Sarah Tran
Independent Analyst
- After allocating $1.5 billion to Bitcoin earlier this year, Tesla sold off a part of its BTC holdings.
- The electric vehicle maker revealed $272 million in proceeds from a net cash outflow of $1.2 billion in crypto.
- The sale contributed to a record quarterly net income for the company.
Tesla sold 10% of its Bitcoin holdings after adding the leading cryptocurrency to its balance sheet earlier this year.
Tesla to stockpile Bitcoin after Q1
The electric vehicle maker purchased $1.5 billion in Bitcoin in February as part of its investment policy for further flexibility and diversity in maximizing the firm’s returns on excess cash. Tesla's filing with the Securities & Exchange Commission in February stated that under the policy, Tesla might “acquire and hold digital assets from time to time or long-term.”
Bitcoin price shot up after Tesla’s announcement, reaching new highs of $44,200 at the time. According to Daniel Ives, analyst at Wedbush Securities, by late February, Tesla already made around $1 billion in paper profits from its investments in the leading cryptocurrency. Throughout the first quarter, Bitcoin price was propelled as prominent companies, including MicroStrategy and payments firm Square, bought the cryptocurrency.
Elon Musk announced in March that the company would start accepting Bitcoin as payment for its electric cars. Musk added that payments made in the digital currency form could be retained and not converted to fiat.
Tesla’s investor call revealed that the company raked in $272 million in earnings from a net cash outflow of $1.2 billion in crypto. The electric car manufacturer will continue to stockpile Bitcoin in its treasury from the sales of its vehicles.
Bitcoin’s high liquidity could spark institutional interest
Musk maintained that Tesla’s action is not directly reflective of his own opinion and added that he had not sold any of his Bitcoin holdings. According to the CEO, selling 10% of the company’s holdings in the leading digital asset proves Bitcoin has the liquidity to be “an alternative to holding cash on the balance sheet.” Tesla CFO Zach Kirkhorn added:
From a corporate treasury perspective, we’ve been quite pleased with how much liquidity there is in the Bitcoin market.
Meltem Demirors, the chief strategy officer of CoinShares, indicated that Tesla’s move to sell Bitcoin could trigger institutional interest. She explained:
The fact that Tesla could liquidate $270M of Bitcoin so quickly and so easily indicates bitcoin market structure and depth is very robust. Corporate treasurers can tick off "sufficient liquidity" when looking at Bitcoin to effectively diversify treasury holdings.
Corporate treasurers are ideologues, Demirors added. Since Bitcoin is highly liquid and massively appreciated in the first quarter, it is logical for Tesla to sell Bitcoin to have a “win” for Q1.
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