Bitcoin may have played a role in Tesla’s decorrelation from Big Tech
There is a lot of speculation in the cryptocurrency community that Tesla CEO Elon Musk made the decision to abandon the Model 3 due to the Silicon Valley tech giants’ aggressive pursuit of Tesla’s key patents for autonomous technology. