Tesla, led by Elon Musk, has confirmed that it bought around $ 1.5 billion worth of bitcoin in January and is expected to start accepting it as payment in the future.
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You’re here The share price is now directly tied to the price of bitcoin after Elon Musk’s company invested $ 1.5 billion in volatile cryptocurrency, according to Daniel Ives, analyst at Wedbush.
“Musk is now linked to the history of bitcoin in the street eyes and although Tesla made a billion profit on paper in his first month owning digital gold, it comes at an additional risk, as we sees it this week, “Ives told CNBC via email on Tuesday.
He added, “With Tesla diving into the depths of the Bitcoin pool, Musk runs the risk that this side show could overshadow the fundamental near-term view of the EV (electric vehicle) for investors.”
Despite some concerns, Ives still thinks bitcoin is a “smart move at the right time for Tesla.”
Ives estimated Monday that Tesla has already made over $ 1 billion on its cryptocurrency investment.
“On the other hand, he’s playing with firecrackers and risk and volatility add to Tesla’s story,” Ives said.
Tesla and Bitcoin both suffered big losses this week.
Tesla shares slipped in pre-market talks on Tuesday, down more than 7%, a day after the share’s biggest loss in months. Tesla shares closed 8.55% lower on Monday, as investors betting on a return of the pandemic pulled out of Big Tech and stacked in cyclical stocks. It was Tesla’s biggest drop since September 23, 2020, when it closed 10.34%.
The price of Bitcoin fell further on Tuesday after U.S. Treasury Secretary Janet Yellen issued a cryptocurrency warning.
On Monday, Yellen called bitcoin “an extremely inefficient way to conduct transactions” and warned against its use in illicit activities. She also sounded the alarm on the impact of bitcoin on the environment. The token’s surge has reminded some critics of the level of electricity needed to produce new coins.
The world’s most valuable digital coin has fallen 16% in the past 24 hours, dropping below $ 50,000 to trade as low as $ 45,389 at 4:10 a.m. ET, according to data from Coin Metrics.
Tesla announced in a Securities and Exchange Commission filing earlier this month that he bought $ 1.5 billion worth of bitcoin and would start accepting bitcoin as a payment method for his products.
Musk has tweeted about the cryptocurrency since then, sounding the alarm bells in some corners. He also tweeted about other coins like Ethereum and Doge.
The billionaire changed his Twitter bio to BTC last month, causing a 20% increase, and over the weekend, he said the price of bitcoin and Ethereum looked “high,” causing it to drop sharply.
Eric Lonergan, a fund manager at M&G, said Tuesday that Musk’s actions on Twitter are cause for concern.
“When your Twitter feed doesn’t stop at an asset, that’s a huge warning signal,” Lonergan told CNBC Squawk Box Europe. “In the world of social media stories, you have to be very, very careful. When a CEO’s personality is 10 times the size of the cars they make, you have to take it all with… you know… It’s very, very, very dangerous territory from an investment standpoint. “
Despite the recent declines, Wedbush is still bullish on Tesla, which is currently valued at around $ 780 billion.
“We believe Tesla will reach a market cap of $ 1 trillion in the next few months through its EV growth and not through Bitcoin,” Ives said.
“We believe EV adoption is skyrocketing globally, led by China, and that explains why Tesla is so well positioned to capitalize on this $ 5 trillion market over the next decade,” he added. “However, bitcoin for now overshadows Tesla’s larger growth story for 2021, although we believe it will pass soon.”
- Additional reporting by Ryan Browne and Jessica Bursztynsky.