Tesla's $1.5 billion profit from Bitcoin investment is zeroed out

According to Fortune magazine, as the price of Bitcoin fell below $30,000, the nearly $1.5 billion in paper profits that Tesla once earned from its investment in Bitcoin has vanished.

In February this year, Tesla announced an investment of $1.5 billion to buy Bitcoin. According to Fortune magazine, the company purchased 46,000 Bitcoins between the beginning of this year and early February, at an average price of $32,600. In April this year, Tesla disclosed that it sold 10% of its Bitcoin holdings in the first quarter, or about 4,600 Bitcoins, at an average price of $59,100, close to Bitcoin's historical high. The transaction brought the company $272 million in revenue and realized a pre-tax profit of $101 million in the first quarter.

As of the end of the first quarter, Tesla still held 41,400 bitcoins, with a holding cost of $1.33 billion. By April 14, when Bitcoin reached its all-time high of $64,800, these bitcoins were worth $2.68 billion. Tesla was sitting on $1.35 billion in paper gains, plus $101 million in profits in the first quarter, for a total of $1.451 billion in realized and paper gains.

That gain has actually disappeared once. On June 22, Bitcoin fell to $28,900, leaving Tesla with a $133 million paper loss on its investment. But Bitcoin prices have since rebounded, so over the past month, Tesla's Bitcoin holdings are still worth hundreds of millions more than when it was purchased.

But on July 20, those gains disappeared again. The price of Bitcoin fell to $29,600, and Tesla still had a $105 million loss on its Bitcoin holdings. If Tesla sold those Bitcoins today, its $1.5 billion investment would basically break even, but the $1.451 billion windfall would be gone forever.

That’s why it’s necessary to sound the alarm bells when Tesla’s holdings fall to or below the breakeven line. It should remind Tesla investors of the damage that could happen to the company if the price of Bitcoin continues to fall.

If Bitcoin falls to $25,000, Tesla will suffer a loss of $300 million. If it falls to $20,000, the loss will rise to $500 million, equivalent to almost all of Tesla's pre-tax profit in the first quarter.

Editor/Ray