Tesla's $140 Million Bitcoin Loss Shows the Risk of Crypto Holdings

The electric car maker Tesla announced on January 31 that it had incurred a gross impairment loss of $204 million for the year 2022 on its holdings of Bitcoin (BTC). This information was included in a filing that was submitted to the United States Securities and Exchange Commission. During the same time period, Tesla reported a gain of $64 million from changing BTC into fiat money at different periods during the year. Nevertheless, the company's cryptocurrency trading activities resulted in a net loss of $140 million for the year.

The filing provided more explanation about the effect that fluctuating cryptocurrency values have on Tesla's bottom line:

"According to the relevant accounting standards, digital assets are categorised as intangible assets with an indefinitely long life. In light of this, if their fair values drop below our carrying values for such assets at any time after their acquisition, we will be required to recognise impairment charges. On the other hand, we are not permitted to make any upward revisions for any market price increases until we actually sell the asset in question. Even if there is a rise in the total market value of these assets, the possibility exists that these charges may have a negative effect on our profitability in the periods in which such impairments occur for any digital assets that are held now or in the future."

Tesla made an investment in Bitcoin amounting to $1.5 billion during the first quarter of 2021. Elon Musk, the company's creator, had only just made the announcement that the electric car maker will begin taking Bitcoin payments from customers located in the United States.

Just a few short months later, the decision was reversed because Musk stated the necessity for "confirmation of decent (at least 50 percent) clean energy consumption by [Bitcoin miners with favourable future trend" before the business would once again accept the method of payment. According to recent reports, Tesla liquidated around 75% of its bitcoin holdings during the second quarter of 2022.