Tesla was the center of attention when it bought 1.5 billion dollars of bitcoin last year. One year after the purchase, CEO Elon Musk announced that the company had sold 75% of its bitcoin position, valued at 936 million dollars. In the quarterly investors call, Musk cited the COVID-lockdowns in Chine as the main reason for the sale. Tesla found itself forced to increase its cash positions after the closing of a factory in Shanghai and uncertainty around further lockdowns.
Bitcoin’s liquidity makes it an excellent way to increase a company’s cash position. It’s not the first time Tesla sells part of its bitcoin holdings; in April of 2021, the position was trimmed by 10% after a rise in the bitcoin price. According to Musk, this was done to test the liquidity of the currency. This sale compensates for a part of Tesla’s loss. The average selling price of this recent sale is 28.888 dollar per BTC. Musk said that this move was not a judgement on bitcoin and he did not rule out the possibility of increasing Tesla’s bitcoin position in the future. Remarkably, the company didn’t sell any of its dogecoin holdings, which is the one other cryptoasset it holds on its balance sheet.
Although Musk was able to influence the price of bitcoin on dogecoin in a massive way with but a single tweet last year, there doesn’t seem to be any large response to the news right now. The bitcoin price saw a slight dip when the news broke, but recovered almost immediately after Musk’s further comments. These actions indicate that holding & selling bitcoin is a valid way for a company to increase its cash positions to finance itself. It remains to be seen if it’s a better holding on a company’s balance sheet than cash or cash equivalents like US treasuries. Tesla’s move to sell does not seem to have had a directly negative impact on other company’s considerations to put bitcoin on their balance sheets.
Image: Unsplash/Milan Csizmadia
Tim is a Quantitative Portfolio Manager. He holds an MSc in Econometrics and leads the quantitative team. Tim is mainly responsible for quantitative research and development.