In this episode of Understanding Crypto, Paul Abercrombie and James Burtt discuss the details and effects of Tesla’s Bitcoin liquidation. They both agree that this decision is merely one of Tesla's wealth management techniques for navigating the present economic crisis. James claims that although the market’s volatility places digital currencies in a riskier investment class, Tesla's sell-off is not an attack on the viability of cryptocurrencies. 

Cash is King

The news reports on Tesla's crypto liquidation have led many to conclude that Elon Musk's decision may be a prelude to a new crypto-crash. Paul disagrees; he explains that though Tesla purchased $1.2 billion Bitcoin at the beginning of 2021, they had sold 10% of it to test the market's liquidity by the end of that year.  He believes that Musk's sale of his digital assets should be accredited to the global economic collapse rather than an inherent mistrust of the currency. Paul demonstrates further that Musk's wealth management techniques also saw the withdrawal of his initial Twitter offer. He reminds listeners that during a recession cash is king, as such customers would convert their digital currency to fiat currency. “So what Tesla has done is they've sold Bitcoin to release the best part of a billion dollars of cash which now sits in their cash reserves or on their balance sheet to reinvest into their business.”. During a recession, the risk of keeping the investment as a digital asset is higher than the risk of turning it into fiat currency and may be utilized to offset real-world expenses.Though many observers regard this liquidity as a clear harbinger of doom, both Paul and James agree that Tesla is safeguarding itself in the midst of this present global economic crisis. [Listen from 1:53]

Wealth Management

The main lesson to be learned from this scenario, in Paul's opinion, is that investors must conduct their own research on crypto-related news because media releases on both sides of the divide may be skewed. Elon Musk's decision, though wildly exaggerated by mainstream media, is simply a large-scale extension of the risk-averse behavior displayed during the initial crypto crash. James says, “Selling one Bitcoin won't be a problem; you try and sell a billion pounds worth of Bitcoin, you've got very limited market buyers that want to buy that from you.” He thinks that Tesla's sell-off is a risk management strategy to protect the company's investments in a volatile digital market rather than an attack on cryptocurrencies. Paul claims he understands Tesla's decision to liquidate its digital assets because decreased consumer spending during a recession directly impacts Musk's consumer-based company. As such, their current digital liquidation should be seen as merely a coping mechanism for the current financial crisis. Although current market fluctuations place digital currencies in a riskier investment class, Tesla's sell-off is not an attack on the viability of cryptocurrencies. [Listen from 14:52]

KeyTakeaways

• Tesla’s current digital liquidation should be seen as a wealth management strategy for the current financial crisis.