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1/ HAPPY #TESLA DAY, #bitcoin 
! Two things in the announcement caught my eye
& are worth pondering.
* the $1.5bn #bitcoin purchase was 7.7% of @Tesla's $19.4bn of cash. Why only 7.7%?
* Tesla plans to accept bitcoin as payment but "may or may not liquidate upon receipt." Why?
! Two things in the announcement caught my eye& are worth pondering.* the $1.5bn #bitcoin
purchase was 7.7% of @Tesla's $19.4bn of cash. Why only 7.7%?* Tesla plans to accept bitcoin as payment but "may or may not liquidate upon receipt." Why?
2/ Why only 7.7% of cash? Well, @Tesla confirmed it's using indefinite intangible accounting, which is UGLY treatment (lower of cost or market+risk of impairment charges). We bitcoiners must work to get bitcoin acctg fixed. It's prob why Square only put 2% of its cash into #BTC .
.
3/ What gives? "Impairment charge"=
. Cos hate them bc they cause sudden hits to earnings. I'd guess Tesla & Square ran scenario analyses to see how big an impairment charge they cld tolerate in a #bitcoin bear mkt, & sized their investment based partly on that (+other factors).
. Cos hate them bc they cause sudden hits to earnings. I'd guess Tesla & Square ran scenario analyses to see how big an impairment charge they cld tolerate in a #bitcoin bear mkt, & sized their investment based partly on that (+other factors).
4/ I'd guess they would've bought more #bitcoin if GAAP acctg weren't so ugly. Really we bitcoiners need to work w/ #FASB to fix this. Weird--if a co. invests in a bitcoin fund, value gets marked up or down. But if it buys bitcoin directly, value only marked down (until sold).
if GAAP acctg weren't so ugly. Really we bitcoiners need to work w/ #FASB to fix this. Weird--if a co. invests in a bitcoin fund, value gets marked up or down. But if it buys bitcoin directly, value only marked down (until sold).
5/ But the "we may liquidate upon receipt" statement is even more interesting. I've been worried for a long time that a lien mess would eventually hit #bitcoin & this could be the start of it. @TraceMayer anticipated it & that's why #Wyoming law addressed it--to get ahead of it.
& this could be the start of it. @TraceMayer anticipated it & that's why #Wyoming law addressed it--to get ahead of it.
6/ What do I mean by "lien mess"? Follow me here. Most companies have loans from banks to help them manage cash flow. These loans give banks a 1st-priority lien on inventory & the "proceeds" from selling their goods. Yep, @Tesla has a standard one of these https://www.sec.gov/Archives/edgar/data//1318605/000156459019003165/tsla-ex1055_754.htm
7/ So, what does this mean? If @Tesla sells a car for #bitcoin , its bank has a first-priority lien on that bitcoin because that bitcoin is "proceeds." It's known as an "all-assets lien." It's VERY common & you'll find it in pretty much every bank loan pertaining to inventory.
, its bank has a first-priority lien on that bitcoin because that bitcoin is "proceeds." It's known as an "all-assets lien." It's VERY common & you'll find it in pretty much every bank loan pertaining to inventory.
8/ Why does a bitcoiner care? Well, let's consider the unlikely scenario that Tesla (or any other co. that sells goods for #bitcoin ) someday goes bust. The bank *MUST* go after that #bitcoin & will sue whoever the co. sold it to, to enforce its *VALID* lien on that #bitcoin .
) someday goes bust. The bank *MUST* go after that #bitcoin & will sue whoever the co. sold it to, to enforce its *VALID* lien on that #bitcoin .
9/ Sounds scary & thankfully it's unlikely to affect you. But as #bitcoin 's price climbs + more cos accept #BTC as payment for goods that are subject to such lien, we're going to start seeing disputes over this. Trace anticipated this eventual prob-- #Wyoming got ahead of it. How?
's price climbs + more cos accept #BTC as payment for goods that are subject to such lien, we're going to start seeing disputes over this. Trace anticipated this eventual prob-- #Wyoming got ahead of it. How?
10/ Wyoming law gives #bitcoin same treatment as money under commercial law ("supernegotiability"--innocent party "takes free" of such adverse claims as long as they weren't colluding to defraud) + has a 2-yr lien cleansing provision as long as the BTC is "located" in #Wyoming.
same treatment as money under commercial law ("supernegotiability"--innocent party "takes free" of such adverse claims as long as they weren't colluding to defraud) + has a 2-yr lien cleansing provision as long as the BTC is "located" in #Wyoming.
11/ How do you "locate" a digital asset in #Wyoming? You could reside here. Or keep your private keys here. Or you use a #Wyoming #SPDI bank to custody them. Or you might use a #Wyoming legal entity to own your #bitcoin . You need legal advice on this. You don't need to live here.
. You need legal advice on this. You don't need to live here.
12/ Other states have proposed the same (fair) treatment for #bitcoin --Nebraska, So.Dakota & Kentucky may enact Wyoming's laws this year & @FrancisSuarez is working to get 'em enacted in Florida. The Uniform Law Commission is working on it too, but it's a slow process.
--Nebraska, So.Dakota & Kentucky may enact Wyoming's laws this year & @FrancisSuarez is working to get 'em enacted in Florida. The Uniform Law Commission is working on it too, but it's a slow process.
13/ I'm optimistic that this stuff--the ugly accounting treatment for #bitcoin & the risk that bitcoin could get caught up in a lien mess--will eventually get fixed. We've gotta keep working on it though!
Let's get going!
& the risk that bitcoin could get caught up in a lien mess--will eventually get fixed. We've gotta keep working on it though!Let's get going!
