Bitcoin's dip to below $30,000 has Tesla sitting on a loss of $90 million even if the price recovers

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Bitcoin's dip to below $30,000 has Tesla sitting on a loss of $90 million even if the price recovers
Tesla CEO Elon MuskIANS
  • With Bitcoin’s price dipping to below $30,000, Tesla is now sitting on a loss of $90 million for the second quarter.
  • Due to ‘impairment’ costs, the Elon Musk-led company will have to show the loss even if Bitcoin’s price manages to recover before June 30.
  • This may also mean that Musk will inevitably have to sell off a portion of the company's Bitcoin holdings in the next quarter, provided prices pick up, in order to square off this quarter’s losses.
Tesla may be sitting on a loss of $90 million with Bitcoin’s value dipping to below $30,000 on Wednesday. And, even if the cryptocurrency’s price manages to recover by the end of June, Tesla will still have to show the loss on its books.

Tesla CEO Elon Musk is known for shaking up the crypto world with his outburst on Twitter. He’s gone from loving Bitcoin to endorsing Doge, and is now in the environmentalist camp raising concerns about the energy consumption of mining.

"You just know it's a rather dry spell for Tesla when bitcoin is the dominant new story and dominant driver of investor discussion day in, day out."

Morgan Stanley analyst told Business Insider

His electric vehicle (EV) company, Tesla, has its own Bitcoin holdings — ones that are not personally held by Musk, but on the company’s balance sheets affecting its profit and loss.
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Bitcoin's dip to below $30,000 has Tesla sitting on a loss of $90 million even if the price recovers
Bitcoin's price over the last one yearBI India

How much Bitcoin does Tesla own?


The company’s earnings for the first quarter show that Tesla’s Bitcoin holdings amounted to a sum total of $2.84 billion on March 31. At the time, the cryptocurrency’s price was around $59,000, which means Tesla owns an estimated 42,000 Bitcoins.

So, when it bought these Bitcoins for $1.33 billion, they were valued at $31,620 a piece.
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This means that Tesla, as of March 31, had total realized and unrealized gains exceeding $1.2 billion — a return of more than 80% on its investment within the span of eleven weeks.

However, since Bitcoin’s price dipped to $28,814 on Wednesday, Tesla’s books will now reflect a loss of $90 million, provided Musk hasn’t already sold off its holdings.

TimeCumulative valuePrice/Bitcoin
Value of Tesla’s Bitcoins on March 31$2.48 billion$59,000
Value of Tesla’s Bitcoins at time of purchase$1.33 billion$31,620
Value of Tesla’s Bitcoins at $28,814$1.2 billion$28,814
Estimated loss at the end of June$90 million-
Source: Data from CoinMarketCap.com and the US Securities and Exchange Commission (SEC), Calculations done by BI India
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Why won’t an increase in Bitcoin’s price help Tesla?


Normally realised losses or gains are only accounted for once Bitcoin is sold, but it doesn’t work that way for companies. Accountants consider Bitcoin to be a ‘collectible’. This means any investments in the cryptocurrency are held at a cost. In Tesla’s case, Bitcoin is held at a cost of $27 million, which it calls 'impairment losses’.

The company also doesn’t follow the ‘end of the quarter’ approach. It takes an impairment any time that Bitcoin’s price falls during the quarter. This means that even if Bitcoin’s price manages to climb back up, Tesla doesn’t just get to mark the value of its holdings back up. And, the only way it can register a gain is by actually selling the Bitcoin it holds.

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From an accounting point of view, $90 million is not a huge loss. But, it would be embarrassing for Musk’s influencer narrative. The impact of Bitcoin’s price drop can already be seen in Tesla’s share price.

Bitcoin's dip to below $30,000 has Tesla sitting on a loss of $90 million even if the price recovers
Tesla's share price over the last six monthsBI India

A loss would also mean that Tesla will inevitably have to sell off a portion of its Bitcoin in the next quarter, provided prices pick up, in order to square off this quarter’s loss in its balance sheet.

It could snowball into a loss much bigger than $90 million


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The $30,000 mark is a support threshold. If the cryptocurrency continues to dip below $30,000 on a regular basis, it will set up Bitcoin to test its December 2020 breakout level of $20,000.

According to US-Bookies.com, they’re an increasing possibility that Bitcoin could even fall to $10,000 this year — the kind of dip that people like Jim Cramer are waiting for to buy Bitcoin again.

When Bitcoin initially started falling in mid-May, Musk claimed that the company had not sold any of its holdings. Despite his assurances, Bitcoin prices have continued to plummet given global regulatory concerns. Not even El Salvador accepting Bitcoin as legal tender could keep the bull run going.

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And, now Tesla’s original holdings are worth far less than when Bitcoin was soaring at its height of $64,863 in mid-April. The inherent volatility of cryptocurrencies doesn’t make Tesla’s hard-to-predict earnings any easier to discern.

For a more in-depth discussion, come on over to Business Insider Cryptosphere — a forum where users can deep dive into all things crypto, engage in interesting discussions and stay ahead of the curve.

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