Tesla revealed in February 2021 that the electric vehicle manufacturer had quietly amassed $1.5 billion in bitcoin. This resulted in a surge in demand for bitcoin in 2021, driving up the price. Elon personally purchased Bitcoin and Dogecoin and took to social media to announce his purchases. This sparked a Doge frenzy, with the memecoin reaching nearly $1 per DOGE.
In July of this year, Tesla announced that it had sold 75% of its Bitcoin holdings in the midst of a market decline. Given the cryptocurrency’s declining value, Tesla stated that the company had exchanged its Bitcoin for traditional currency.
Elon Musk, the CEO of Tesla, has long been a supporter of Bitcoin, but it’s clear that the company’s finances still come first. Musk also stated last year that, despite having Bitcoin reserves, Tesla would not accept bitcoin as payment for Tesla vehicles due to environmental concerns.
The drop follows Musk’s endorsements of the currency. Musk stated last year that the company would not sell its Bitcoin, but they have now done so. Musk’s words, as one of the world’s wealthiest people, have the power to shift markets.
Tesla’s Bitcoin selloff, on the other hand, may serve as a reminder that his promises are not always guaranteed, especially if they come from his Twitter account.
The Musk Mouth Effect
As previously stated, Musk’s support for cryptocurrencies such as Bitcoin and Dogecoin has had an impact on their respective markets in the past. When Musk speaks (or Tweets) markets move.
However, Tesla’s Bitcoin selloff appears to have had little impact on the price of Bitcoin, which was already falling earlier this year. Part of the reason this had little impact on prices was that Tesla sold off their Bitcoin before making the announcement. It influenced market sentiment, but a $1.5 billion Bitcoin selloff is not on the horizon.
Given Musk’s previous support for cryptocurrency, the company is not completely opposed to Bitcoin. The company has stated that it is willing to acquire more Bitcoin in the future. However, as a publicly traded company, shareholder value must be prioritized, and they cited Bitcoin as a loss for the company’s earnings.
While Musk and Tesla have historically had an impact on cryptocurrency markets, this selloff does not appear to be the sole cause of Bitcoin’s price drop. Aside from Tesla’s selloff, the entire cryptocurrency market is in turmoil due to a variety of other factors. Inflation, a decline in all markets worldwide, and a number of cryptocurrency platforms, companies, and DAOs facing insolvency and regulatory pressure are among these factors.
Concerns About Liquidity
During a conference call, Musk stated that the move “should not be interpreted as a verdict on Bitcoin.” In the same call, Musk explained that the Bitcoin selloff was caused by liquidity concerns the company was experiencing as a result of the COVID lockdown in China, where Tesla has a plant in Shanghai.
Tesla was aware of the risk they were taking by holding Bitcoin during a market decline, and they could not guarantee that the losses would be offset by their production facilities in Shanghai. So, fearing more Chinese lockdowns, Tesla sold off the majority of its Bitcoin holdings.
During the conference call, Musk also stated that Bitcoin is a “sideshow to the sideshow.” His primary concern at Tesla is to “accelerate the advent of stable energy,” and Bitcoin and cryptocurrency were viewed as a distraction from that goal.
Having said that, Musk is likely to keep his options open for purchasing more Bitcoin in the future, as they still kept 25% of their holdings in reserve. Tesla may continue to accumulate Bitcoin incrementally in the future, but not in the billions of dollars.
Tesla is not alone in making such selloffs. With global markets falling and talk of a recession looming (although not so much lately), risky tech stocks and volatile cryptocurrencies appear less appealing in the face of a potentially five-quarter-long recession, according to the Bank of England.
Tesla’s purchase of Bitcoin reserves in 2021 may not have met some investor expectations, but it added legitimacy to the idea of a company purchasing reputable cryptocurrencies. Musk’s currency selloff was primarily a cash move for liquidity in the face of Shanghai lockdowns due to the covid pandemic. Bitcoin may be down, but it is far from dead.
The author holds both Bitcoin as well as Tesla stock and this article is presented for educational purposes only.
I write about blockchain, crypto, NFTs and other disruptive technologies and innovations.