Why Tesla has sold off its bitcoin holdings
Elon Musk says need for cash is driving force but move signals more bad news for cryptocurrency
Tesla has sold off most of its bitcoin holdings, sparking another crisis in the cryptocurrency market.
The electric car firm revealed in February 2021 that it had invested $1.5bn in bitcoin, prompting a surge in demand for the currency.
Now Tesla’s boss, Elon Musk, who has been one of the cryptocurrency’s strongest advocates, has said that the company sold off 75% of its bitcoin holdings in the last quarter, freeing up $936m (£783m) to shore up its cash reserves.
Currently involved in a lawsuit over his decision to pull out of a deal to buy Twitter, “the mercurial tech billionaire has offered excuses”, said Markets Insider, “but it seems likely that plunging asset prices and a bleak economic backdrop played a role in both decisions”.
Tesla announced yesterday that its second-quarter profits fell by nearly a third from the first quarter due to Covid shutdowns in China, which accounts for about 40% of its global sales.
Tesla’s problems are mostly short term, and profits should improve in months to come, Laura Hoy, an equity analyst at the investment firm Hargreaves Lansdown, said in an email to The New York Times. “But she expressed concern about Tesla’s exposure to Bitcoin,” said the paper.
“The Bitcoin losses point out an important part of the Tesla investment case – its eccentric owner,” Hoy said. “While Musk’s impressive innovation has served the company well, his personal flair is starting to raise governance questions.”
BBC technology reporter James Clayton said: “The move is yet more bad news for Bitcoin and crypto more generally.”
Barron’s said the crypto market cap “topped out near $3 trillion in November 2021 – when Bitcoin was almost three times more valuable than it is now – and bottomed near $800 billion in the depths of a sell-off that reached its most severe point last month”.
Last year Tesla stopped accepting bitcoin as payment for its cars, citing concerns about the climate impact of energy-intensive bitcoin mining. And while Musk said the move to drop most of Tesla’s bitcoin was not a reflection of the currency but rather about the need for cash, his description of crypto as a “side show to the side show” is “not exactly a ringing endorsement”, said Clayton.