With Bitcoin Soaring, Tesla May Soon Report Those Gains on Its Crypto Holdings

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A rally in cryptocurrencies to kick off the year has allowed

Tesla

to stem the bleeding in its

Bitcoin
holdings, keeping the value of digital assets steady on its balance sheet after a series of prior write-downs. And it’s possible that it could soon report gains.

In its first-quarter financial results released Wednesday,

Tesla

(ticker: TSLA) reported the value of its digital asset holdings at $184 million as of the end of last month. That’s the same value it reported as of the end of 2022, itself down from $218 million in the third quarter of last year and a sharp decline from $1.3 billion at the end of March 2022.

The auto maker run by Elon Musk bet on crypto in early 2021, joining

MicroStrategy

(MSTR) as one of the few companies to hold Bitcoin in its corporate treasury. Tesla sold most of its crypto in the second quarter of 2022, dumping more than 30,000 Bitcoins or some 75% of its holdings and avoiding major losses amid Bitcoin’s plunge from all-time highs near $69,000 in late 2021 to lows near $15,500 last November.

While 2023 has seen a reversal in Bitcoin’s fortune, with the largest digital asset up some 75% this year and trading around the highest level since last June, Tesla has been unable to reverse the previous write-downs and report gains, due to accounting rules. Tesla originally bought Bitcoin for around $30,000 a piece, which is close to where prices were at the end of March—$28,500. The group looks to be pretty much breaking even on the crypto it still holds, but its balance sheet still paints a picture of bear market carnage.

Cryptos are currently not covered under accounting rules, which means that companies record them as “intangible assets” and write down their value if the price drops below the purchase price. Gains can only be recorded if the assets are sold, confusing disclosures around long-term investments and weighing on investors’ view of company crypto holdings.

That could soon change. Last October, the Financial Accounting Standards Board (FASB) mooted that companies could use fair-value accounting when they report digital assets like Bitcoin. A change to fair-value accounting would mean companies report gains and losses linked to cryptos similarly to traditional financial assets, a move that has been touted as a factor that could boost institutional adoption of digital assets.

The FASB firmed up its proposal with a suggested change to accounting standards last month, opening up the idea to public review and input from stakeholders until June 6.

“Stakeholders from all professional backgrounds identified digital assets as a top priority area for the Board to address,” Richard R. Jones, chairman of the FASB, said in a statement. “We responded to that feedback with the proposed [Accounting Standards Update], which would provide investors greater transparency into the fair value of crypto assets held by entities, as well as additional disclosures about the types of crypto assets held and changes in those holdings.”

For companies that hold crypto, this subtle change to accounting rules could have a big impact on the disclosure of digital asset holdings. If Bitcoin keeps rallying—or even holds on to its recent gains—Tesla’s balance sheet will look a lot better to crypto bulls.

Write to Jack Denton at jack.denton@barrons.com