Tesla shines a light on Bitcoin’s effectiveness as a Treasury asset

Tesla confirmed trimming 10% of its Bitcoin holdings to demonstrate the cryptoasset’s liquidity

Copper

Back in February, Tesla raised eyebrows among analysts and investors after confirming the automaker had spent $1.5bn on Bitcoin.

During yesterday’s first-quarter results earnings call, Elon Musk’s company raised eyebrows again, reporting a Q1 profit of $438 million – its highest ever. Notably, a huge chunk of this profit was a byproduct of a Bitcoin maneuver, with the company trimming 10% of its crypto holdings. 

Proceeds from the sale of Bitcoin amounted to $272m, with a $101m ‘positive impact’ to profits. Much of the market commentary has been focused on that but there is another, arguably more important aspect to this – namely, the role of Bitcoin as a treasury asset.

During the call, Tesla’s CFO a.k.a. Master of Coin, Zach Kirkhorn, commented that the decision to sell a small portion was merely part of Tesla’s ongoing cash management.

Kirkhorn sees Bitcoin as an alternative store of value that does not compromise liquidity. Specifically, during the Q1 earnings call he stated: “Elon and I were looking for a place to store cash that wasn’t being immediately used, trying to get some level of return on this, but also preserve liquidity. Particularly as we look forward to the launch of Austin and Berlin and uncertainty that’s happening with semiconductors and port capacity, being able to access our cash very quickly is super important to us right now. … [Bitcoin] is a good place to place some of our cash that’s not immediately being used for daily operations or maybe not needed till the end of the year and be able to get some return on that.”

Asen Kostadinov, Head of Strategy at Copper, says Tesla’s move paves a clear path for other corporations to leverage Bitcoin as a treasury asset.

“While there is a lot of focus on the impact the Bitcoin sale had on Tesla’s Q1 profit, the more interesting points in my view are that 1) the company using Bitcoin as a treasury asset to ‘store cash not immediately used while offsetting uncertainty in port capacity and semiconductors pricing’, and 2) Tesla was able to tactically sell 10% of its position very quickly due to ample liquidity. This is key when it comes to risk management.”

In the aftermath of the call, Musk himself turned to Twitter to assert that Tesla’s relationship with Bitcoin is no mere dalliance. In addition to responding to Documenting Bitcoin’s question about Bitcoin passing a stress test, Musk addressed the accusations that he had profited from a ‘Bitcoin pump-and-dump’ engineered through his public statements supporting the digital assets. 

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He told Barstool Sports’ Dave Portnoy that Tesla’s decision to realise profits from its recent crypto buy was to illustrate to the market that Bitcoin’s liquidity makes it an eligible tool to effectively diversify treasury holdings. Musk also explained that he had chosen to retain his personal investment in Bitcoin.

Ralph Payne, CFO at Copper notes that Tesla’s encouragement for corporate treasurers to lay down their surplus cash on the cryptoasset may result in Bitcoin landing a fresh batch of adopters in the form of Fortune 500 companies. 

“In a very short space of time, Tesla has justified what the media once labelled ‘a sizeable gamble in crypto’ by showcasing Bitcoin as a useful financial tool to manage cash balances efficiently. However, the company also made it clear that a long-term strategic position rather than fly-by-night approach is key.”

He added: “Major companies and institutional players continue to keep their fingers on the pulse of the rapidly growing digital currency market. As Bitcoin grows more valuable and global crypto markets become increasingly more regulated, I think we will see an acceleration of corporate treasurers working to become a bit more tech savvy and better understand this emerging asset class.”

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