Was Tesla selling Bitcoin a wise move?

GB Market Commentary 21/07/2022

by Marcus Sotiriou

Bitcoin fell last night and the early hours of this morning after reaching a key resistance level at around $23,250.

Tesla’s earnings report has led to increased pessimism in the crypto market, as it was reported that Tesla sold $936 million of digital assets in Q2, which was 75% of their Bitcoin holdings. It has been speculated that the Bitcoin was sold at around $29,000.

Elon Musk said that Bitcoin and crypto are not yet contributing to an environmentally sustainable future yet. He also stated that the reason for selling was due to the uncertainty with China lockdowns, meaning that they wanted to raise cash in case China shutdown their factories for an extended period of time.

It makes sense that Bitcoin would be considered as an option to sell given the macro-economic backdrop of rising interest rates. However, Tesla’s decision will not sit well with Bitcoin maximalists, as it gives the impression to many institutions that Bitcoin is not a suitable reserve asset or safe haven.

Despite many crypto enthusiasts being critical of Elon Musk’s move, I think this is an example of good risk management from the world’s richest man. Without their Bitcoin sale, their net change in cash would have been negative $89m, which is not desirable, and Bitcoin preceded to fall by around 40% after Tesla sold. Funds and lenders who have faced liquidity issues have been heavily scrutinised for their poor risk management, and rightly so, hence I don’t think Tesla should be criticised for managing their risk in this uncertain macro-economic environment. They may well buy back Bitcoin or other digital assets when conditions improve.

Whilst institutions like Tesla have been selling on this downtrend, data from Glassnode shows retail are buying Bitcoin at the fastest rate in history. The 90-day change in Bitcoin addresses with less than 1 coin (typically retail) is at record highs. The last time it was close to this high was in 2018 when Bitcoin peaked at around $20,000. The fact that a similar rate of accumulation is happening now after a 70% drop demonstrates conviction from retail holders in Bitcoin’s long-term value.