Tesla's Missed Bitcoin Opportunity

Tesla, the electric car maker, appears to have missed out on significant potential earnings by selling off a large portion of its Bitcoin holdings at an unfavourable time.

A Risky Digital Investment

In 2021, Tesla made a substantial investment of $1.5 billion in Bitcoin. However, the following year, when the cryptocurrency market was experiencing a downturn, the company sold three-quarters of its holdings.

Since then, Bitcoin has seen a remarkable recovery, increasing in value by approximately 80% over the past year. This rebound means Tesla has foregone billions of pounds in potential profits.

Current Holdings and Missed Gains

Recent reports from Tesla indicate that their digital asset holdings have increased to $1.24 billion, up from $722 million a year ago. This rise reflects the strong rally in Bitcoin's price. However, those familiar with the cryptocurrency market will recognise that this figure represents a significant missed opportunity.

Bitcoin is currently trading at a very high price, close to its record. Tesla's decision to sell most of its Bitcoin in mid-2022 occurred when the digital currency's value was much lower than its current level.

Company Priorities and Financial Challenges

While Tesla's CEO has stated that the company's future lies in areas like robotaxis and humanoid robots, rather than crypto investments, the company's core business is currently facing difficulties and could certainly benefit from additional cash.

Recent financial results showed a second consecutive drop in automotive revenue for Tesla, falling short of analyst predictions. This led to a notable drop in the company's share price, making it one of the worst-performing major technology stocks this year.

The company's bets on robotaxis and Optimus robots are large and expensive, in markets with strong competition and rapid changes. Tesla has also acknowledged that external factors, such as government tariffs and the expiry of electric vehicle tax credits, could negatively impact its main business in the coming months.

The Bitcoin Boom and Tesla's Early Entry

Despite these challenges, gains from its remaining Bitcoin holdings did contribute to Tesla's profitability in the last quarter, amounting to $284 million within a total net income of $1.17 billion. However, these gains could have been far greater.

In early 2021, Tesla's substantial investment in Bitcoin was made with the stated aim of diversifying its cash and maximising returns, recognising the digital currency's "long-term potential." The company's CEO had also publicly supported Bitcoin, which caused the currency's value to surge at the time.

The Market Shift and Tesla's Sale

By mid-2022, the global economic situation had changed dramatically. The boom experienced during the pandemic era had ended, replaced by high inflation and rising interest rates. This economic climate pushed investors away from what were considered risky assets.

During the second quarter of 2022, Tesla announced the sale of three-quarters of its Bitcoin, converting it into cash. This happened as both stock and crypto markets were plummeting. At that time, Tesla's market value dropped by about two-thirds, and Bitcoin's value fell by 60%.

Bitcoin's Resurgence and Missed Value

However, Bitcoin has experienced a significant recovery since then. It has received an additional boost from government efforts to relax regulations and a promise to create a strategic Bitcoin reserve.

Currently, Bitcoin is trading at over $119,000, which is approximately six times its value at the end of the second quarter of 2022, when Tesla made its large sale. Had Tesla retained all of its Bitcoin, those holdings would now be worth an estimated $5 billion, rather than the current $1.24 billion. The Bitcoin worth $936 million that the company sold would now be valued at over $3.5 billion.

The CEO of Tesla has largely remained quiet about Bitcoin on his social media in the past three years. In early 2022, shortly before Tesla began selling its Bitcoin, he had stated that he would not sell his Bitcoin, Ethereum, or Dogecoin.