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Tesla and Bitcoin: Surely the company and others are talking about Tesla's new investment in Bitcoin. (Maybe on @joinClubhouse ). One caveat. It's not supposed to be in the balance sheet ads of 12/31 that was just filed in annual report with SEC. 1/x
The company treated the purchase of $1.5 billion in Bitcoin as a subsequent event. 2/x
They say they invested after Jan 2021, after the balance sheet date of 12/31/2020 and after updating their investment policy to allow for this investment in "alternative reserve assets." 3/x
The company acknowledges it that Bitcoin is volatile but considers it very liquid so will likely account for it as cash or cash equivalent. However, unlike cash it can be written down in value but not up. 4/x
"We will account for digital assets as indefinite-lived intangible assets in accordance with ASC 350, Intangibles–Goodwill and Other. " That's how Saylor is doing it at Microstrategy as @rapoportmike wrote for me at The Dig. 5/x https://thedig.substack.com/p/eggs-basket-the-hidden-and-not-so
Tesla: "...we expect to begin accepting bitcoin as a form of payment for our products in the near future, subject to applicable laws and initially on a limited basis, which we may or may not liquidate upon receipt." That adds significant volatility to rev if widely adopted. 6/x
If $1.5 billion for "liquid" Bitcoin was included in cash balance as of 12/31/2020 it would be nearly 8% of balance and >6% of net assets. Please read what we wrote about this for more details and stay tuned for a full Tesla annual report analysis. 7/7 https://thedig.substack.com/p/eggs-basket-the-hidden-and-not-so
It's worth confirming with Tesla whether the $1.5 billion of Bitcoin is or isn't in this balance sheet as of 12/31/2020. I will.
Per PwC guide (Tesla's auditor) this does not look like the kind of transaction that would be reflected in the balance sheet but clearly warrants disclosure in footnotes, and Tesla has disclosed it thoroughly. https://www.pwc.com/us/en/cfodirect/assets/pdf/accounting-guides/pwc-financial-statement-presentation-guide.pdf#page=750
Another argument in favor of idea Tesla Bitcoin purchase not yet reflected on 12/31 balance sheet: There's no sep line on BS at 12/31 for "digital assets" as Microstrategy shows. It would be quite aggressive to put the Bitcoin investment on cash line. https://www.sec.gov/ix?doc=/Archives/edgar/data/1050446/000156459020047995/mstr-10q_20200930.htm
“The significant volatility of cryptocurrencies, along with fact that they are not considered legal tender prevents holders from being able to ‘convert to a known amount of cash.’” Crypto cannot be classified as cash or cash equiv under GAAP or IFRS.” https://www.cpajournal.com/2019/06/21/cryptoassets-accounting-for-an-emerging-asset-class/
The classical definition of money: 1) Unit of account 2) Store of value 3) Medium of exchange. From an accounting perspective, Bitcoin fails "store of value" test because of its volatility so not cash or cash equivalent. It's more like a Venezuelan bolivars in that respect.
Here's the theory. "To put it a different way, money is something that holds its value over time, can be easily translated into prices, and is widely accepted." https://www.imf.org/external/pubs/ft/fandd/2012/09/basics.htm
