Last week, Tesla (TSLA 2.21%) made headlines with its quarterly earnings call when CEO Elon Musk disclosed that the company sold 75% of its Bitcoin (BTC 3.03%) that it originally bought in January 2021.
At the time, Musk took to Twitter to announce that the company purchased $1.5 billion of Bitcoin as an alternative to holding cash. But now that same Bitcoin was sold as Tesla faced an uncertain production environment in its Chinese markets.
Due to prolonged COVID-19 lockdowns at its Shanghai factory, Tesla’s output was seriously damaged in the second quarter. In the midst of the lockdowns, Tesla executives had no idea when they would end, or when employees would be allowed to go back to work. As a result, the company needed additional cash on hand to ensure that it could weather whatever lockdown-related obstacles arose. To build up a reserve of cash, the company decided to sell three-quarters of its Bitcoin holdings.
Based on information in the earnings report, it looks as though Tesla sold sometime in May, when the price of Bitcoin was around $30,000. By selling then and not at the Bitcoin bottom, which dropped as low as $19,000, Tesla limited the losses it would have incurred if it had waited any longer.
The sale added almost $950 million to Tesla’s balance sheet. If the company sold closer to Bitcoin’s price of $20,000, that number could have slipped by 30% to something like $650 million. At a time when every dollar mattered, Tesla avoided the worst of Bitcoin’s decline and added a cushion of cash in case the situation in China worsened.
Why you shouldn’t follow Elon this time
Unless you are strapped for cash and need to run an international business like Tesla, I would suggest against selling your Bitcoin. If anything, it might be a great time to buy.
One of Bitcoin’s most reliable technical indicators is the 200-week moving average (WMA). Only twice has Bitcoin’s price fallen below the 200 WMA line — the fall of 2015 and the COVID-19 plunge in March 2020. In hindsight, both of those periods represented buying opportunities that only come around so often. Now Bitcoin finds itself in similar territory as 2015 and 2020. Around mid-June, the price tumbled below the 200 WMA and stayed there for nearly a month. Only recently did it tick above, but just for a few days before dipping below it again.
If the technical indicators aren’t enough for you to keep holding on to your Bitcoin, we can look further into comments Musk made on the same earnings call. After commenting on the sale, Musk elaborated that the decision “should not be taken as some verdict on Bitcoin” and that the company would look to increase Bitcoin holdings in the future.
Sounds like Musk and Tesla are still interested. Although current factors revolving around the company might not permit Tesla to add to its remaining 10,000 bitcoins right away, Musk’s comments indicate that he still seems to believe in the original cryptocurrency.
RJ Fulton has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin, Tesla, and Twitter. The Motley Fool has a disclosure policy.
