To The Moon

Key points

• Tesla bought $1.5 billion worth of BTC in early 2021, and announced that it has sold off 75% of it.
• Tesla said it needed to maximize its cash holdings due to uncertainty caused by ongoing COVID-19 lockdowns in China.
• Tesla's move did not have a significant impact on Bitcoin's price, potentially because the sale has already happened.

Tesla said in its recent earnings statement that it had sold 75% of its Bitcoin. The electric car maker has been hard hit by COVID-19 lockdowns in China. It said the ongoing uncertainty meant it needed to maximize its cash holdings, and assured investors that the sell-off was not a reflection of its views on Bitcoin (BTC). Bitcoin fell around 3% following the news, but is still up over 11% in the past seven days, according to CoinMarketCap data.

Tesla and Bitcoin

Tesla has a mixed relationship with cryptocurrency. Its CEO and founder, Elon Musk, is an active crypto enthusiast who regularly tweets about cryptocurrency, particularly his favorite token, Dogecoin (DOGE).

Tesla bought $1.5 billion worth of Bitcoin in early 2021, and sold 10% of its holdings in the following few months. It also announced it would accept Bitcoin payments, a decision that played a significant role in the subsequent crypto rally. However, in May 2021, Tesla changed its stance. It said it would suspend Bitcoin payments due to environmental concerns. This was one of the reasons for 2021's first major crypto price drop. At the time, Musk said there was no plan to sell its Bitcoin holdings.

It's worth noting that cryptocurrency is not Tesla's main business. Indeed, many would argue that the heavy environmental cost of mining Bitcoin is actually at odds with Tesla's values of sustainability. During Tesla's earnings call, Musk said: "Tesla's goal is to accelerate the advent of sustainable energy. We're not really -- cryptocurrency is a sideshow to the sideshow."

What it means for investors

Tesla's decision to sell has not had a huge impact on Bitcoin's price. The news did stop a very tentative rally -- the lead crypto briefly topped $24,000 for the first time in over two months. But unlike other Tesla and Musk moves, the reaction to Tesla's sell-off was relatively muted.

There are two potential reasons for this. First, the sell-off has already happened. In its earnings statement, Tesla said, "As of the end of Q2, we have converted approximately 75% of our Bitcoin purchases into fiat currency." It will have an impact on market sentiment, but we're not about to see a $1 billion BTC selloff in the coming weeks.

Second, it doesn't reflect a loss of confidence in crypto on Tesla's part. The recent crypto crash has shaken many investors' beliefs in the long-term potential of the industry, but that's not why Tesla says it sold. "We are certainly open to increasing our Bitcoin holdings in future, so this should not be taken as some verdict on Bitcoin," said Musk in the company's earnings call. He added, "It's just that we were concerned about overall liquidity for the company, given COVID shutdowns in China."

Moreover, Tesla says it sold the Bitcoin for a realized gain. This may interest other companies considering adding Bitcoin to their balance sheets. (However, Tesla is now underwater on the other Bitcoin it holds.) Nevertheless, there's some reassurance in the fact that Tesla was able to liquidate over $1 billion worth of BTC without incurring major losses in spite of the dramatic drop in crypto prices.

Bottom line

In recent years, Tesla and Musk have had an outsized impact on cryptocurrency prices. But the news that Tesla has already sold a large proportion of its crypto is only a blip on the charts compared with other issues at play. Not only has the industry matured in the past 18 months, but crypto is weathering far more significant storms.

The world is grappling with spiraling inflation, a potential energy crisis, and fears of a recession. Crypto markets are reeling from the failure of several well-known platforms and companies, and there's concern about the impact of increased regulation. Many crypto investors are braced for more bad news, but it's unlikely to come from Tesla or Elon Musk.