In a move that is upsetting traditional investors across the crypto sphere, Tesla, the electric automaker this week sold off their entire position in Bitcoin. This resulted in a sharp decline in the Bitcoin price, leading investors to question the Tesla move of more than $600 million.
During Tesla’s earnings call with investors, the eccentric billionaire admitted that Tesla was short in liquidity. And that in order to hedge any further moves from the Chinese markets and their supply chain catastrophes, Tesla would have to sell its Bitcoin.
Director of Research at Arca, Katie Talati went on to back Tesla’s move as one of prudence amidst a flailing global economy, she said,
“The Tesla news is indeed a bearish headline, but not completely unexpected. Tesla sold their BTC reserves at about $29K over the past quarter as a way to have positive free cash flow. Without this, they would have reported cashflow negative results.”
Vadym Sinegin, vice president of Web3 ecosystem WeWay, had an opposing view to the sale made by Elon Musk. He criticized the billionaire’s actions as dangerous and precarious. Vadym went on to say,
“Tesla said it is open to buying more bitcoin in the future, but industry stakeholders may not be pleased with the idea, seeing the instability the firm can wield. Its influence is huge in the industry. While every firm has its corporate strategy, the Tesla sell-off might trigger some to reconsider their positions in both the short and long term, respectively.”
The Nitty Gritty Details
Now that we all know that Tesla has sold their fair share of Bitcoin, let’s talk about how much exactly they stand to profit. Tesla back in 2021, went on a Bitcoin buying spree brought on by its overzealous CEO, Elon Musk. The billionaire inventor has been bullish on crypto ever since 2018 and even before then he spoke publicly about its possible hedge against inflation.
Now, Bitcoin is far from being an inflationary device and follows the traditional markets more closely than even Musk would have ever predicted. Backing up to 2021, Tesla spent a whopping 1.5 billion to acquire roughly 43,200 Bitcoin. Tesla then went on to sell more than 10% of its Bitcoin holdings for roughly $272 million that very same quarter.
This indicates that Musk and Tesla have no problem using Bitcoin as leverage when they need it and liquidating it when they are short on cash. That is exactly what happened this time around. Tesla posted a profit of just $64 million from the sale of over $936 million
What To Expect from Tesla Going Forward
Tesla is by no means slowing down production nor taking a break from the eclectic vehicle industry—the real reason that Tesla is having to add cash to its balance sheet is not the grim hypothesis that so many analysts are drumming up.
Rather it is because Tesla simply does not know what to expect from China and its supply chain there in the coming months. China is still struggling to gain its footing again after a disastrous Covid outbreak took out the great majority of its supply chain infrastructure.
In a call to investors, Elon Musk explicitly stated that the sale of Bitcoin to add liquidity to their balance sheet in no way reflects his position or the company’s on the efficacy of Bitcoin. They stand by blockchain technology and will continue to do.
Musk added, “This should not be taken as some verdict on Bitcoin. It’s just that we were concerned about the overall liquidity of the company given the Covid shutdowns in China.”