Tesla offloads 75% of its Bitcoin amid liquidity crisis
What's the story
In a massive blow to the crypto world, Elon Musk's Tesla offloaded 75% of its Bitcoin. The company added $936 million of fiat cash to its balance sheet after selling the cryptocurrency. The news sent Bitcoin's price tumbling. After the sale, Tesla's digital assets are valued at $218 million, far less than what it once was. The company still has its Dogecoin intact.
Context
Why does this story matter?
According to market experts, it is 'cryptowinter' now. Tesla's decision to offload 75% of its Bitcoin holding is further going to intensify this winter. Bitcoin prices are nowhere near the highs they enjoyed last year. Similarly, this quarter, Tesla is nowhere near its usual margins. Not at all a match made in heaven. Will this have major implications? Let us wait and watch.
Digital assets
Tesla's remaining digital assets are valued at $218 million
Tesla talked about the Bitcoin sell-off in a letter to shareholders as part of its Q2 earnings call. The company sold 75% of its holdings for $936 million. In the earnings report, the automaker mentioned that it now owns only $218 million worth digital assets. Last year, Tesla disclosed that it invested $1.5 billion in Bitcoin. Two months later, it sold 10% of that.
Backtracking
Musk went for the dump instead of pump
Tesla's decision to sell the majority of its Bitcoin holdings comes a year after Musk said, "I might pump but I don't dump," at the Bitcoin conference last year. "I definitely do not believe in getting the price high and selling or anything like that. I would like to see Bitcoin succeed," he added at that time.
CEO
Tesla sold Bitcoin because of liquidity concerns: Musk
Musk addressed the Bitcoin sell-off during an investor call. He said that it "should not be taken as some verdict on Bitcoin." The billionaire also said that Tesla sold such a major chunk of its Bitcoin holding because the firm was "concerned about overall liquidity of the company given COVID-19 shutdowns in China." "We have not sold any of our Dogecoin," he added.
Musk & Bitcoin
Bitcoin was accepted as payment by Tesla for short time
Ever since Tesla announced its $1.5 billion investment in Bitcoin, people have been looking at Musk as a cryptocurrency icon. His continuous favorable takes on Bitcoin and the likes, including Dogecoin, paid a huge part in driving up the prices of the tokens. Tesla even accepted Bitcoin as payment for a short time before suspending it citing environmental concerns.
Q2 report
Company's profit dipped by 31% in Q2
When it comes to the electric car business, Tesla did not have the best of quarters. Its revenue was down from $18.7 billion in Q1 to $16.9 billion, while the profit saw a 31% dip from $3.3 billion to $2.26 billion. Similarly, its deliveries dropped by around 18%, while there was no increase in automotive margins despite an increase in price.
Crisis
What are the factors hurting Tesla's liquidity?
Tesla is facing a liquidity crisis. We know as much from Musk's words. What is driving this crisis though? The Shanghai lockdown and consequent shutdown of its factory hurt the automaker. Add to that, an increase in the price of everything from raw materials to logistics. The massive fall in Bitcoin's price this year further cemented the brand's resolve.