Tesla, now heavily tied to Bitcoin, loses value as cryptocurrency crashes

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Shares of Tesla Inc. were set to dip red for the year on Tuesday, hit by a large selloff in high-tech stocks and the fall in bitcoin, in which the electric car maker recently invested $ 1.5 billion Americans.
By early Tuesday morning, Tesla was down more than 6% in US pre-market deals after dropping 8.5% in the previous session.

The Elon Musk-led firm has had a stellar turn since 2020, which started at around $ 85 a share, before hitting the $ 900 mark on January 25.

Currently trading at around $ 673 in pre-market trades, the stock is down 25% from its peak, which is above the 20% level that technically defines a bear market.

Bitcoin fell 17% on Tuesday as investors grew nervous over extremely high valuations, triggering the liquidation of leveraged bets and causing a sell-off in the cryptocurrency markets.

The world’s largest cryptocurrency was facing its biggest daily drop in a month, falling to $ 45,000.

The drop took its losses to more than a fifth from Sunday’s record high of $ 58,354 and underscored the volatility of the emerging asset – although it is still up around 60% this year.

“The types of rallies we’ve seen are not sustainable and just invite withdrawals like this,” said Craig Erlam, senior market analyst at OANDA. “It was an extremely overbought market. ”

The representation of bitcoin virtual currency standing on a computer motherboard is seen in this illustration from February 2, 2018. (Dado Ruvic / Illustration / Reuters)

Ether – the world’s second largest cryptocurrency by market cap, which often moves in tandem with Bitcoin – also fell more than 20% to $ 1,410, down more than 30% from the record high of last week.

Bitcoin’s high volatility, critics say, is one of the reasons it has so far failed to gain popularity as a payment method – an expectation that has partly fueled its rally.

Tesla’s investment could backfire on you, trader says

A Germany-based trader said he was “taking chips off the table” on Tesla because his $ 1.5 billion investment in cryptocurrency could “backfire on us.”

Among the factors contributing to the rise in equities is strong demand from retailers and institutions for “environmental, social and governance” (ESG) investments.

“There are many reasons – purely from a sustainability perspective – to own Tesla. This is part of this transformation towards a more sustainable business model, ”Valentijn van Nieuwenhuijzen, chief investment officer of asset manager NN IP, told Reuters on Friday.

However, Musk’s decision to invest in bitcoin could weigh on Tesla’s ESG rating, he said.

The billionaire has been criticized for leasing bitcoin before Tesla bought the cryptocurrency.

His role in spurring a retail frenzy in the actions of US video game chain GameStop and driving up the price of memes-based digital currency dogecoin has also been criticized while being acclaimed by a large fan base. .

Barclays analysts noted that there had been a decline in conversations about electric car makers in Reddit’s WallStreetBets forum, which may partly explain the loss of appetite for the stock.

“With only 2-3 total submissions for each of the past few days, we are falling short of the attention trend that has been accompanied by big leaps in performance in the past,” the analysts said in a note.

Other analysts have also cautioned against investing in the stock which remains one of the most expensive in the S&P 500 at 163 times its 12-month forward earnings.

While investments in betting against the company’s shares have turned around dramatically in the past, short-term interest in Tesla shares has still stood at 5.5%, according to data from Refinitiv.

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