Connect with us
Active Currencies 16042
Market Cap $3,628,007,513,060.50
Bitcoin Share 53.32%
24h Market Cap Change $-5.33

Why did Tesla allocate only 7.7% of its cash reserves to Bitcoin?

2min Read

Share this article

In light of Tesla’s $1.5 billion purchase of Bitcoin, market bullishness is at a fever pitch. In fact, right now, many anticipate that corporate treasurers worldwide will follow Tesla’s lead and take a closer look at an allocation towards cryptocurrencies.

Tesla is the fifth-largest company in the S&P 500, which is the reason why many are speculating that an entity of a similar size may be the next to come out with a huge Bitcoin purchase.

How likely is it that Apple or Microsoft will be the next to announce a direct Bitcoin purchase? According to Avanti Founder Caitlin Long, there’s a reason that Tesla allocated only 7.7% of its $19.4 billion cash reserves to the cryptocurrency.

Digital assets are currently considered “indefinite-lived” intangible assets under current accounting rules. According to Long, this means that any depreciation in their fair values below their carrying values at any point after the acquisition will require Tesla to recognize an “impairment charge.”

In addition to this, Tesla cannot make any upward revisions in market price until a sale. This impairment charge opens companies up to many negative impacts, including sudden hits to their earnings.

The popular crypto-proponent went on to claim that Tesla would’ve bought more Bitcoin if the Generally Accepted Accounting Principles (GAAP) “‘weren’t so ugly.”

As things currently stand, if a company invests in a Bitcoin Fund, the value gets marked up or down, whereas, if it buys Bitcoin directly, value only gets marked down. This may explain why companies prefer to get indirect exposure to digital assets.

Recently, esteemed fund manager Bill Miller also moved to offer investors indirect exposure to Bitcoin through the Grayscale Bitcoin Trust (GBTC). In fact, a recent SEC filing revealed that the $2.7 billion Miller Opportunity Trust may invest in GBTC, offering investors indirect exposure to an extent of 15% of the digital asset.

Share

Samyuktha is a full-time journalist at AMBCrypto. Currently pursuing her Masters in Finance and Business Analytics, she is interested in cryptocurrencies, fintech, and blockchain technology adoption across various sectors.
Read the best crypto stories of the day in less than 5 minutes
Subscribe to get it daily in your inbox.
Please check the format of your first name and/or email address.

Thank you for subscribing to Unhashed.