Tesla and other major public companies sunk billions into crypto and now they’re taking a big hit

January 28, 2022, 6:58 PM UTC

Bitcoin has been plunging spectacularly over the last few months, down around $1.4 trillion since hitting an all-time high last November. In that time, individual crypto traders have sold, lost, sulked, and bought again, but publicly traded companies have also posted almost $7 billion in losses, according to crypto analysis firm CoinGecko

As Quartz previously reported, 27 publicly traded companies currently hold Bitcoin on their balance sheets, putting the volatile digital currency where reliable assets are customarily found. Although Bitcoin became an increasingly popular hedge against inflation in 2021, the recent swoon in the cryptocurrency has left many major companies red-faced. The hedge just hasn’t been reliable of late.

Two public companies, electric-car maker Tesla and software developer MicroStrategy, collectively own around 169,000 Bitcoin, almost 78% of all Bitcoin owned by publicly traded companies. MicroStrategy alone makes up for more than half of this amount, holding 121,000 Bitcoin, equal to $3.5 billion.

MicroStrategy has been taking a big gamble on Bitcoin for months, unapologetically building up its crypto reserves. Company founder and CEO Michael Saylor has personally invested in the digital currency, frequently defending and praising Bitcoin on his Twitter feed. Saylor currently holds at least $866 million in Bitcoin, according to Business Insider.

Even in the wake of the crypto carnage, MicroStrategy has no intentions to back down from its Bitcoin bets. “Our strategy with Bitcoin has been to buy and hold, so to the extent we have excess cash flows or we find other ways to raise money, we continue to put it into Bitcoin,” MicroStrategy CFO Phong Le told the Wall Street Journal this week.

MicroStrategy did not immediately respond to Fortune’s request for comment.

Tesla has also held firm on retaining its crypto holdings. In its Q4 earnings report, released on Wednesday, the company revealed it hadn’t sold off any of its Bitcoin during this year’s “crypto winter” and currently holds $1.26 billion in Bitcoin. Tesla made waves earlier this year when the company announced it would begin accepting Bitcoin as payment for its products, before quickly rescinding the statement after criticism over Bitcoin mining’s intensive energy use. The company has yet to resume accepting Bitcoin payments.

Other companies whose holdings have been hit by the crypto downturn include financial services and digital payments company Square (8,027 Bitcoin), cryptocurrency exchange platform Coinbase (4,483 Bitcoin), and South Korean video game publisher Nexon (1,717 Bitcoin).

Companies like MicroStrategy began placing their assets in cryptocurrency, believing that Bitcoin would be a safer long-term investment to store holdings than the U.S. dollar. “[I]nvesting in the cryptocurrency would provide not only a reasonable hedge against inflation, but also the prospect of earning a higher return than other investments,” MicroStrategy explained in an August 2020 statement after it had first started to buy Bitcoin. 

However, some companies have sworn off buying cryptocurrency altogether, expressing concern over the infamous volatility of digital currencies like Bitcoin. 

“We’re generally interested in safety and liquidity to run our businesses. Bitcoin can be still too volatile and still too speculative, so I think it’ll be an awfully long time before Bitcoin becomes a functional currency for us,” PepsiCo CFO Hugh Johnston told CNBC SquawkBox last October.

Even Square Inc., which possesses significant crypto holdings and is run by a firm cryptocurrency advocate, former Twitter CEO Jack Dorsey, may be stepping back from crypto holdings. After posting a $20 million loss on a $220 million cryptocurrency investment, the company announced it had “no plans” to make any new crypto investments

A few months earlier, in March, Square CFO Amrita Ahuja told Fortune’s Sheryl Estrada that “there’s absolutely a case for every balance sheet to have Bitcoin on it.”

Just like individual traders, if companies want to dabble in crypto they need to be smart about their investments. Companies like MicroStrategy and Tesla got into the Bitcoin game early, when the coin’s price was relatively low. Others were not as lucky.

Square’s big Bitcoin investment last year came right before a precipitous drop for the currency in May when it went from a high of nearly $60,000 to a low of around $30,000, where it stayed for several months. Nexon, another company that posted big crypto losses, was also a victim of bad timing, having invested $100 million in April 2021, around a month before Bitcoin’s downturn.

“In the current economic environment, we believe Bitcoin offers long-term stability and liquidity while maintaining the value of our cash for future investments,” Nexon CEO Owen Mahoney said in a statement announcing the company’s Bitcoin investment.

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