Alon Musk rekindled his bizarre relationship with Bitcoin on Sunday, giving the currency little encouragement.
But what’s more important to Tesla’s shareholders, along with it, is the blow the company’s bottom line received this quarter from Musk’s sometimes warm and sometimes chilling approach to bitcoin.
Employers generally accuse Musk of causing the biggest drop in value in a year after announcing on Twitter that Tesla would stop accepting bitcoin payments on electric cars. He added fuel to the bonfire earlier this month when he tweeted of farewell water with the hashtag #bitcoin and a broken heart emblem. Since that tweet on May 12, the price of Bitcoin has dropped by 30%.
On Sunday, Musk said Tesla would return to bitcoin transactions as lenders increase their use of renewable energy sources.
The price jumped about 8% from the level it was on Friday afternoon, and traded at a price of $ 39,816 per unit. He also said Tesla sold only about 10 percent of its holdings in Bitcoin earlier this year to make sure the crypto currency “could easily turn into liquid money without moving markets.”
Tesla had about $ 1.3 billion in bitcoin waiting in its coffers at the end of the first quarter and it announced the acquisition of bitcoin in February as a move designed to “diversify and maximize our cash return.”
Software development company MicroStrategy and several other companies, including payment companies Square, have made similar investments. Some speculate in Bitcoin as a tool for preserving value or as a more modern version of gold.
But holdings of Bitcoin companies in their coffers face accounting risk: Because Bitcoin and other digital assets are considered “intangible assets that have no final value” and no currencies, any decline in value below what the acquiring company paid for them – even temporarily – may force a company to list the value And absorb for them impairment charges (Impairment charges).
Assets of this type should be examined regarding the potential for a reduction in value at least once a year, or if the price falls below the price specified by the company. The volatile nature of Bitcoin causes such estimates to be made every quarter. Once a company undertakes to pay the impairment fee, it resets the fair value of the property. Conversely, if the price goes up, the company cannot post a profit. It can only post a profit when it sells the property.
Tesla, which did not respond to a request for comment, is expected to post earnings of 96 cents a share in the second quarter, according to analysts who responded to the FactSet survey.
Bitcoin’s volatility, combined with the accounting care necessary for it, makes it difficult for corporate executives to manage crypto holdings as cash, making it less useful as a reserve asset, said Jennifer Stevens, an associate professor of accounting at Ohio University.
“Accounting is a bit inconsistent with the purpose underlying the matter,” she said.
There are few other companies that are thinking of jumping into the bitcoin water. A February survey by research firm Gartner found that only 5% of CFOs asked about it planned to hold Bitcoin as a corporate asset this year. Of the CFOs surveyed, 84% said they have no intention of ever holding Bitcoin.
Initially, Tesla revealed that it held $ 1.5 billion in Bitcoin investments on Feb. 8 but did not elaborate on how much Bitcoin was in its hands or what the average price it paid was. However, the change in the company’s investment policy was made in January, and the price of Bitcoin averaged $ 35,400 per unit between January 1 and 8, according to CoinDesk.
This means that Tesla probably had about 37,000 Bitcoin units after slightly cutting its position in the first quarter.
As of Monday afternoon, Bitcoin had reached just under $ 40,000, although last month it had dropped to a price of $ 30,202 per unit.
Tesla is likely to absorb a depreciation of its holdings in Bitcoin this quarter, Wedbush Securities analyst Dan Ives said.
He added that the company apparently bought Bitcoin throughout January and at least some of those holdings are now at a loss.
“If Bitcoin falls below $ 30,000, or is in the low range of $ 30,000 and a little (at the end of the second quarter) the depreciation may be large,” he said. It could reach a similar $ 101 million in profit that Tesla posted in the first quarter due to the sale of some of its holdings, he said.
“It went from a back wind to a strong interior wind,” he said.
Tesla’s recent results have been supported by one-time gains. In addition to profit from the sale of Bitcoin in the first quarter, the company recorded a profit of $ 518 million from the sale of regulatory credits to other automakers to help them meet their emission targets.
That pushed the company – Tesla posted net income of $ 438 million, 93 cents a share.
Tesla was not the first company to absorb a significant payment for its bitcoin holdings.
MicroStrategy, which sells software to businesses and has about 92,000 bitcoin coins valued at more than $ 3 billion, has already posted a loss for the quarter due to the accounting nature of the currency, both in the third quarter of last year and in the first quarter of this year.
Last week, the company said it expects to incur a defect fee of at least $ 285 million regarding its investment in Bitcoin during this period, which will push it to another quarter of a loss.
For now, MicroStrategy simply accepts this accounting procedure, CEO Michael Sailor said in an interview. He said he sees bitcoin as more value than the dollar and has made buying and maintaining it a priority in the company no less than selling software.
“It seems risky to a person who does not understand Bitcoin,” he said, “but it is easily the least dangerous way to grow the company.”
The company’s bitcoin strategy has made Sailor a hero in crypto circles but has also made the MicroStrategy stock no less volatile than bitcoin. Its shares traded for $ 135 in August when it announced its new Bitcoin policy. By September they had reached a high of $ 1,273 but have since been down, and as of Monday were trading at $ 598.49 a share.
It is more difficult to determine how much Tesla’s share price has been affected by the company’s bitcoin strategy because it is a much smaller part of its holdings, but the stock has been declining since the February announcement. It closed at 617.69 on Monday.