Crosspost: Tesla’s non-GAAP crypto adjustment raises a timing question
Tesla's adjustment for crypto losses eliminates the impact of the new FASB crypto accounting standard. But that’s not what happened when there were gains.
This is a cross-post with Deep Quarry, the newsletter I occasionally collaborate on with Olga Usvyatsky. If you value our work, please subscribe!
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In its earnings report for the quarter ending on March 31, 2025, Tesla (Ticker: TSLA) introduced a brand-new non-GAAP adjustment for digital assets (gain) loss, net of tax, that strips out the impact of the adoption of FASB’s accounting for crypto assets, ASU 2023-08. The adjustment improved the Q1 2025 Net Income Attributable to Common Shareholders of $409 billion by $97 million, or about 23%, and increased the Q1 2025 diluted EPS of $0.12 by $0.03.
After removing digital assets losses and compensation expenses, Tesla reported Adjusted EPS of $0.27 for Q1 2025 - a miss compared to the analysts’ consensus estimate of $0.39.
Source: SEC filings
The new FASB standard requires companies to remeasure certain digital assets at fair value each reporting period, with gains and losses flowing through the income statement, increasing the volatility of the earnings. Notably, Tesla early adopted ASU 2023-08 in Q4 of 2024 but introduced the non-GAAP adjustment for crypto gains only in Q1 2025.
The timing begs the question: why now?
According to Tesla’s recast 2024 quarterly results, Tesla had digital assets unrealized gains in three of four 2024 quarters, including Q4 when the new digital assets fair value standard was adopted. If Tesla had introduced the non-GAAP digital assets adjustment upon adopting the new standard in Q4 2024, it would have reduced the Net Income Available to Common Shareholders of $2,128 million by $270 million, or about 12.7%, and the Adjusted EPS by $0.08.
In Q4 2024, Tesla reported an Adjusted EPS of $0.73, below the analysts’ consensus estimate of $0.76. Stripping out the digital asset unrealized gains in Q4 would have widened its earnings miss.
Suppose Tesla timed the introduction of the new adjustment to a quarter with crypto losses rather than gains. (Please note that this is a hypothetical argument, not a factual statement). In this case, the earnings boost introduced by an opportunistic adjustment will likely be short-lived. Given the volatility of Bitcoin, it is reasonable to assume that the price of the coin will go up in at least some quarters, reducing the non-GAAP earnings. Moreover, if we accept Michael Saylor’s argument that Bitcoin is the next best thing since sliced bread and the price will go up in the long term, there are likely to be, on average, more quarters with gains than losses.
The SEC’s Compliance & Disclosure Interpretations (C&DIs) require that companies present non-GAAP metrics consistently and when adjusting, remove both gains and losses not just losses. As I discussed with Bloomberg, introducing the adjustment during the quarter with losses and not making an adjustment in a quarter with gains would be inconsistent with SEC rules. It is a red flag:
“If they suddenly eliminate the adjustment during a quarter when Bitcoin shows gains, that would be a red flag,” Usvyatsky said.
However, the new FASB rule is intended to provide useful information to investors by reporting crypto assets at fair market value. In this case, is stripping out the volatility, an inherent quality of fair value accounting, appropriate? While no specific non-GAAP guidance applies to ASU 2023-08, the SEC has historically objected to companies stripping out the volatility introduced by new accounting standards. That’s because such adjustments introduce tailored accounting metrics, prohibited by Question 100.04 of the SEC’s C&DIs.
For instance, SEC’s Corp Fin issued comment letters to several companies in 2020, asking them to refrain from removing the impact of the new standard for credit losses, CECL. As Nicola White of Bloomberg reported:
“Before CECL went live for public companies in 2020, the SEC added another warning: Companies can’t use just unofficial metrics showing their earnings as if they hadn’t switched over to the new accounting.”
I discussed CECL-related comment letters in detail in my previous post.
It is challenging to pinpoint whether crypto-related non-GAAP adjustments are appropriate because we have only a handful of SEC ASU 2023-08 comments. Still, based on what we’ve seen so far, the SEC seems to be approaching the question on a fact-specific basis.
For instance, the SEC issued comments to Mara Holdings, Inc. (formerly Marathon Digital) on April 8, 2024, arguing that excluding the impact of the ASU 2023-08 changes the recognition and measurement principles and, thus, is not allowed. The Company agreed to remove the adjustment in future filings.
“We note your disclosure of the non-GAAP measures of net income (loss) excluding the impact of the newly adopted FASB fair value accounting rules and net income (loss) per share excluding the impact of the newly adopted FASB fair value accounting rules. The non-GAAP adjustments to these measures have the effect of changing the recognition and measurement principles required to be applied in accordance with GAAP. Please revise to refrain from presenting these individually tailored non-GAAP measures. Refer to Question 100.04 of Compliance and Disclosure Interpretations on Non-GAAP Financial Measures.
Response: The Company acknowledges and respectfully advises the Staff that it did not intend to present a measure to have the effect of changing the recognition and measurement principles in accordance with GAAP. The Company will prospectively refrain from presenting such individually tailored non-GAAP measures.”
SEC comments to Marathon Digital prompted Market Watch to predict, citing Olga and I, that companies – such as Coinbase (Ticker: COIN) – that remove the impact of crypto gains and losses following the adoption of the new standard are facing an elevated risk of drawing SEC scrutiny:
"Francine McKenna, author of The Dig on Substack and a former journalist and academic, said an SEC letter doesn’t always prompt companies to proactively stop violating the same rules.
