Tesla dumped a large portion of its bitcoin holdings. Should you?

by James · August 20, 2022

The price of one bitcoin fell 3% on Thursday to around $23,000 after Tesla (TSLA) revealed in its latest earnings report on Wednesday that it sold about 75% of its bitcoin holdings during the second quarter to raise cash.

“The reason we sold a bunch of our bitcoin holdings was because we were uncertain when the Covid lockdowns in China would ease,” Musk said on an earnings call with analysts Wednesday evening. “So it was important for us to maximize our cash position.”

But is the change in Tesla’s bitcoin stance really a reason to dump crypto – or just a convenient excuse after a nice little rally?

Bitcoin prices, which have more than halved this year, have enjoyed a solid rebound over the past week, rising 12% over the past seven days. Other cryptos, such as ethereum and solana, have increased even more dramatically. Also, Musk made it clear that Tesla is not abandoning crypto.

“We are certainly open to increasing our bitcoin holdings in the future, so this should not be taken as a judgment on bitcoin,” Musk said on the call with analysts. “It’s just that we were concerned about the overall liquidity of the company.” He also noted that Tesla has not sold any of its holdings in meme cryptocurrency dogecoin.

Crypto investors to Elon Musk: Please stop tweeting!

But some analysts wondered if other big investors will use Tesla’s bitcoin sale as justification to offload some of their cryptocurrency holdings as well.

“The Tesla sale could trigger a new wave of related dumping by corporate bitcoin holders, most of whom may also be troubled by the ongoing global economic slowdown,” Andrey Diyakonov, chief commercial officer at Choise.com, a crypto wallet firm, said in an e -mail to CNN Business. “While this is speculation, investors are likely to begin to take note of this opportunity going forward, a move that is bound to reflect in long-term performance.”

Software company Micro strategy (MSTR) own a large amount of bitcoin, for example. But CEO Michael Saylor has continued with it tout bitcoin on his Twitter feed — even though MicroStrategy’s stock has plunged nearly 50% this year. Square owner Block (SQ)run by Jack Dorsey, also owns bitcoin.

Others pointed out that Musk, like it or not, can move markets.

“Traders should not be surprised that Musk supported Tesla’s sale of bitcoin, as the crypto winter was clearly in place and the balance sheet needed to be strengthened,” Edward Moya, senior market analyst for the Americas at OANDA, a forex trading firm. , said in a report.

“Tesla’s dumping of a good portion of their bitcoin holding news caught many off guard and helped end the rally,” Moya added. “This is not a game changer for bitcoin, but it unsettled a good portion of the avid social media followers.”

It’s also worth remembering that bitcoin prices rise and fall for many reasons that have nothing to do with the world’s richest person.

“Macro factors play a bigger role in bitcoin’s price, such as Fed decisions on interest rate hikes and inflation,” Chris Kline, co-founder of Bitcoin IRA, a digital asset technology platform, said in an email to CNN Business.

“Major institutions moving into the arena are affecting the price action of bitcoin, which is why this current crypto winter is different from previous ones,” Kline added. “Major institutions have adopted crypto in one form or another, and that plays a factor in the volatility we’ve seen recently.”