Tesla will book no corresponding gain if the price rises again. In plain English, if the price of bitcoin price suddenly fell by, say, a third compared to the Tesla’s cost of acquiring it - pretty plausible in the context of bitcoin’s historic volatility - then the car maker’s earnings would be short $500-million during that quarter. As we currently intend to hold these assets long term, these charges may negatively impact our profitability in the periods in which such impairments occur even if the overall market values of these assets increase. Accordingly, any decrease in their fair values below our carrying values for such assets at any time subsequent to their acquisition will require us to recognise impairment charges, whereas we may make no upward revisions for any market price increases until a sale. Here’s the relevant bit from Tesla’s filing:ĭigital assets are considered indefinite-lived intangible assets under applicable accounting rules. Shouldn’t accounting standards be updated for the crypto era? Volatility It’s also not entirely fair, whatever you think about Musk gambling with Tesla’s money. This is a significant disadvantage and might discourage other corporate treasurers from following Musk’s lead. The value cannot be written up again until they’re sold. Instead they’re deemed an intangible asset whose value is reported at cost in corporate accounts and must be written down if the price declines. Nor are they considered a financial investment under current accounting rules. Musk’s purchase has boosted bitcoin’s price by almost 20%, so in one sense he’s won already That’s because cryptocurrencies - despite the name - aren’t classified as cash or equivalents for accounting purposes. Unfortunately, his bet won’t improve Tesla’s reported earnings or boost the value of its cash reserves. Musk’s purchase has boosted bitcoin’s price by almost 20%, so in one sense he’s won already. Owning cryptocurrency sits badly with Musk’s green ethos: Some bitcoins are mined with renewable power but the industry still leaves a sizeable carbon footprint.

For a time, Porsche made tons of money trading derivatives, almost bankrupting itself in the process. Tesla wouldn’t be the first car company to operate as a quasi hedge fund. Though small in the context of Tesla’s $830-billion market value, this is still a material portion of Tesla’s $19.4-billion cash reserves to park in such a volatile asset. There’s plenty to suggest the move is inadvisable. Elon Musk’s decision to invest US$1.5-billion of Tesla’s cash in bitcoin is financial dynamite that unites two speculative bubbles.

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