Tesla Hit With $170 Million Impairment Charge on Bitcoin Holdings 

Elon Musk’s car manufacturer Tesla recorded a $170 million impairment charge for Bitcoin on its balance sheet during the first half of 2022. It also netted $64 million in gains from certain sales of the asset.

• The information comes attached to a 10-Q SEC filing from Monday. Tesla explained that it may make “no upward revisions” for subsequent Bitcoin price increases until it actually sells the asset.
• When accounting, digital assets are defined as “indefinite-lived intangible assets.” As such, Tesla must recognize any decreases to the value of Bitcoin during the reference period below its carrying value – even if its price rebounds in short order.
• Due to the high volatility of cryptocurrencies, this rule creates difficulty for companies seeking to hold such assets on their balance sheets. The Financial Accounting Services Board agreed to review the accounting rules pertaining to digital assets in May but is yet to hold a formal discussion on the matter.
• “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,” said Tesla.
• Looming impairment costs were part of the reason Tesla opted to cash out its Bitcoin in Q2., leaving only 25% of its original position remaining.
• CEO Elon Musk later clarified that the selloff was related to his company’s need for cash, and not to his overall thesis on Bitcoin or crypto investing.
• As of July 2021, Musk said that he personally owns Bitcoin, with smaller allocations put towards Ethereum and Dogecoin.
• In Q1, Microstrategy recorded an equal $170 million impairment loss on its much larger Bitcoin position. Its Q2 loss figures are yet to be revealed.