The GameStop craze was a wake-up call, but now the capital markets have really reached ridiculous mode.
Electric car maker Tesla said in a securities deposit on Monday that it bought $ 1.5 billion in bitcoin and that it hopes to start accepting cryptocurrency payments for its products in the future. Tesla shares and bitcoin traded higher after the announcement. This follows posts on social media by the influential head of the automaker, Elon Musk, who has already helped raise the price of bitcoin to a record high. The announcement added about $ 100 billion to the combined market value of bitcoin and Tesla on Monday.
The investment is more than symbolic for the company, being equivalent to Tesla’s research and development guide for 2020. And while bringing together two of the most popular investment themes under one roof is undoubtedly a winner today, the decision presents even more risk to property which is already one of the most speculative stocks in the current bull market.
As Tesla itself said in the lawsuit, prices for digital assets like bitcoin have been volatile in the past. Cryptocurrencies are a very recent development and their long-term adoption by consumers, investors and companies is highly uncertain. This adds to the speculative fervor that has already dominated Tesla’s stock price in a feedback loop. In fact, the manager of the most popular active fund recently, Cathie Wood of ARK Invest, made big bets on both Tesla and a fund that has bitcoin, fueling a record pace of inflows.
With a market cap of around $ 800 billion, Tesla is traded at about 6.5 times the combined value of Ford and General Motors, despite controlling a small fraction of the global automotive market. And Tesla has lately lost market share in Western Europe to competitors like Volkswagen, which has started to compete aggressively in the electric category. News of Tesla’s bitcoin investment eclipsed a negative headline for the company on Monday about quality problems identified in the important Chinese market.