Elon Musk and Tesla Inc. (NASDAQ: TSLA) have made a significant contribution to the electric vehicle market. There is also the solar effort which hardly seems to be discussed. And of course there is Bitcoin and cryptocurrency. It turns out that, despite some entrance and exits of accepting Bitcoin for purchases, Team Musk did quite well on its Bitcoin holdings in 2021.
Tesla filed its Annual Report (10-K) with the Securities and Exchange Commission and among the multitude of disclosures was a note that Tesla held about $1.99 billion worth of Bitcoin in fair value as of December 31, 2021. Why this is significant is that Bitcoin and other cryptocurrencies took it on the chin in late 2021 and the start of 2022 has been bumpy.
In January 2021, Tesla updated its investment policy for more flexibility to further diversify and maximize returns on its cash that is not required to maintain adequate operating liquidity. On top of the company’s policy allowing for certain alternative reserve assets such as digital assets, Tesla also indicated that this included gold bullion, gold exchange-traded funds and other assets as specified in the future. Its initial position was about $1.5 billion that was purchased in the first quarter of 2021.
Tesla’s carrying value of Bitcoin is about $1.26 billion. One issue to consider is how Bitcoin is taxed. Currently, Bitcoin is considered an indefinite-lived intangible asset in accounting. It isn’t always marked to market like traditional currencies. If the price falls below a carry value companies have to write the value down. If prices rise, they don’t get to write them back up if prices rebound. Those gains are recognized at the sale. As for 2021, Tesla took write downs of about $101 million and it recorded approximately $128 million in gains from selling over 2021.
Bitcoin had been trading between $30,000 to $38,000 when Tesla was buying in. After ending at roughly $46,300 in 2021, Tesla still has close to 43,000 Bitcoins in its treasury.
The big question now is just how much Bitcoin that Tesla still holds in 2022, but Tesla’s disclosures around its Bitcoin holdings (page 22) did say:
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.
Using keyword searches can often highlight just what you are looking for. The term “Bitcoin” appears 12 times in the 2021 annual report. Tesla tends to use the term “digital assets” (49 instances in the 10-K) rather than “Cryptocurrency” and even “blockchain,” with the last two having zero instances.
Bitcoin was last seen up above $42,000. While that is still down from its end of 2021 at close to $46,300 it is still handily above the sub-$35,000 during the maximum selling pressure of January.
Categories: Digital& NFT