Thread by @CaitlinLong_

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?

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).

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).🤦‍♀️

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.

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 sec.gov/Archives/edgar…

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.

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.

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?

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.🤠

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.

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.

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! 🤠👊

14/ P.S. -- if you want a roadmap for how to get this fixed in your home state, just copy #Wyoming's UCC addendum. It has stood up well so far & the edge case critiques of it are being addressed. It's best for states (& for #bitcoin) to get ahead of the potential lien mess now!!!