The electronic vehicle company Tesla could potentially face significant losses in their second-quarter earnings, all thanks to their Bitcoin holdings. The cryptocurrency market has been seeing a significant decline in prices and even the Dogecoin champion and his company aren't left immune to its pull-back.
Tesla's Bitcoin Holdings
Elon Musk is no stranger in the world of cryptocurrency. In fact, his very tweets could affect the price of a token almost instantaneously. An influencer of sorts.
First endorsing the future of cryptocurrency in Bitcoin, he announced that Tesla had purchased $1.5 billion in Bitcoin and would be accepting the cryptocurrency as a form of payment, Yahoo! Finance recalled. He later denounced support for Bitcoin citing environmental concerns about coal mining, which did not align with his or his company's values. His support has been directed now to the meme crypto, Dogecoin.
Dogecoin's price rallies were pretty consistent after that. Doge traders were waiting for Musk's next Doge tweet which could propel another price rally, making more profits.
But while Dogecoin started heading to the moon, Bitcoin started to see price dips, much to the chagrin of the crypto's traders, investors and supporters.
However, since Musk's appearance on the Saturday Night Live show, Doge price also saw a consistent decline.
That Bitcoin Tesla earlier bought stayed locked in their treasury until Bitcoin could start becoming greener with their mining.
$90 Million Loss for Tesla's Books
Recent market crashes and individual cryptocurrency crashes have left the board volatile. During the first quarter, Tesla recorded $27 million of impairment losses on Bitcoin, Yahoo! Finance said. The company also realized gains of $128 million through sales of the cryptocurrency. From a tweet by Musk, this was to see if they could still liquidate the currency without moving the market.
The company's holdings of Bitcoin amounted to $2.4 billion on March 31, Business Insider said. At that time, BTC was seeing prices around $59,000 which would mean an estimate of 42,000 Bitcoins were held by the EV company.
But that was months ago. Now, Bitcoin's prices have dipped to $28,814 on Wednesday, and Tesla's books could potentially reflect a $90 million loss, assuming the company has not sold off its holdings even more by next month when it will report its second-quarter earnings.
Bitcoin price falls below $30k for 1st time in 5mths nearly wiping off its entire 2021 gain. It fell in recnt weeks aftr Tesla CEO flaged energy usage for crypto mining and China's crackdwn on Bitcoin mining operations. It has droped roughly 50% frm midApril around $64k#BITCOIN— Ajay Menon (@Ajaystweet) June 23, 2021
Potential Bitcoin Price Recovery and the Future of the Cryptocurrency Market
Even if Bitcoin prices bounce back a fraction, it wouldn't help Tesla's accounts.
Realized losses and gains are usually accounted for once items are sold. However, this isn't the case for Bitcoin, Business Insider explained. Accountants would consider Bitcoin to be a "collectible" which means it is held at a cost even though it could be considered an investment.
In the case of the first quarter, Bitcoin was held at a cost of $27 million, and that is called "impairment losses." Impairment losses don't just happen for the end of the quarter, either. Losses are accounted for throughout the quarter.
So if Bitcoin does suddenly increases in price again, Tesla still has impairment losses to report. And gains can only be registered once they sold their holding.
The loss, though not crucial from an accounting point of view, does spell a bit of reserved sentiment for the company overall, as seen by the drop of Tesla's share price by 27 percent since February.
#Bitcoin Daily— Things (@TeslaThings) June 24, 2021
Divergence on 4-hour & Daily. Turning point tomorrow
I still haven't ruled out a spike to the lower hz before trying higher in earnest. We should have a much clearer picture w/the weekly close but looking like we're getting closer to bottoming soon...finally $BTC pic.twitter.com/kB6TgM8zIH
Experts have always noted the volatile nature of the cryptocurrency market. And with the bearish, or downward, trajectory of the market as a whole, it makes it difficult to discern how things will look in the near future.
But if we apply the fundamentals, it could look like Bitcoin is on its way to falling to $10,000. For strong supporters of cryptocurrency's future, this could mean a great window to purchase more for a long-term hold.
But for short-term traders, this is a nightmare, not knowing when or if they could at least break even with their purchases.
Despite notable and high-profile personalities have started endorsing the tokens in the cryptocurrency market, such as the altcoin Ethereum Max, the market isn't looking positive.
Experts can only speculate, given the historical conditions of other markets like stock, it is difficult to predict if or when exactly the cryptocurrency market would recover.