What to do with bitcoin: Tesla dumps big chunk if its holdings – should you?

By Paul R. La Monica, CNN Business

Bitcoin prices cooled on Thursday after a big spike last week. And it looks like Elon Musk is partly to blame.

The price of a bitcoin fell 3% on Thursday to around $23,000 after Tesla revealed in its latest earnings report on Wednesday that it had sold around 75% of its bitcoin holdings in the second quarter to raise funds.

“The reason we sold a bunch of our bitcoin holdings was because we weren’t sure when the Covid lockdowns in China were going to ease,” Musk said on a conference call with analysts. Wednesday evening. “So it was important for us to maximize our cash position.”

But is Tesla’s shift in bitcoin stance really a reason to dump the crypto — or just a convenient excuse after a nice little rally?

Bitcoin prices, which have more than halved this year, have seen a solid rebound over the past week, gaining 12% over the past seven days. Other cryptos, such as Ethereum and Solana, have risen even more dramatically. Additionally, Musk has made it clear that Tesla is not giving up on crypto.

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“We are certainly open to increasing our bitcoin holdings in the future, so this shouldn’t be taken as a verdict on bitcoin,” Musk said on the call with analysts. “It’s just that we were concerned about the overall liquidity of the business.” He also noted that Tesla had not sold any of its stakes in the same dogecoin cryptocurrency.

But some analysts have questioned whether other big investors would use Tesla’s bitcoin sale as justification to offload some of their cryptocurrency holdings as well.

“The sale of Tesla may trigger a new wave of related dumping from bitcoin holders, most of whom may also be upset by the ongoing global economic downturn,” said Andrey Diyakonov, chief commercial officer of Choise.com, a crypto holding company. said in an email to CNN Business. “While this is speculation, investors will likely start to price this possibility in the future, a decision that is sure to be reflected in long-term performance.”

Software company MicroStrategy has a large amount of bitcoins, for example. But CEO Michael Saylor continued to touts bitcoins on his Twitter feed – even as MicroStrategy’s stock has plunged nearly 50% this year. Square owner Block, led by Jack Dorsey, also owns bitcoins.

Others pointed out that Musk, like it or not, can move the markets.

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“Traders shouldn’t be surprised that Musk backed Tesla’s bitcoin selloff, as the crypto winter was clearly in place and the balance sheet needed to be strengthened,” Edward Moya, senior market analyst for the Americas at OANDA, a currency trading company. , said in a report.

“Tesla dumped a lot of their bitcoin information caught a lot off guard and helped end the rally,” Moya added. “It’s not a game-changer for bitcoin, but it has unsettled a good chunk of avid social media followers.”

It’s also worth remembering that bitcoin prices go up and down for many reasons that have nothing to do with who is the richest person in the world.

“Macro factors play a bigger role in bitcoin’s price, such as Fed rate hike decisions and inflation,” said Chris Kline, co-founder of Bitcoin IRA, a tech platform of digital assets, in an email to CNN Business.

“Major institutions entering the arena affect bitcoin price action, which is why this current crypto winter is different than previous ones,” Kline added. “Major institutions have embraced crypto in one form or another and that plays a role in the volatility we have seen recently.”

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