Tesla’s $140 Million Bitcoin Loss Shows the Risk of Crypto Holdings

Tesla, the electric car manufacturer, announced that it suffered a $204 million gross impairment loss for 2022 in its Bitcoin (BTC) holdings. This information was provided in a filing to the United States Securities and Exchange Commission. Tesla reported a $64million gain in the same period from changing BTC into fiat currency at different times during the year. However, $140 million was lost by the company due to cryptocurrency trading.

The filing gave more details about the effects that fluctuating cryptocurrency values have upon Tesla’s bottom line.

According to relevant accounting standards digital assets are classified as intangible asset with an indefinitely extended life. This means that if they have fair values below the carrying values of digital assets, then we will need to recognize impairment charges. We are not allowed to adjust for market price increases, but we can’t make any upward revisions until we sell the asset. These charges could have a negative impact on our profitability, even if the assets’ total market value rises.

In the first quarter of 2021, Tesla made a $1.5 billion investment in Bitcoin. Elon Musk was the creator of Tesla and just announced that the electric car manufacturer will start accepting Bitcoin payments from customers in the United States.

A few months later, the decision was reversed after Musk declared the necessity of “confirmation for decent (at minimum 50 percent) energy consumption by [Bitcoin miner with favourable future trends] before the business would again accept the method to pay.” Recent reports claim that Tesla sold around 75% of its bitcoin holdings in the second quarter 2022.

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