For Bitcoin enthusiasts, it’s great news that Elon Musk’s tweet ignited a fresh bull run just as the leading cryptocurrency’s prospects were fading. It also did Musk a lot of good by boosting Tesla’s huge holdings, which were at risk of posting losses, well into the black. Taking a hit on his celebrated Bitcoin bet would have marked a colossal embarrassment for Musk.
The now famous digital missive came on Sunday, June 13, at 4:43 p.m. EST. Musk was responding to a report in Cointelegraph that Magda Wierzycka, the billionaire founder of South African money manager Sygnia, skewered the Tesla CEO in a TV interview, stating, “What we have seen with Bitcoin is price manipulation by one very powerful and influential individual.” Wierzycka effectively argued that Musk knows that his tweets––careening from praise for the “currency of the future” to criticism of its giant carbon footprint––trigger big swings in its price, but keeps weighing in anyway.
Musk riposted that her charges were “inaccurate” and that Tesla would once again take Bitcoin as payment for its vehicles once “there’s confirmation of reasonable [about 50%] clean energy usage by miners with positive future trend.” His words greatly reassured investors who feared Musk was abandoning Bitcoin after tweeting that because of the widespread use of fossil fuels in producing it, Tesla was reversing its earlier pledge to accept coins for its EVs.
Three minutes before Musk’s tweet, Bitcoin was trading at $35,948. His endorsement sent the coins on a moonshot. By just after 9 a.m. on Monday, June 14, as I’m writing this story, its price reached $40,258, the highest level since May 18. In the space of just 16 hours, Musk had restored the signature crypto’s fading momentum, spurring a 10.9% run that swelled its market cap by a staggering $75 billion.
The sudden jump garnered a quick windfall for Tesla. Musk helped spark Bitcoin’s explosion to almost $65,000 in mid-April by purchasing $1.5 billion in coins early in the first quarter of 2021. Later in Q1, Tesla sold 10% of its holdings near the peak, pocketing a pretax profit of $101 million. At the close of March, Tesla, by Fortune’s estimate, still owned 42,100 Bitcoin. Its latest 10-Q reported that it’s carrying those coins at cost, or “carrying value,” of $1.33 billion. That means it paid an average of $31,600 for the coins now on its balance sheet. (We’ll assume Musk hasn’t sold any more Bitcoin, as he referred to the original 10% sale in his latest tweet, and said nothing about unloading additional coins.)
But after Musk tweeted that Tesla would no longer accept Bitcoin in payment for its cars, the price tanked, dropping below $31,100 on June 8, sending the coins in its treasury underwater. Suddenly, an investment that at its peak gave Tesla a $1.3 billion paper gain was now threatening to produce losses in future quarters. Investors were questioning how any CEO could be so reckless as to park a huge chunk of corporate cash in just about the most volatile “asset” on the planet.
Musk’s vote of confidence restored a big part of Tesla’s shrunken gains, and, at least for now, made the prospect of future write-downs less likely. Before Musk’s Sunday tweet, Tesla’s 42,100 coins had a market value of $1.552 billion, $221 million more than Tesla paid for them. At the current price of $40,258, those holdings are worth $1.695 billion, adding $143 million to Tesla’s gains. Including the $101 million profit from Q1, Tesla has now made almost $250 million in realized and unrealized profits on Bitcoin.
Still, the Musk-inspired rally shouldn’t be overly encouraging either to Bitcoin investors in general or to Tesla shareholders who fear that a loss on a crazy gamble could hammer its profits from selling cars. Keep in mind that it took the intervention of one powerful individual who’s talking his book to ignite a 11% rally, which, by Bitcoin standards, isn’t a huge deal.
Because Bitcoin has no fundamental value, no one can even guess what it’s worth. That’s why the words of Musk, celebrities, and other “influencers” are taking the place of such factors as profits for stocks, yields for bonds, or the supply and demand outlook for other “stores of value” such as silver and gold. Their words can bring glamour, buzz, and momentum, as well as drive prices. But they don’t create value.
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