The shares of Tesla Inc (Nasdaq: TSLA) lost 2.19% or $15.66 to close at $698.84 Tuesday, reflecting the most significant one-day loss in the past several months, following Wedbush analyst Daniel Ives cautionary statement about the electric vehicle manufacturer’s investment in Bitcoin (BTC). Expressly, Ives has stated that the share price of the autonomous vehicle manufacturer is dependent on the cost of the numero uno cryptocurrency in terms of market capitalization.
The shares of Tesla saw heavy sell-off on Monday, with the stock losing 8.55% t close at $714.50. It is widely believed that investors are churning their portfolio by moving out of extensive tech stocks to cyclical stock in hopes of a robust economic rebound in the months ahead. The decline on Monday was the steepest since September 23, 2020, when the stock lost 10.34%.
On February 8, through an SEC (Securities and Exchange Commission) filing, the Palo Alto, California-based Tesla revealed its $1.50 billion investment in Tesla.
At that time, the company clarified that it invested in Bitcoin for increased flexibility, diversification, and maximum yield on cash reserves. Notably, the company also stated that it would begin accepting Bitcoin payments, subject to the rule of law and on a limited scale. If that turns out to be a reality, Tesla would be the first automaker to accept Bitcoin as payment. Analysts believe that the Bitcoins held by Tesla will currently ensure ample liquidity for the company when accepting the crypto as payments.
The $1.50 billion Bitcoin investment made by Tesla represents 8% of the $19 billion cash & cash equivalents held by the company at the end of last year.
The initiative sparked several queries about CEO Elon Musk’s behavior on social media platforms such as Twitter. He was often credited for pushing up the price of meme cryptocurrency Doge and Bitcoin through his tweets.
Two weeks before the SEC filing, the billionaire modified his Twitter bio by including #Bitcoin. The amendment pushed Bitcoin’s price by roughly 20%. In another two days, on chat site Clubhouse, Musk stated that Bitcoin “is a good thing.” He also acknowledged that he is a supporter of cryptocurrency.
Such kind of market-moving tweets had put Musk into trouble earlier on. It may not apply to cryptos, but analysts are certainly taking notice of it. In 2018, the SEC charged the CEO with fraud after casually tweeting his idea of taking the company private at $420 per share. Musk was forced to step down from his position as Chairman of Tesla’s board. The CEO also paid a fine of $20million for the settlement of the case. This is in addition to the $20 million fine slapped on the company.
The Wedbush analyst points out that Wall Street now sees Musk as a person linked to Bitcoin. Even though the company has made a paper profit of $1 billion in a month to invest in the digital currency, the market considers the investment as an additional risk.
Concerning investors, Daniel Ives cautioned that his investment in Bitcoin could eclipse the short-term core electric vehicle plans. Still, Ives considers investment in Bitcoin is a “smart move at the right time for Tesla.”
Bitcoin was trading in a price range of between $29,000 and $37,000 in the second half of January. Based on the price band and current price, Ives estimates that the company has made a paper profit of $1 billion from the investment. Tesla has not revealed the average purchase price or quantity so far.
The analyst stated that the investment in a volatile asset had increased the company’s risk profile. Despite the recent decline in share price, Wedbush still has a bullish view of Tesla, which commands about $677 billion.
Ives stated, “We believe Tesla will hit a one trillion market cap over the coming months through its EV growth and not through bitcoin.”
As electric vehicle adoption is growing exponentially across the globe with China leading the fray, Ives believes that the company is well-positioned to generate massive gains from the market that would be over $5 trillion over the forthcoming decade. In the short-term, Tesla’s story will be overshadowed by Bitcoin investment.
Eric Lonergan, a fund manager at M&G, opined that Musk’s behavior on social media platforms is worrying considering his popularity. Lonergan said, “When the personality of a CEO is ten times bigger than the cars they’re manufacturing, you’ve got to take this stuff with…you know…this is the very, very, very dangerous territory from an investment standpoint.”
Interestingly, both Bitcoin and the shares of Tesla are on a decline for the past two days. The decrease of Bitcoin was triggered by US Treasury Secretary Janet Yellen’s cautionary statement: “I don’t think that bitcoin … is widely used as a transaction mechanism.”
The sell-off gathered pace after Elon Musk stated that he feels Bitcoin be (it was trading at about $57,000) overvalued.
The stock of Tesla may react to large fluctuations in the price of Bitcoin in the short-term.
Technically, the stock is declining after facing minor resistance at 800. The following support is anticipated only near 550. The stochastics oscillator has just now started descending from the bullish zone. This indicates the likelihood of a significant price correction.
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