Tesla’s Bitcoin Blunder: How Selling the Cryptocurrency Cost Them a Whopping $500 Million

"Tesla's Bitcoin investment pays off as remaining stash grows 100% from 2022 lows"

Tesla’s Remaining Bitcoin Stash Grows 100% from November 2022 Lows

Tesla’s remaining Bitcoin stash has grown 100% from its November 2022 lows, demonstrating that hodling BTC can indeed pay off. The price of Bitcoin (BTC) has grown by more than 50% since Tesla unveiled its approximately $1 billion BTC sales in July 2022. In other words, the Elon Musk-owned electric carmaker would have made an additional $500 million if it had waited until today to sell.

Tesla infamously dumped nearly $936 million of its total Bitcoin holdings in Q2/2022, accounting for 75% of its remaining reserves, to secure a $64 million profit. At the time, Bitcoin was trading about 70% lower than its record high of $69,000 in November 2021.

Originally, Tesla purchased $1.50 billion worth of Bitcoin in February 2021 at an average price of $36,000. The company then sold BTC worth $272 million to boost its Q1/2021 accounting by $101 million. The company has nevertheless held on to its remaining BTC as of Q4 2022 despite the price of Bitcoin sitting at bear-market lows of around $16,000 at the time. Today, Tesla holds 10,725 BTC worth around $330 million, almost 15% below the procurement value from February 2021.

Overall, Tesla made roughly $165 million in profit from two separate Bitcoin sales. As of April 14, it sits atop an unrealized loss of around $56.6 million on its remaining BTC holdings. While its net profit to date sits at around $108 million.

Interestingly, Tesla’s previous Bitcoin sales came from weaker free cash flows. For instance, the Q1/2021’s BTC sale worth $272 million made up nearly 93% of Tesla’s free cash flows in the same quarter. Similarly, Tesla’s Bitcoin sales in Q2/2022 came as its free cash flows declined 73% versus the previous quarter. Both sales suggest that Musk relied on Bitcoin as a haven during Tesla’s cash crunch phases.

The Tesla CEO explained at the time that the sale was made to “prove liquidity of Bitcoin as an alternative to holding cash on a balance sheet.” Meanwhile, Wall Street analysts estimate that Tesla’s free cash flow in Q1/2023 would be nearly $2 billion, up 40% versus the previous quarter. This should reduce the chances of Tesla dumping any significant Bitcoin amount in the near term.

It remains to be seen if Tesla will dump its remaining BTC holdings, but the company’s previous sales suggest that it may use Bitcoin as a temporary cash reserve during times of financial difficulty. With Tesla’s free cash flows expected to recover in the coming quarters, it is possible that the company will hold on to its remaining BTC holdings for longer periods. However, as with any investment, there are risks involved, and readers are advised to conduct their own research before making any decisions.

Martin Reid

Martin Reid

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