Tesla’s stock price and the value of Bitcoin now directly correlate with each other according to Wedbush analyst Daniel Ives.
“Musk is now tied to the Bitcoin story in the eyes of the Street and although Tesla made a billion paper profit in its first month owning the digital gold, it comes with added risk, as seen this week,” said Ives.
“With Tesla diving into the deep end of the pool on bitcoin, Musk runs the risk that this side show can overshadow the fundamental EV (electric vehicle) vision in the near term for investors.”
The price of Bitcoin has plunged 20% in the last 24 hours. Plunging from its all-time high of $58,000 on Sunday to $46,000 at press time.
Tesla’s share price meanwhile has fallen below $700 and is now negative for the year. The electric car giant made headlines after disclosing it purchased $1.5 billion worth of Bitcoin in January.
Musk has been tweeting about the cryptocurrency on and off ever since. In addition to Bitcoin, he has mentioned Ethereum and Dogecoin.
The billionaire changed his Twitter bio to include the Bitcoin hashtag last month, causing it to surge 20%. Over the weekend he said the price of Bitcoin and Ethereum seemed “high,” resulting in a sharp fall.
“When your Twitter feed is non-stop about an asset, that is a huge warning signal,” Eric Lonergan, a fund manager at M&G said. “In the world of social media narratives, you’ve got to be very, very careful.
“When the personality of a CEO is 10 times bigger than the cars they’re manufacturing, you’ve got to take this stuff with…you know…this is very, very, very dangerous territory from an investment standpoint.”
Ives still believes the Bitcoin investment was a smart move for Bitcoin. He calculated that the company has already made a $1 billion profit since last month.
Despite the recent slide, Wedbush is still bullish on Tesla, which is currently valued at around $780 billion.
“We believe Tesla will hit a one trillion market cap over the coming months through its EV growth and not through bitcoin,” Ives said.
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