“However, the message to Marathon Digital was crystal clear,” she said. “I wouldn’t wait for the SEC to call to eliminate any individually tailored non-GAAP measures.” (McKenna is a former MarketWatch reporter.)"
As predicted by us and by Market Watch, on October 18, 2025, the SEC issued comments to Coinbase, questioning, among other things, two distinct types of crypto-related adjustments:
The adjustment that removes the impact of pre-ASU 2023-08 impairments of crypto assets because stripping out normal, recurring, operating adjustments is misleading and violates Question 100.01 of SEC’s C&DIs.
The adjustment that removes gain on crypto assets held for investment, net (post-adoption of ASU 2023-08) because this adjustment reverses the impact of adoption of ASU 2023-08, creating a tailored accounting measure prohibited by Question 100.04 of Regulation G.
While Coinbase noted in its response that gains and losses on crypto assets are not core to the Company’s operations, the Company acknowledged that the pre-adoption crypto impairment adjustment included both operating and non-operating expenses and is inconsistent with the Company’s post-adoption non-GAAP policy of stripping out gains only on crypto assets held for investment:
“Prior to adoption of ASU 2023-08, the Company adjusted for impairments on crypto assets still held, net, which included impairments on both crypto assets held for investment and operations.”
And also:
“The Company further acknowledges the Staff’s request and notes that, in doing so, it has considered that a portion of the adjustment to arrive at Adjusted EBITDA in periods prior to 2024 relates to crypto assets held for operations (as defined in accordance with ASU 2023-08), and that adding back that portion of the losses and subsequent recoveries is inconsistent with its policy post-adoption of ASU 2023-08 of only adjusting Adjusted EBITDA for gains and losses associated with crypto assets held for investment, which as noted are not core to the Company’s revenue generating, operations, or business strategy.”
With that in mind, Coinbase decided not to revise the previously reported non-GAAP numbers because the operating part of the adjustment is immaterial, removing the entire adjustment would distort the results, and impairment pre-adoption of ASU 2023-08 will no longer be included in its filings following the 2024 Form 10-K.
Coinbase’s argument about why the post-adoption adjustment is appropriate merits a more detailed discussion. According to the Company, the post-ASU 2023-08 adjustment does not constitute an individually tailored metric because it is analogous to removing the gains and losses on long-term investments and other non-operating items common among companies within and outside the Company’s industry.
Notably, according to the Company’s 2024 10-K filing, crypto assets held for investment had a fair value of $1.5 billion as of December 31, 2024, compared to $82 million for crypto assets held for operation. Thus, most of the gains and losses on crypto assets are considered non-operational by Coinbase and eliminated in the non-GAAP presentation.
To support its determination, Coinbase observed that:
Coinbase adjusts only for a subset of crypto assets that are held for investment purposes; the gains and losses on crypto assets held for operations are not eliminated in the non-GAAP reconciliation.
Coinbase considers the investments in crypto assets as long-term holdings and “…does not plan on engaging in regular trading of crypto assets”.
While the Company does not intend to change its long-term policy for holding the crypto assets, it may “change its policy and sell crypto assets held for investment to generate liquidity.”
Adjusting for non-operating gains and losses and investments is a common practice.
The SEC did not issue follow-up comments on Coinbase’s non-GAAP presentation.
Coinbase talks to the SEC about a lot of things
The public version of the Coinbase S-1 was posted to the SEC Edgar website on February 25, 2021. I wrote about it here at The Dig on March 10. The company filed two more amended S-1/A on March 17, and March 23 and then its Notice of Effectiveness was posted April 1, 2021 at 4 p.m., April Fool’s Day.
While it is reasonable to assume that part or most of Tesla’s bitcoin is held as an investment, Tesla does not provide an explicit statement about the purpose and duration of the bitcoin holdings. According to Tesla’s 10-K, Tesla “…purchased and/or received immaterial amounts of digital assets”.
CoinDesk, citing Arkham Intelligence, reported that Tesla purchased $1.5 billion of bitcoin in 2021, but sold most of it in 2022. Tesla also announced a plan to accept bitcoin as a payment, but the plan did not materialize, according to CoinDesk:
“Tesla bought $1.5 billion worth of bitcoin in February 2021, and at some point owned as much as $2.5 billion worth, according to Arkham data. However, the firm sold 75% of its holdings in early 2022 at a loss. When Arkham Intelligence added the car maker's bitcoin wallet tracking feature to its dashboard in March, it held about 11,509 bitcoin, worth roughly $770 million.
Musk had also previously announced, back when Tesla first acquired its stash, that the company would soon accept bitcoin payments, but the plans were dropped shortly after due to environmental concerns.”
So, would Tesla, similarly to Coinbase, be able to argue that their Bitcoin is a long-term investment? We don’t know; the disclosure is not detailed enough. Note also that, in contrast to Coinbase, Tesla removes the entire (vs. a subset) impact of ASU 2023-08.
Tesla makes sure its delivery numbers hit more than miss
On July 3, 2024, Tesla reported global automotive deliveries for Q2 that were 4.8% lower year-over-year. That follows an 8.5% year-over-year drop in Q1. This was the first-ever 2-consecutive quarters of annual delivery number declines for Tesla.
Coinbase’s position also relied on the argument that the investment in crypto assets is not a core part of the Company’s operations, with only “...Chief Financial Officer and a handful of other employees spend any time relating to these crypto assets held for investment”.
Other major crypto holders, such as Strategy (formerly MicroStrategy), might not be able to take a similar position. That’s because, for them, investments in crypto assets are now their entire operating strategy.
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