Fans of Tesla or cryptocurrency will likely remember the company building a sizable Bitcoin position during the first quarter of 2021. Now, Tesla has sold the majority of its Bitcoin for a steep loss. This has set the electric vehicle giant up to take on a $460 million impairment charge.
What is an Impairment Charge?
An impairment charge is a cost that reflects a decrease in an asset’s value. It happens when an asset’s value on a company’s balance sheet is higher than its fair market value. Digital Assets are viewed as intangible assets with no set lifespan. This means a company must report any drop in the value of its assets, even if the value goes back up shortly after. On the other hand, a company only reports gains on digital assets when it sells them.
Tesla’s Position
The electric vehicle manufacturer, helmed by Elon Musk could be facing a $460 million impairment charge on its Bitcoin holdings according to Brian Johnson – an analyst from Barclays.
Tesla started to invest in Bitcoin in January 2021, adding $1.5 billion of the digital currency to its balance sheet. At that time, Bitcoin was priced between $32,000 and $33,000. Although the company sold about 10% of its holdings by the end of Q1 2021, it has not made any new purchases since then. However, Tesla revealed earlier this month that it had sold about 75% of its Bitcoin holdings.
This sale generated $936 million for Tesla. Despite Tesla taking a loss on its Bitcoin position, Musk stated that it was done to bolster Tesla’s cash position amidst Chinese COVID lockdowns.
The billionaire CEO also went on to state that “Tesla is open to boosting its Bitcoin exposure in the future”.
Like it or loath it, Elon Musk and Tesla both have sizable influence in the crypto space. When the company first announced it had purchased $1.5 billion worth of Bitcoin, the digital shot up in value. Upon the news breaking that Tesla sold its position BTC dropped in value. Therefore, it’ll be interesting to see how the market reacts when the next Tesla Bitcoin purchase occurs.
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