Tesla invested in Bitcoin: $1 billion of paper gains

The news that Tesla bought Bitcoin for $1.5 billion last month detonated the market, becoming one of the most high-profile listed companies that have announced their holdings of Bitcoin in the market recently. There has been news that Tesla’s investment in Bitcoin has brought it a billion dollars in investment income followed by the rise in prices, exceeding its corporate profits for last year.

In fact, there are obvious misunderstandings in this statement, which is a simple, crude, and irresponsible understanding. After consulting the relevant annual report of Tesla’s Bitcoin holding, it was found that Tesla identified Bitcoin assets as an “intangible asset indefinitely”, which was included in the intangible assets by the cost method- under goodwill.

Under this accounting confirmation method, and in accordance with the corresponding accounting standards, Tesla will need to conduct an impairment test on the asset in each quarter in the future. If the impairment is established, the corresponding impairment will be directly included in the income statement, and at the same time adjust the value of the bitcoin assets held accordingly. In short, as long as the Bitcoin asset exists in Tesla’s financial report for one day, its value can only be lowered in the future, but not raised, unless Tesla sells it to obtain “realized gains.”

Due to the particularity of tokens such as Bitcoin, the current mainstream international accounting standards require companies holding related assets to treat them as intangible assets for corresponding accounting confirmation, and they must be tested for impairment in the future.

Considered Tesla’s public statement that it may hold Bitcoin for a long time, in this sense, holding Bitcoin cannot add luster to Tesla’s financial report due to the increase in the price, and it will drag the performance instead. In addition to the details of the accounting confirmation rules, Tesla’s massive purchase of Bitcoin is quite controversial. In the eyes of many institutional investors with strict investment regulations and guidelines, Tesla’s move is equivalent to reducing its own stock price. The changes are further exposed to higher market volatility. The nature of this stock has become closer to speculative properties and has exceeded the investment scope strictly stipulated by many institutional investors’ terms. Therefore, they have to choose to sell Tesla shares in their hands, which has further contributed to the recent continuous decline in Tesla’s stock price.

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