By Buying BTC, Elon Musk Has Created a Positive Correlation Between Bitcoin and Tesla Stock

Daniel Ives, an analyst at Wedbush Securities, has revealed he believes in the short term Tesla’s share price is directly going to be linked to the price of bitcoin, after the electric car marker’s $1.5 billion bitcoin bet.

According to CNBC, Ives wrote that as Tesla is “diving into the deep end of the pool on bitcoin,” its CEO Elon Musk runs “the risk that this side show can overshadow the fundamental EV (electric vehicle) vision in the near term for investors.” Ives added:

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.

Despite his concerns, the analyst believes buying bitcoin was a “smart move at the right time” for Tesla. As reported, the analyst has estimated Tesla made a $1 billion profit on its $1.5 billion bitcoin bet thanks to the rising value of the flagship cryptocurrency.

Ives added that on the downside, the firm is “playing with firecrackers and risks and volatility are added” to its story. Both Tesla and BTC saw their prices crash earlier this week, with Tesla’s stock price dropping from over $780 late last week to a $652 low before recovering.

Similarly, bitcoin dropped from over $58,000 to a $45,600 low before it started recovering. The cryptocurrency is now trading at $50,800 and is seemingly still climbing. BTC dropped after U.S. Treasury Secretary Janet Yellen warned against cryptocurrency, saying bitcoin is an “extremely inefficient way of conducting transactions.”

Despite Tesla’s focus on bitcoin and its price being tied to the cryptocurrency, Wedbush is still bullish on Tesla, believing it will “hit a one trillion market cap over the coming months” through the growth of its electric vehicle business, and not through its bitcoin investment.

While bitcoin is “overshadowing the broader Tesla growth story for 2021,” Ives noted he believes the trend will soon pass and investors will focus on Tesla’s electric vehicle business.

Featured image via Pixabay.