United States Security and Exchange Commission (SEC) filings are generally pretty boring documents to read. Today, Tesla submitting a 10-K form that is incredibly important, disclosing that the company had invested in $1.5 Billion in Bitcoin.
Led by Elon musk, the company’s decision also included a larger statement on acquiring digital assets (see below), as well as news they may consider accepting Bitcoin as a currency to purchase vehicles.
At the time of writing, Bitcoin was up over 12%, taking the price of a single Bitcoin to US$43,000+ or more than A$56,000 in Australia. Tesla’s ($TSLA) Share Price is also up 2%+ on the news.
In explaining the purchase, Tesla went into quite a lot of detail, not surprising when the cryptocurrency is still a new concept for many investors.
In Tesla’s Q4 and FY2020 update, they revealed they have US$19.4Bil in cash or cash equivalents. Taking $1.5B and investing in Bitcoin does remove some of the liquidity of that available cash, which shows a confidence in the company’s ability to continue to bring in income, relative to their growth requirements.
This is the largest corporation to date to announce a Bitcoin position, but many more are expected to follow and some like Square, already do, after placing a comparatively tiny $50Mil or 1% of the company’s value last October.
We hold and may acquire digital assets that may be subject to volatile market prices, impairment and unique risks of loss.
In January 2021, we updated our investment policy to provide us with more flexibility to further diversify and maximize returns on our cash that is not required to maintain adequate operating liquidity. As part of the policy, which was duly approved by the Audit Committee of our Board of Directors, we may invest a portion of such cash in certain alternative reserve assets including digital assets, gold bullion, gold exchange-traded funds and other assets as specified in the future. Thereafter, we invested an aggregate $1.50 billion in bitcoin under this policy and may acquire and hold digital assets from time to time or long-term. Moreover, we expect to begin accepting bitcoin as a form of payment for our products in the near future, subject to applicable laws and initially on a limited basis, which we may or may not liquidate upon receipt.
The prices of digital assets have been in the past and may continue to be highly volatile, including as a result of various associated risks and uncertainties. For example, the prevalence of such assets is a relatively recent trend, and their long-term adoption by investors, consumers and businesses is unpredictable. Moreover, their lack of a physical form, their reliance on technology for their creation, existence and transactional validation and their decentralization may subject their integrity to the threat of malicious attacks and technological obsolescence. Finally, the extent to which securities laws or other regulations apply or may apply in the future to such assets is unclear and may change in the future. If we hold digital assets and their values decrease relative to our purchase prices, our financial condition may be harmed.
Moreover, digital assets are currently considered indefinite-lived intangible assets under applicable accounting rules, meaning that any decrease in their fair values below our carrying values for such assets at any time subsequent to their acquisition will require us to recognize impairment charges, whereas we may make no upward revisions for any market price increases until a sale, which may adversely affect our operating results in any period in which such impairment occurs. Moreover, there is no guarantee that future changes in GAAP will not require us to change the way we account for digital assets held by us.
Finally, as intangible assets without centralized issuers or governing bodies, digital assets have been, and may in the future be, subject to security breaches, cyberattacks or other malicious activities, as well as human errors or computer malfunctions that may result in the loss or destruction of private keys needed to access such assets. While we intend to take all reasonable measures to secure any digital assets, if such threats are realized or the measures or controls we create or implement to secure our digital assets fail, it could result in a partial or total misappropriation or loss of our digital assets, and our financial condition and operating results may be harmed.
At the time of writing, neither @Tesla or @elonmusk twitter accounts had posted about the purchase and change in policy regarding digital currencies.