Opinion Tesla Bitcoin Selloff Shows that Diamond Hands are not Forever

Tesla Bitcoin Selloff Shows that Diamond Hands are not Forever

July 23, 2022

In 2021, Tesla Motors decided to take on one of the biggest purchases of cryptocurrencies by an institutional actor. Through their official channels and multiple accounts, the same company bought some one billion USD worth of bitcoin. In the coming months, Elon Musk, the famous CEO of the same company, boasted that his business is not planning to sell its holdings if the price begins to wobble and buckle. That happened on several occasions between the purchase and the big crypto crash of June 2022. 

At that time, Musk mentioned that his company has diamond hands, which is a slang term for anyone who is keeping hold of their crypto assets even when the price of the same tokens begins to slide down. But, the past week showed that even the diamond hands of Tesla have an expiration date. The company decided to sell most of its BTC tokens and recently revealed that it did the same. This sent shockwaves through crypto Discord servers, esports forums, and many other social media locations where cryptocurrencies are often discussed. It did not, however, move the crypto market which remains in a process of a shy and slow recovery. That is a big surprise and many analysts believe that it showcases a maturing market that is finally able to distinguish posture and posing from actual big changes in the underlying value of these digital assets.

75 Percent of Bitcoin Holdings

Tesla decided to liquidate no less than three-quarters of its BTC holdings, which were worth around 2 billion USD back at the end of 2021. Then, the crypto market was at its highest point and the value of bitcoin reached its historic maximum, with a single BTC token valued at nearly 70,000 USD. However, in the most recent crash, the value of the same digital currency plummeted by more than half, cutting down the maximum historic worth by two-thirds. 

The once high 60,000 USD levels became low 20,000 USD levels in a matter of weeks. Somewhere at that point, Tesla Motors decided to sell a big part of its BTC holdings. The sale generated an amount of nearly one billion USD. More precisely, from its offloading of tokens, the company managed to get some 936 million USD. 

Fueling the Bulls

Back in 2021, the company that had the biggest influence on the overall crypto market, besides MicroStrategy and Square, was precisely Tesla Motors. It invested around 1.5 billion USD in this digital currency and did it openly. The same decision definitely improved the state of the crypto markets almost overnight. Even the unassociated digital currencies like monero and ethereum managed to gain a substantial amount of market cap and price value on the account of the influx of funds into the bitcoin network. All of that took place back in February of that year. 

By the end of the year, the bull market was in full swing and turning people who invested only a year or two prior to that into the same space into millionaires. Yet, even the elusive institutional investment boost did not change the notorious fact about the crypto space – the insanely high level of volatility. So, not two years later, the fuel that brought up the big bull run of 2021 became spent and the markets took a massive nosedive in a very short timeframe.

Tesla Wobble

The negative influence of Tesla and Elon Musk on the crypto market is almost as potent as the positive inference it wielded during the last bull run. The first big hit that came from the company was almost immediately after its purchase of bitcoin holdings. That came in the form of the company deciding that it will no longer accept bitcoin purchases of Tesla vehicles because of the environmental damage that the same currency supposedly generated. This includes, more precisely, the general issue of proof-of-work networks which use the so-called hashing power to generate mathematical calculations. 

These generate new tokens for the miners as a reward for their activity, but also spend an ample amount of electricity. Expenditure of power was, according to Elon Musk, an unacceptable element of the same setup and thus not something that the company could support. That cut short the bull run and forced many in the crypto community to sell their token, expecting a sudden drop in value. This drop did occur and cut the bull run in half, but only to see it rebound during the same late summer and early fall period. 

Company Problems

The Tesla selloff already defined a new chapter of the cryptocurrency ecosystem, regardless of the fact whether the same company wanted to do that or not. The sale did not shake the markets immediately like many would have predicted only a year prior to that. Instead, the shy recovery that began a couple of weeks ago seems stable for the present moment. The prices, especially that of bitcoin, did not slip down by any big margin and the other crypto tokens remained afloat as well. On the other hand, the selloff did showcase some vulnerabilities of the Tesla Motors business model. The company said that the bitcoin coffers were hurting its profitability. 

However, the same company reports a bigger profit for the three-month period than the analysts expected. It also made a [promise that the second half of 2022 will be record-breaking. A crucial part of that equation is the state of the Chinese manufacturing industry, which is struggling with the complicated zero-tolerance policy in Beijing. Underlying this is the stone-cold fact that the price of Tesla shares fell by nearly 40 percent this year. Things like the sexual harassment allegations against Elon Musk did not help that either. So, while it seems that Tesla’s crypto hands are anything but diamond, it also seems that the company has far bigger problems than its crypto holdings. Parallel, it seems that the crypto market can easily do without Tesla as well.