s upcoming quarterly report will be disappointing.

The bitcoin issue adds another tailwind to the Austin-based automaker. It grapples with a number of negative consequences, with a decrease of about 50% year over year and down more than 7% on Monday.

In the first quarter of 2021, the company invested $1.5B in bitcoin. However, there was a catch. Under applicable accounting standards, digital assets are classified as indefinite intangible assets. As a result, any drop in the fair value of assets should be recorded as an impairment charge. Whilst an increase in their value should not be recorded as a gain.

However, this upward trend proved to be fleeting. After a time of stumbling, raging inflation and macroeconomic pressures from global events triggered a massive selloff in equities.

While bitcoin has long been pitched as a non-correlated asset that may be used to protect against inflation. Its value has fallen as inflation has gained popularity.

Quarterly Effects

In yet another ironic twist, the currency, which was created as a new mechanism to trust and verify transactions, has been severely harmed by opaque “stablecoins” and reckless exchange and lending platform conduct.

Bitcoin has sold out dramatically as a result of all of these factors. It leaves the remaining 38,000 bitcoins underwater on Tesla’s balance sheet. Overall, this would suggest a loss of over $450M on the remaining investment.

Of fact, unlike other companies like Microstrategy that maintain huge sums of bitcoin on their balance sheets, Tesla treats bitcoin as a sideshow. Vehicle deliveries and profits on those vehicles are plainly crucial KPIs to track as a developing automaker.

This, however, could be risked as the company’s primary growth area, China, faces severe supply chain constraints. According to a leaked e-mail from Elon Musk, the second quarter was a “really tough quarter” because to country limits and the need to raise production towards the end of June to compensate for the difficult quarter.

Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Crypto is not a legal tender and is subject to market risks. Readers are advised to seek expert advice and read offer document(s) along with related important literature on the subject carefully before making any kind of investment whatsoever. Crypto market predictions are speculative and any investment made shall be at the sole cost and risk of the readers.