With Bitcoin Soaring, Tesla May Report These Gains on Its Crypto Holdings Soon

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Tesla CEO Elon Musk is a prominent cryptocurrency fan. Frederic J. Brown/AFP via Getty Images

A rally in cryptocurrencies to kick off the year helped Tesla stem the bleeding from its bitcoin holdings, keeping the value of digital assets stable on its balance sheet after a series of earlier writedowns. And it is possible that it could soon bring gains.

In its first quarter financial results released on Wednesday, Tesla (ticker: TSLA) announced the value of its digital assets at $184 million at the end of last month. That’s the same value it reported at the end of 2022, itself down from $218 million in the third quarter of last year and a sharp drop from $1.3 billion. at the end of March 2022.

The Elon Musk-led automaker bet on crypto in early 2021, joining MicroStrategy (MSTR) as one of the few companies to hold Bitcoin in its corporate treasury. Tesla sold most of its crypto in the second quarter of 2022, dumping more than 30,000 Bitcoin or about 75% of its holdings and avoiding major losses amid Bitcoin’s fall from all-time highs of nearly 69,000 $ at the end of 2021 to lows near $15,500 last November.

While 2023 has seen a reversal in Bitcoin’s fortunes, with the biggest digital asset up around 75% this year and trading around the highest level since last June, Tesla has been unable to reverse previous write-downs and report gains, due to accounting rules. Tesla initially purchased Bitcoin for around $30,000 apiece, which is close to March-end prices of $28,500. The group appears to be roughly breaking even on the crypto it still holds, but its balance sheet still paints a picture of bear market carnage.

Cryptos are currently not covered by accounting rules, which means that companies record them as intangible assets and note their value if the price falls below the purchase price. Gains can only be recorded if the assets are sold, confusing information about long-term investments and weighing on investors’ views of the company’s crypto holdings.

That could soon change. Last October, the Financial Accounting Standards Board (FASB) proposed that companies could use fair value accounting when reporting digital assets like Bitcoin. A change to fair value accounting would mean companies report crypto-related gains and losses in the same way as traditional financial assets, a move that has been touted as a factor likely to boost institutional adoption of the assets. digital.

The FASB confirmed its proposal with a suggested change to accounting standards last month, opening the idea up for public review and stakeholder comment through June 6.

Stakeholders from all professional backgrounds have identified digital assets as a priority area for the Board, FASB Chairman Richard R. Jones said in a statement. We responded to these comments with the proposal [Accounting Standards Update]which would provide investors with greater transparency about the fair value of crypto assets held by entities, as well as additional information about the types of crypto assets held and changes to those holdings.

For businesses that hold crypto, this subtle change in accounting rules could have a big impact on the disclosure of digital assets. If Bitcoin continues to rally or even hold onto its recent gains, Tesla’s balance sheet will be much better for crypto bulls.

Write to Jack Denton at [email protected]

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