Tesla, led by Elon Musk, confirmed it bought around $ 1.5 billion worth of bitcoin in January and expects it to be accepted as payment in the future.
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Daniel Ives, an analyst at Wedbush, said Tesla’s share price is now directly tied to Bitcoin price after Elon Musk’s company invested $ 1.5 billion in the volatile cryptocurrency.
“Musk is now tied to Bitcoin history in the eyes of the street, and although Tesla made a billion paper profit on digital gold in its first month, it carries an additional risk as seen this week,” Ives told CNBC via email Tuesday.
He added, “With Tesla dipping into the deep end of the pool with Bitcoin, Musk runs the risk of this sideshow in the short term overshadowing the fundamental vision of EVs for investors.”
Despite some concerns, Ives still believes that Bitcoin is a “timely smart move for Tesla”.
Ives estimated on Monday that Tesla has already made over $ 1 billion from its investment in the cryptocurrency.
“On the other hand, it plays with fireworks and risks and volatility are added to Tesla’s history,” said Ives.
Tesla and Bitcoin saw huge losses this week.
Tesla shares fell more than 11% as the market opened Tuesday, a day after the stock’s biggest loss in months. Tesla stock closed 8.55% on Monday as pandemic comeback investors rotated out of big tech and piled into cyclical stocks. It was Tesla’s biggest drop since September 23, 2020, when it closed 10.34%.
Bitcoin’s price continued to decline Tuesday after Treasury Secretary Janet Yellen issued a warning about the cryptocurrency.
On Monday, Yellen described Bitcoin as an “extremely inefficient way to conduct transactions” and warned against its use in illegal activities. She also alerted about the impact of Bitcoin on the environment. The token’s wild wave has reminded some critics of the sheer electricity required to make new coins.
The world’s most valuable digital coin has fallen 16% in the past 24 hours, dropping below $ 50,000 to trade at $ 45,389 at 4:10 a.m. ET, according to Coin Metrics.
Tesla’s Bitcoin Bet
Tesla announced in a Securities and Exchange Commission announcement that the company has purchased $ 1.5 billion worth of Bitcoin and will accept Bitcoin as a payment method for its products.
Musk has since tweeted about the cryptocurrency and raised alarm bells in some corners. He also tweeted about other coins like Ethereum and Doge.
The billionaire switched his Twitter bio to BTC last month, which increased it by 20%. Over the weekend, he said the price of Bitcoin and Ethereum were “high,” which caused a sharp drop.
Eric Lonergan, fund manager at M&G, said Tuesday that Musk’s actions on Twitter are a cause for concern.
“If your Twitter feed is continuously informed about an asset, it is a big red flag,” Lonergan told CNBC Squawk Box Europe. “In the world of social media narration, you have to be very, very careful. When a CEO’s personality is ten times bigger than the cars he makes, you have to take this stuff with you … you know … this is from an investment standpoint a very, very, very dangerous area. “
Despite the recent declines, Wedbush is still bullish on Tesla, which is currently valued at around $ 780 billion.
“We believe Tesla will reach a trillion market cap in the coming months through EV growth rather than Bitcoin,” said Ives.
“We believe electric vehicle adoption will skyrocket worldwide, led by China, and this speaks to why Tesla is so well positioned to capitalize on this $ 5 trillion market over the next decade.” , he added. “However, Bitcoin is overshadowing Tesla’s broader growth story for 2021 for now, although we believe it will soon pass.”
- Additional coverage from Ryan Browne and Jessica Bursztynsky.