Tesla Sold Its Bitcoin, Should You?

Last week, Tesla (TSLA 2.64%) made headlines with its quarterly earnings when CEO Elon Musk revealed that the company sold 75% of its Bitcoin (BTC -0.75%) which it originally purchased in January 2021.

At that time, Musk took over Twitter to announce that the company bought $1.5 billion in Bitcoin as an alternative to holding cash. But now the same Bitcoin was sold when Tesla faced an uncertain production environment in its Chinese markets.

Due to the prolonged covid-19 shutdown at the factory in Shanghai, Tesla’s production was severely damaged in the second quarter. Amid the shutdowns, Tesla executives had no idea when they would quit, or when employees would be allowed to return to work. As a result, the company needed additional cash on hand to ensure it could deal with any lock-in-related hurdles that arose. To build up a reserve of cash, the company decided to sell three-quarters of its Bitcoin holdings.

Based on the information in the earnings report, it looks like Tesla sold sometime in May, when the price of Bitcoin was around $30,000. By selling then and not at the Bitcoin bottom, which fell as low as $19,000, Tesla limited the losses it would have incurred if it had waited longer.

The sale added nearly $950 million to Tesla’s balance sheet. If the company sold closer to Bitcoin’s price of $20,000, that figure could have dropped by 30% to something like $650 million. At a time when every dollar mattered, Tesla avoided the worst of Bitcoin’s decline and added a cushion of cash in case the situation in China worsened.

Why you shouldn’t follow Elon this time

Unless you are strapped for cash and need to run an international business like Tesla, I would suggest not selling Bitcoin. If anything, it might be a good time to buy.

One of Bitcoin’s most reliable technical indicators is the 200-week moving average (WMA). Only twice has Bitcoin’s price fallen below the 200 WMA line — in the fall of 2015 and the COVID-19 plunge in March 2020. In retrospect, both of these periods represented buying opportunities that only come along so often. Now, Bitcoin is in similar territory to 2015 and 2020. Around mid-June, the price dropped below the 200 WMA and stayed there for almost a month. Only recently did it tick over, but only for a few days before diving under it again.

If the technical indicators aren’t enough for you to continue holding onto your Bitcoin, we can take a closer look at comments Musk made on the same earnings call. After commenting on the sale, Musk elaborated that the decision “should not be taken as a judgment on Bitcoin” and that the company will look to increase its Bitcoin holdings in the future.

Sounds like Musk and Tesla are still interested. Although current factors surrounding the company may not allow Tesla to add the remaining 10,000 bitcoins right away, Musk’s comments indicate that he still seems to believe in the original cryptocurrency.