News: Bitcoin’s steep drop drags Tesla, ARK ETFs along for the ride.
LONDON (Reuters) – A fall in Bitcoin this week has impacted Tesla shares, saving more than $ 110 billion from the value of the electric car maker and around $ 20 billion from the net worth of CEO Elon Musk, while exchange-traded funds, who hold the stock were slammed.
Bitcoin slumped 17.2% earlier in the day and made a weak tone in the cryptocurrency markets as investors left leveraged bets. It recently fell 10.8% to $ 48,318 at 1343 GMT.
Tesla’s shares fell 7.3% to $ 662.3 as U.S. markets opened. The electric car maker announced a $ 1.5 billion investment in Bitcoin this month.
Tesla’s decline also hit exchange traded funds (ETFs) like the ARK Innovation ETF and ARK Autonomous Technology & Robotics ETF, down 8.9% and 7.3%. Tesla is the largest single holding in both ETFs.
A German-based trader said he had “taken chips off the table” from Tesla because its $ 1.5 billion investment in the cryptocurrency “could now backfire”.
The losses are due to a wider market downturn in recent days, with investors selling stocks of a wide range of assets that have rallied sharply in recent months, from technology stocks to cannabis and solar ETFs.
The tech-heavy Nasdaq Composite Index fell 2.6% this week, while the Dow and S&P fell 0.7% and 1.8% respectively. Benchmark 10-year government bond yields were 1.3619% after rising nearly 45 basis points this year. This threatened to reduce the appeal of stocks and other comparatively risky investments.
However, some investors may have prepared for a downtrend in the ARK Innovation ETF. Amy Wu Silverman, equity derivatives strategist at RBC Capital Markets, noted an increase in demand for protection against a decline in this ETF.
“For those living under a rock, the ARKK ETF was the flagship of the momentum high-flyers and is loved by retailers,” wrote Silverman.
The Graniteshares 3X Long Tesla Daily ETP, an exchange-traded leverage product designed to triple the daily movements of Tesla shares, declined more than 32% in London.
While Tesla has long been committed to reducing global auto emissions through the use of its relatively eco-friendly cars, Elon Musk’s decision to invest in Bitcoin could weigh on Tesla’s ESG rating, said Valentijn van Nieuwenhuijzen, chief investment officer at the wealth manager NN IP, told Reuters on Friday.
Meanwhile, Barclays analysts noted that conversations about the company on Reddit’s WallStreetBets forum had declined, which may explain some of the loss of appetite for the stock.
“With only 2-3 submissions in each of the past few days, we are staying below the attention trend that has historically been accompanied by large leaps in returns,” the analysts said in a note.
Tesla remains one of the most expensive components of the S&P 500 index, trading at 163 times its 12-month forward earnings.
While bets on loss of value have backfired spectacularly in the past, short interest in Tesla stock was still 5.5% according to refinitive data.
Reporting by Julien Ponthus, Thyagaraju Adinarayan, Karin Strohecker, Aaron Saldanha and Megan Davies; Adaptation by David Evans
Original Source © Reuters