Tesla’s $500M Bitcoin Mistake: Selling Off Too Soon

In the Brief:

  • Tesla sold Bitcoin for a $64 million profit but could have lost over $500 million due to a 50% price increase
  • Tesla still holds $330 million worth of Bitcoin
  • The sales showed the risks of holding volatile assets during cash crunch phases
  • Elon Musk claims liquidity of Bitcoin, but analysts predict Tesla's free cash flow in Q1/2023 will be nearly $2 billion
  • This lowers the chances of significant Bitcoin dumping

3 - 5 minute read

Tesla’s sale of Bitcoin last year, which gave them $64 million in profit, turned out to be a $500 million mistake as the price of Bitcoin (BTC) has grown over 50% since their sales. Despite the sale, Tesla still holds around $330 million worth of Bitcoin, which is almost 15% below the procurement value from February 2021. However, will Tesla dump the remainder of their BTC holdings.

When Tesla purchased $1.5 billion worth of Bitcoin in February 2021 at an average price of $36,000, it threw the cat among the institutional pigeons. The company then sold BTC worth $272 million to boost its Q1/2021 accounting by $101 million. In Q2/2022, they infamously dumped nearly $936 million of its total Bitcoin holdings, accounting for 75% of its remaining reserves, which secured them a $64 million profit. The company has neverthelessheld on to their remaining BTC, despite the price of Bitcoin sitting at bear-market lows of around $16,000 at the time. As of April 14, they still hold around $330 million worth of BTC.

Tesla’s sales of Bitcoin in Q1/2021 and Q2/2022 came from weaker free cash flows. Additionally, the Q1/2021’s BTC sale worth $272 million made up nearly 93% of Tesla’s free cash flows in the same quarter. Similarly, Tesla’s Bitcoin sales in Q2/2022 came as their free cash flows declined 73% versus the previous quarter. Both sales suggest that Musk relied on Bitcoin as a haven during Tesla’s cash crunch phases.

In addition, Tesla CEO Elon Musk explained at the time that the sale was made to “prove liquidity of Bitcoin as an alternative to holding cash on a balance sheet.” However, Wall Street analysts estimate that Tesla’s free cash flow in Q1/2023 would be nearly $2 billion, up 40% versus the previous quarter. This should reduce the chances of Tesla dumping any significant Bitcoin amount in the near term.

Tesla’s sales of Bitcoin demonstrate the risks of holding volatile assets, especially during cash crunch phases. Despite securing a profit of $64 million, they ultimately lost out on potential gains of over $500 million. Traders should be wary of similar mistakes and avoid playing with volatile assets unless there is a solid strategy in place.

The Bottom Line

Tesla’s sale of Bitcoin turned out to be a $500 million mistake. Despite holding onto their remaining $330 million worth of BTC, their previous sales from weak free cash flows and reliance on BTC as a haven during cash crunch phases demonstrate the risks of holding volatile assets. Traders should be cautious and avoid investing in volatile assets without a solid strategy in place.

Disclaimer: The content in this article is provided for informational purposes only and should not be considered as financial or trading advice. We are not financial advisors, and trading carries high risk. Always consult a professional financial advisor before making any investment decisions.

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