Tesla has sold off 75 percent of its holdings in Bitcoin, which was worth about $2 billion at the end of 2021, after making a huge investment in the cryptocurrency in 2021.
The value of Bitcoin has since crashed, and during an investor call, Tesla CEO Elon Musk emphasized that the sale was about “overall liquidity” and did not reflect a “verdict” on Bitcoin itself.
“We are certainly open to increasing our Bitcoin holdings in future,” Musk said on the call, according to a report by Yahoo, “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. And we have not sold any of our Dogecoin.”
When Musk and Tesla made their play in Bitcoin, it helped stoke excitement about the cyber currency, which surged in value. It has since come well back to earth.
As recently as March 29, Bitcoin was valued at $47,454. It now stands at $22,556.
Musk on the call said Tesla wanted to maximize its cash position, explaining the sale of $936 million in Bitcoin.
The company is also dealing with supply-chain issues related to the pandemic that have also hit a variety of other sectors and contributed to inflation. The company overall did grow revenue in the second quarter, according to its earnings reports released on Wednesday.
It has been a turbulent summer for Musk, who moved in to buy the social media platform Twitter before pulling out of a deal.
This has led to court action, with Twitter trying to stop Musk from withdrawing his $44 billion offer to take over the company.
In a tweet last May to his nearly 102 million Twitter followers, Tesla CEO Elon Musk stated that his company had “diamond hands” — which in crypto speak was intended to mean that Tesla planned to hold onto its $1.5 billion worth of Bitcoin (BTC) indefinitely.
So much for those so-called diamond hands, as it became public during Tesla’s second-quarter earnings call yesterday that the company dumped the majority of its Bitcoin holdings for cash. “As of the end of Q2, we have converted approximately 75% of our Bitcoin purchases into fiat currency,” Tesla stated in its second-quarter earnings announcement.
The company went on to confirm that its disposition of those Bitcoin added $936 million worth of cash to its balance sheet, but Tesla did not disclose whether those aggregated proceeds resulted in a profit or a loss. Ironically, as recently as March 2022, Tesla stated during its first-quarter earnings announcement that it was committed to holding its crypto portfolio. “We believe in the long-term potential of digital assets both as an investment and also as a liquid alternative to cash.”
As of this writing, the price of BTC dropped nearly 6.5%, trading as low as $22,650 on cryptocurrency exchanges, down from its five-week high of $24,196 according to CoinMarketCap.
“The 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,” Musk was quoted as saying in a transcript of the company’s earnings call on Wednesday. “This should be not taken as some verdict on Bitcoin,” he said, adding that Tesla is open to increasing its crypto holdings in the future.
Is Bitcoin a buy?
Founded in 2008, and originally conceptualized as a peer-to-peer payment alternative to government fiat currencies, Bitcoin has largely been repositioned as a store of value and a strong inflation hedge for more than a decade. However, that thesis has broken down since Bitcoin’s price peak of $68,789 per coin set on Nov. 10, 2021. Bitcoin has fallen 67% from that all-time high, while U.S. inflation has increased more than 5% each month for more than a year.
How Investors Should Deal With Volatility
Cryptocurrency volatility is nothing new, and you should be comfortable with this if you decide to invest.
Volatility can be attributed to an “immature market,” says Ollie Leech, learn editor at Coindesk, a cryptocurrency news outlet. Anything from a celebrity tweet to new federal regulation can send prices spiraling.
“If Elon Musk puts hashtag bitcoin in his Twitter bio, it sends Bitcoin up 10%,” says Leech.
This unpredictability is part of the reason why investing experts warn against investing huge amounts of your portfolio into a risky asset like crypto. Many recommend keeping your crypto holdings to less than 5% of your total portfolio.
For new investors, day-to-day swings can seem frightening. But if you’ve invested with a buy-and-hold strategy, dips are nothing to panic about, says Humphrey Yang the personal finance expert behind Humphrey Talks. Yang recommends a simple solution: don’t look at your investment.
“Don’t check on it. That’s the best thing you can do. If you let your emotions get too much into it then you might sell at the wrong time, make the wrong decision,” says Yang.
This is the traditional “set it and forget it” advice that many traditional long-term investors follow. If you can’t get on board, and the extreme dips continue to cause you worry, then you might have too much riding on your cryptocurrency investments.
“The most important thing any investor can do, whether they are investing in bitcoin or stocks, is not just to have a plan in place, but to also have a plan they can stick with,” says Douglas Boneparth, a CFP and the president of Bone Fide Wealth. “While buying the dip might be attractive, especially with an asset that you really like, it might not always be the best idea at the moment.”