Crypto Twitter is going on a rant against Elon Musk and Tesla for selling their :bitcoin: Maxis and HODLers take it out on Elon Musk for being a traitor, an opportunist, a shill, pump&dumper and more ... But what exactly happened?
In the Tesla earnings call this week, it became clear that Tesla has sold 10% of their bitcoin holdings. According to Elon Musk it was to test (and prove the liquidity), rather than profit taking. ► twitter.com/elonmusk/status/1386821144037236737 "I have not sold any of my Bitcoin. Tesla sold 10% of its holdings essentially to prove liquidity of Bitcoin as an alternative to holding cash on balance sheet."
I don't want to jump to conclusions like many on Twitter do, but I think his explanation is very plausible. Elon Musk/Tesla want to check whether they can easily sell their BTC and go back to cash whenever needed. It's the same as you testing the withdrawal process from an exchange for a small amount to verify the process.
It's not unthinkable that now that they saw that this is done very easily and swiftly, Tesla will put more than the 7-8% of their cash reserves in Bitcoin as they have now proven that reverting it to cash is just a matter of taking the decision. Tesla's CFO has also confirmed that they will continue to invest in BTC.
My opinion is further confirmed by a paragraph in an article on MarketWatch saying : "Musk and Tesla Chief Financial Officer Zach Kirkhorn discussed the first-quarter gambit as a sound decision, with the sale presented as a way to prove to investors that the market for the crypto asset is liquid at the scale Tesla is playing."
💡 This event, imho, shows other companies who had questions around the potential lack of liquidity in the crypto market that it is safe to put (part of) your cash reserves in Bitcoin and thus might incentivize more of them to do so.
However, this also comes with its drawdowns. Companies will most likely rebalance on a quarterly basis, if BTC rallies, they might sell off a portion of it for risk mitigation, to keep the percentage of BTC in their cash reserves at a level they are comfortable with. Not every company will be like MicroStrategy, and cash reserves are exactly what the word says, a reserve that will be used when needed, whether they are in cash or in BTC. So apart from quarterly fluctuations, we might see companies that sell off their entire stack of BTC to fund their new plans.
While the inflow of their funds benefits BTC hodlers, we can't take the benefits without seeing and accepting the potential "negative" aspects.
❔ What is your idea on Tesla selling 10% of their BTC holdings? I would love to read your opinions in the comments below.
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This article was featured in Editors' Picks! And it sparks an interesting discussion from all sides from Tesla to Bitcoin. Let's see what happens next.
Ether2020
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Very interesting to read. Thank you!
vice17
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Honestly if you buy his "test liquidity" excuse you are naive. A company as big as Tesla would never invest over a billion dollars into something if they weren't already sure it is liquid. They sold for profit to pad their earnings.
Nico.Muselle
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@tino1317, sure, they must have done their due diligence for the limited (7-8%) risk they were taking. The test however might be to warrant a larger portion of their cash reserves to be put in BTC or just to silence criticisms from TSLA-stock holders.
But ... even if you are right, and it wasn't a test, we all (should) know that cash reserves are not a company vouching they will invest and hodl not matter what, right?
vice17
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@Nico.Muselle, Right. Except when the night before the CEO sends out a HODL tweet only to reveal they sold 10%. Doesn't that seem hypocritical and misleading? Anyone who knows anything about Tesla knows they are losing a lot of money selling cars and from their solar "business," selling regulatory credits and now bitcoin is the only way this company turns a profit. Expect Tesla to report more BTC sales next quarter.
It actually seems like market manipulation but what do I know?
AndyLawson
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@vice17, Makes sense. Selling only 10% to pad their earnings, as well as I would say a form of disciplined profit taking. But it would seem they're holding most of it until the top of this cycle which I do believe will be either at the very end of Q2 or within the 1st month or so of Q3. If we are no where close to 200k by end of June, I would bet they only sell off another small portion Q2.
vice17
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@Nico.Muselle, I replied, not sure what happened to it. But you are right, I do not expect anyone to HOLD. Except when they routinely send out HODL and pump tweets like Musk. In fact, Sunday night he sent out another HODL tweet right before their earnings call on Monday only to reveal they sold 10%. Don't you think that is hypocritical and misleading? Anyone who knows anything about Tesla knows they are losing money selling cars and solar panels and they need a new way to pad their books since regulatory credits are gone next year. They sold bitcoin to pad their earnings. Expect Tesla to report the sale of more bitcoin next quarter.