Bitcoin, Elon Musk, Tesla, Inc., Cryptocurrency 's Brilliant Bitcoin Purchase | Big Accounting Win For Tesla Stock & Elon Musk
Elon musk has been hinting at a large bitcoin purchase for a while now, and it is no secret that he believes that crypto is the way to go yet. He still shocked many by actually purchasing 1.5 billion dollars worth of crypto. So why would elon musk after such an amazing year purchase a large amount of bitcoin well to understand the purchase? We must look at the performance of the asset and the tesla’s own wording in the sec filing because they are hinting at an amazing accounting hack. The performance of bitcoin over the years, so here is a five year overview of the value of bitcoin in us dollars, and the first thing that stands out are the two massive spikes in 2018 and 2021.. Now these spikes are so big, in fact, that you hardly notice the rise in 2019, where bitcoin actually tripled in value in just six months, it’s exactly this type of volatility during the year. That scares many investors and keeps them from investing in bitcoin. However, when you take a closer look at the yearly returns, you get a surprisingly different picture here. We have an overview of the beginning and ending prices of bitcoin for the first and last week of each year. So if you were to invest in bitcoin and only looked at your account during the first week of january and during the last week of december, you would be very happy with your investment. Most of the time, 2018 was the only bad year for bitcoin.
However, putting this in perspective by looking at the year before it’s, only a minor pullback after a 1300 gain, this table highlights the benefits of bitcoin in the long run, showing that it is an extremely volatile asset. But if you have the stomach for it and only look at your returns on a two year basis, it will outperform most securities and provide consistent gains. This means that if you put your money into bitcoin, you should expect to keep it there for at least a year, and probably too, the main takeaway is not to panic when the major dips come, because these are inherent to the product. Now, if you had 1.5 billion dollars to invest, i would probably not spend it all on bitcoin, not because i think it’s a wrong move, but because i personally don’t want such a large exposure to such a volatile instrument. Elon musk and tesla are, of course, in a league of their own and when they do something the market follows and they control the outcome already. Many other companies are rumored to follow, tesla’s lead and are heavily expanding, their position in crypto and in bitcoin in particular. Mastercard has announced it will start offering support for crypto on its network in the coming months, which will allow it for much easier shopping with the currency. It will also further boost the demand for crypto now, even though everything is going perfect for bitcoin and the currency gained an amazing 295 last year, you could ask yourself why invest in crypto, when your own stock is doing over 700 for the year before? You continue with how tesla will greatly benefit from the purchase, please like and subscribe to the channel for more finance and banking information.
So what are the reasons for buying bitcoin instead of investing or holding cash? To answer this question, we have to look at what tesla was doing with the 1.5 billion dollars according to their sec 10k filing. They want to further, diversify and maximize returns on cash. That is not required to maintain adequate operating liquidity, so we are talking about cash. On hand that is basically either sitting in a bank account depreciating or invested in assets that can quickly be liquidated, since tesla indicates that they don’t need the cash to maintain an adequate operating liquidity. It is safe to assume they are looking at a horizon of at least a year and maybe more, they also indicate, may acquire and hold digital assets from time to time or long term. So they are clearly prepared to wait for the right time to sell the digital assets or get out when there is a significant rise and take profits. Based on this time, we know we can compare the different assets shown in this table here when you compare the performance of bitcoin with that of other investment options. Tesla’S purchase starts looking less crazy and starts making a lot of sense. The main difference between bitcoin and other assets is that crypto tends to make most of its gains and losses in a very short time frame, and this makes most investors very uncomfortable. However, when you zoom out and look at the full year or even at a five year period, you see that the overall direction is up with the bitcoin purchase.
Tesla stands to make a huge return on cash it’s, not even using and would otherwise be put into assets that are underperforming. If you are a long term investor and year on year, returns is all you care about, then you should just not look at the price of bitcoin during the year and invest with a one to two year time window tesla’s plan with the bitcoin purchase. So we have already established that from a purely asset management standpoint, the bitcoin purchase makes a lot of sense and will be very profitable over the long run, but there’s a secondary benefit for a company like tesla, which is deriving most of its profitability from zero emissions. Regulatory contract, this main benefit comes from the fine print in the sec filing. As stated here, the important parts are the classification of bitcoin as an indefinite lift intangible asset and the fact that tesla will recognize impairment charges without an upward revision. So it is legal and, more importantly, accounting jargon, simply means that tesla will only recognize losses in the value of bitcoin, but not the gains when bitcoin rises in value. The impairment charges mentioned here mean that the lowering of the value of bitcoin will have to be attributed to the expenses and thus will lower the taxable profits by buying and selling bitcoin around the end date of an accounting period. You could significantly affect the profits of a company and thus the amount of taxes you need to pay.
You can also make quarters appear more profitable by selling the bitcoin gains to cover losses, given this wording in the sec filing it’s hard to tell what tesla’s exact thoughts are with bitcoin, since they are leaving the door wide open for speculating with crypto. If you go by the words of elon musk, we know that he wants crypto to be an established currency, freely available and used to purchase everyday items. He has already indicated that tesla will start accepting bitcoin on a select number of cars to be purchased later this year, the future of bitcoin and tesla. Whatever the exact plan for bitcoin is within the tesla business model, the company will profit from both increases and decreases in the currency. Since there is a limited supply, it would be safe to assume that bitcoin will continue to increase in value for the coming years. And, if you add to this, the pouring in of major investors and fortune 500 companies, major spikes are sure to follow. Some estimates. Put the coin on a value of one hundred thousand dollars by the end of 2021, where other estimates say that bitcoin will eventually be worth one million dollars per coin. This all indicates that for now, there’s still a lot of gains for the coin to realize, and the only real danger for crypto comes from the regulatory agencies.