Bitcoin’s Corporate Diehards Face Earnings Reckoning After Slump

Bitcoin’s corporate champions need to be held accountable for the brutal cryptocurrency selloff.

After the drop in price of Bitcoin in the second quarter, companies such as MicroStrategy Inc. and Tesla Inc. will need to report on their digital holdings next week. Square Inc. is one of few large companies that has added cryptocurrency to its balance sheets. It will report its results in August.

There will likely be some eye-opening write downs in the disclosures. Companies could also benefit from accounting quirks like selling digital currency at higher prices than they originally paid.

Jack Ciesielski (an accounting analyst and the founder of R.G.) stated that there will be repercussions due to the volatility in the quarter’s price. Associates Inc.

Bitcoin’s volatility is of no consequence to Tesla investors, the largest maker of electric cars in the world. They are merely a result of continued innovation and the progress in expanding their sales worldwide. Tesla’s market capitalization soared in 2020 because investors believed it would be a leader in an electric car future. However, the stock has been slowing this year. Wall Street believes that the company’s move into Bitcoin was a contributing factor.

“It’s been an unimportant sideshow that’s cast shadows on the stock,” said Dan Ives, Wedbush Securities analyst who holds a Tesla outperform rating. It takes away from the story at an era when this tidal surge is just beginning to take root.

Crypto companies that have crypto assets write down their value if they are sold at a lower price than the acquisition rate. However, gains can only be recognized after a sale. Even though Bitcoin’s average price could be much lower than current prices, companies will have to record impairment fees when the market falls.

Ives is one of the few analysts who doesn’t seem to worry about Bitcoin gains or write downs. They are instead focused on Tesla’s China sales performance and plans for fully-autonomous driving software.

Tesla made $128 million from token sales in the first quarter. Chief Executive Officer Elon Musk stated earlier this month that the move was intended to demonstrate Bitcoin’s liquidity. Tesla, which had Bitcoin worth more than $1.3billion as of March 31, wrote down $27 million from its Bitcoin holdings during the same quarter. After Bitcoin fell below $29,000 at June’s end, the Palo Alto-based company could be subject to a steeper second quarter charge.

MicroStrategy, in contrast to Tesla has made Bitcoin an integral part of its business. They even sold bonds to help fund purchases. The software company spent just over $2.25 Billion on tokens under Michael Saylor as its Chief Executive Officer. MicroStrategy issued a warning about an impairment of at most $284.5 million less than three weeks later. MicroStrategy raised $500 Million in a private placement to increase its Bitcoin holdings. The price of tokens fell further, and this could lead to a larger quarterly writedown.

Musk made headlines for criticizing energy sources used to process transactions in May. This shocked Bitcoin enthusiasts and sent the price of Bitcoin plummeting. Musk remains invested in Bitcoin, and said Tesla won’t sell any. However, Tesla suspended vehicle purchases with tokens until the confirmation process that is known as mining takes place.

Musk offered some hope to Bitcoin enthusiasts this week by stating that mining is “shifting towards renewable energy” and that his company will likely continue accepting cryptocurrency payments. Investors may need to wait longer than the accounting classifications to see the implications of Musk’s pronouncement. Tesla has not disclosed whether customers have purchased a Tesla car using Bitcoin.