Tesla chief Elon Musk’s Twitter poll to ask if he should sell 10% of the company’s stock to pay taxes, appeared to have a knock-on effect on the price of Bitcoin.
Minutes after the hive mind of social media urged the South African entrepreneur to sell and pay taxes, Bitcoin’s value fell by almost 2%.
Much is made lately of unrealized gains being a means of tax avoidance, so I propose selling 10% of my Tesla stock.
Do you support this?
— Elon Musk (@elonmusk) November 6, 2021
Michael Saylor, co-founder and CEO of MicroStrategy, commented that if the goal of selling 10% of Tesla’s stocks was diversification, an alternate strategy might be to consider converting the Tesla balance sheet to a Bitcoin Standard and purchasing $25bn in Bitcoin.
“That would deliver diversification, inflation protection and more upside for all investors in a tax-efficient manner,” he suggested.
Well-known investor and crypto advocate Anthony Pompliano, meanwhile, countered with another interesting angle…
If you sell $20B+ of stock, the government will be able to fund themselves for a few minutes with the tax payment you’ll make.
They’ll celebrate like you balanced the budget though 🤣
— Pomp 🌪 (@APompliano) November 6, 2021
Even though Musk has previously said he has no plans to sell his Bitcoin – either personally or through SpaceX and Tesla – there is a possibility that, in order to keep some stocks, he could sell crypto as well.
Musk to pay $5bn in taxes
Musk owns 170.49 million shares of Tesla, plus an array of highly valuable options. Leaving the options aside, 10% of his stock amounts to 17.049 million shares – worth a staggering $20.8 billion based on Friday’s closing price of $1,222.09 a share.
At the last market close that happened before Musk’s announcement, the price of Tesla stock was down by 0.64%. However, at the time of writing, Frankfurt Stock Exchange said that Tesla’s stock plunged by 7.37% to 984.10 EUR only 20 minutes after the opening bell. After Musk’s announcement, Bitcoin fell by 1.85%.
When talking about taxes, Musk would pay approximately $5bn on a $20.8bn sale if it’s assumed he’s not offsetting it with losses on other investments.
His capital gain, however, is huge. Musk paid around 49 cents a share for his initial investment in Tesla, according to the SEC filing for the company’s initial public offering. Since then, the shares have split five-for-one, so his cost basis from that investment is just under 10 cents a share.
Some argue that Musk used a crude tweet in response to US Senator Ron Wyden’s call for a tax on billionaires. Namely, US Senate Democrats have unveiled a proposal to tax billionaires’ stocks and other tradeable assets to help finance President Joe Biden’s social spending agenda and fill a loophole that has allowed them to defer capital gains taxes indefinitely.
Musk then criticised the proposal saying that “eventually, they run out of other people’s money and then they come for you”.
Following his Twitter poll, Musk also went on to explain that he doesn’t take a cash salary or bonus from anywhere.
“I only have stock, thus the only way for me to pay taxes personally is to sell stock,” he said.
Price of BTC will only rise while Tesla stock could go down
Since Tesla went public in 2010, Musk has only sold stock twice. In 2016, he sold 2.7 million shares for a total of $593 million in order to cover taxes for options he had exercised. In July 2010, when Tesla had its initial public offering, Musk sold a bit more than 1.4 million shares for a pre-tax total of $24 million.
The stock rose around 1,400% since the start of 2020 earning him another $294bn.
According to the last earnings report from Tesla for the third quarter, adjusted earnings per share (EPS) beat expectations, rising 144.7% year-on-year and over the past year, Tesla’s shares have provided a total return of 105.2%.
Currently, analysts expect that Tesla will report earnings of $5.86 per share in 2021 and $7.77 per share in 2022.
On the other hand, JPMorgan just has released an inaugural report of its new publication focusing on the outlook for alternative investments, including digital assets.
According to the firm’s analyst Nikolaos Panigirtzoglou the price of Bitcoin could reach $146,000 in the long term, with a short-term price target of $73,000 for 2022.
“Digital assets are on a multi-year structural ascent, but the current entry point looks unattractive in our opinion for an investment horizon of 12 months as Bitcoin appears to have returned to overbought territory,” he explained.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.