Tesla’s Bitcoin Policy Comes With Headaches

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Live by bitcoin, take depreciation fees by bitcoin.

Wall Street can be a funny funny place, not funny ha-ha. The valuation of a business depends on reading financial statements, assigning multiples to items such as net income, operating income, or even balance sheet items.

Were a bit simplistic here, but you see the picture. There are many ways to look at a business and there are many ways to analyze data. For Tesla, the focus may be on advanced vehicles, but the side story (or the side show?) Has to do with bitcoin. Because if Elon Musk is at the head of the firm which aims to take us to the rides of the future (on earth and in space), he is also part of the avant-garde which contributes to stoking the fires of bitcoin and cryptocurrency in general.

Tesla’s latest results show how the volatility of bitcoin, and cryptos in general, can impact financial statements and the outlook, at least, of a company’s fortunes.

The company’s June quarter reports show that an impairment charge of $ 23 million slightly affected its operating income. That’s pretty insignificant compared to the $ 1.3 billion operating profit that was reported in the quarter. But the depreciation contrasts with the more than $ 100 million increase in profits from bitcoin sales seen in the first quarter.

Volatility and ripple effects

Bitcoin price volatility has hovered throughout this year, where the zenith was around $ 65,000, recent nadirs below $ 30,000 and recent prices just above $ 38,000 had an effect of training on financial statements.

It is important to note that the ripple effect occurs here and there, when and if Tesla sells these holdings. And in the latest earnings release, where no transaction (buy or sell) was explicitly announced, digital assets (believed to be bitcoins) on the balance sheet were flat at $ 1.3 billion, or roughly the same as in the March quarter. During the most recent period, Musk and the other participants in the earnings call didn’t mention bitcoin at all.

Musk, of course, said not too long ago that the company would not sell its bitcoin, but asked over and over again if the company would accept the digital offering as a form of payment. Now it is again, it seems. Earlier this month, he said Tesla would most likely start accepting bitcoin as a form of payment. If and when this happens, the impact will be felt on the income statement (in revenue, filtered in operating income). Musk said bitcoin paid to the company would be kept in bitcoin and not converted to fiat. This seems to imply that the payments / products would ultimately be settled on the balance sheet.

The wild swings in crypto, combined with the accounting rule that depreciation charges must be taken on intangibles when recent prices fall below book value, impact profits. Ultimately, the checkered nature of bitcoin and its brethren can distract from core business and / or make it harder to market the business.

Learn more about Bitcoin:

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