The volatility of the popular cryptocurrency Bitcoin has hit Tesla’s financial results. According to the company’s SEC filing, it purchased an aggregate of $1.50 billion in digital assets comprised solely of bitcoin. While the company stated a higher valuation for Bitcoin, it also reported an impairment loss.
An impairment loss is a recognised reduction in the carrying amount of an asset that is triggered by a decline in its fair value.
The company stated, “During the three months ended March 31, 2021, we realized gains of $128 million through sales of bitcoin and also recorded $27 million of impairment losses.”
In February this year, the company invested in Bitcoin worth $1.50 billion and began accepting Bitcoin as a form of payment for the products in certain regions. “In the first quarter of 2021, we also sold an aggregate $272 million in Bitcoin. Net of such sales, the fair market value of our Bitcoin holdings as of March 31, 2021 was $2.48 billion.”
As of March 31, 2021, the carrying value of bitcoin held by the electric car maker was $1.33 billion, which reflects cumulative impairments of $27 million. However, the company claims the fair market value of Bitcoin held as of March 31, 2021, was $2.48 billion.
"Based on our trading activity to date, we believe Bitcoin is highly liquid, although we generally intend to hold our bitcoin long-term regardless of the manner of acquisition. However, digital assets may be subject to volatile market prices, which may be unfavorable at the times when we may want or need to liquidate them,” the company stated in its filing.
What does carrying value and fair market value mean?
The carrying value of that asset is the original cost of its purchase minus any sort of impairments/depreciation or amortisation. And market value is the selling price in the market place.
In this case, the carrying value is lower compared to market value of the crypcurrency.
Fair Value Measurement is based on quoted prices on the active exchange(s) that Tesla has determined its principal market for bitcoin. The company analyses each quarter to identify whether any events or changes in circumstances will decrease the quoted prices on active exchanges. On March 31, 2021, the value of one Bitcoin was around $ 58,730.82.