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Bitcoin must stay above this level for Elon Musk’s bet to be in the black

May 19, 2021, 6:12 PM UTC

Elon Musk famously turned on Bitcoin by criticizing its vast carbon footprint. But Tesla’s mercurial CEO apparently still views the world’s largest cryptocurrency as a stellar place to park the company’s cash. Although Musk shocked the crypto-world by declaring that Tesla would no longer accept Bitcoin for payment, he later tweeted that it hadn’t sold any of the coins in its treasury since his change of heart. Now, the apostle of green energy is stuck with an asset that’s both a big time polluter powered chiefly by dirty coal in venues such as China and Iran, and an asset that, at least briefly on May 19, looked like a lousy investment.

In Q4 of last year, Musk purchased $1.5 billion in Bitcoin in one of the most adventurous moves ever undertaken by a corporate treasury. CFO Zach Kirkhorn praised the gambit as “a good place to place some of our cash that’s not being used, and get a good return on that.” By my math, Tesla bought 46,000 coins at an average price of $32,610. In mid-March, it sold 10% of its holdings, around 4,100 coins, at an average price of almost $60,000, booking a profit of $128 million (reduced to $101 million by an “impairment” charge).

For awhile, the wager looked brilliant: At Bitcoin’s peak of $63,425 on April 14, Tesla was harboring a gain of $1.275 billion on the 41,400 coins still on its books. That exceeds its operating income from making and selling cars for the past four quarters, excluding revenues from regulatory credits.

But those gains shrank as Bitcoin entered a sharp descent in early May, culminating in a drop on May 19 that around 10 AM, sank the signature crypto by 27% to $31,663. At that point, Tesla’s remaining stake was worth $40 million less than it paid. Even counting the gain on what it sold in Q1, Tesla was barely breaking even, after sending his shareholders on a dizzying rollercoaster ride.

By midday on May 19, Bitcoin had rebounded to $36,900, lifting Tesla stake back in the black. Even with that spike, its bounty had shrunk from by over $1 billion to $200 million.

Whether Bitcoin keeps rising or pushes Tesla’s holdings further underwater, Musk made a poor choice gambling with corporate cash. As Jerry Klein of Treasury Partners, a firm that manages war chests for many public traded companies told Fortune, the top priorities for treasurers and CFOs is safety and liquidity. What they fear most is any loss of principal. They’re protecting that money for essentials such as funding accounts receivable and inventories, guarding against sudden downturns in their markets, and seizing on merger or R&D opportunities that may suddenly arise.

If Bitcoin hadn’t existed, it would have to be invented as the ultimate, high-volatility holding prudent managers would want shun. Now, Musk’s got two reasons not to buy Bitcoin––it’s a bane on the environment, and as the recent drop demonstrated, a tough investment to defend when it does well, and more than an embarrassment when it goes bad.

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