Tesla jettisons 75% of Bitcoin holdings, boosting cash balance by $936m

Estimates suggest it could take a $460 million hit on the exchange

Electric vehicle manufacturer Tesla has decided to sell three-quarters of its holdings in Bitcoin just a year after it promoted the "long-term potential" of the controversial cryptocurrency.

Along with its latest financial performance, the company announced plans to sell off a significant holding of the blockchain-backed tokens in exchange for fiat currency – money backed by national banks and sovereign wealth.

"As of the end of Q2, we have converted approximately 75 percent of our Bitcoin purchases into fiat currency," Tesla's Q2 earning statement said. The transaction boosted the company's cash balance by $936 million.

In February last year, the car company helmed by Elon Musk said it had acquired $1.5 billion in Bitcoin to bring "more flexibility to further diversify and maximize returns on our cash." It also said it would allow customers to pay for their vehicles with the cryptocurrency.

Since then, the price of Bitcoin has ridden a roller coaster, with an emphasis on steep descents. It peaked in November 2021 at a price of around $49,000 but since the beginning of 2022 has dropped dramatically with value falling below $20,000 in June, a bar it has struggled to overcome since.

Tesla didn't say exactly why it sold its Bitcoin holdings, but estimates suggest it could take a $460 million hit on the exchange.

The move by Tesla inspired a Bitcoin sell-off, with the currency falling for the first time in three sessions, presumably making its remaining holdings worth less.

On an earnings call, Musk said the sell-off was not a comment on Bitcoin per se but a more tactical maneuver around the unpredictability of China's COVID lockdowns and the need to maximize its cash position.

"[T]he reason we sold a bunch of our Bitcoin holdings was that we were uncertain as to when the COVID lockdowns in China would alleviate. So it was important for us to maximize our cash position, given the uncertainty of the COVID lockdowns in China. We are certainly open to increasing our Bitcoin holdings in future, so this should not be taken as some verdict on Bitcoin. It's just that we were concerned about overall liquidity for the company, given COVID shutdowns in China."

Musk has long held a penchant for cryptocurrencies, personally making investments in and promoting Dogecoin, the meme-inspired currency supposedly created as a joke eight years ago. Who exactly is the butt of the joke remains unclear.

Other tech CEOs with a Bitcoin passion include Michael Saylor of MicroStrategy, the enterprise analytics software company.

Saylor has been pumping the company's cash into Bitcoin for the last couple of years, as reported by The Register. It held around $1 billion by the end of 2020. Reports now suggest that MicroStrategy's Bitcoin investment was worth $3.4 billion less at the end of the second quarter than the first. ®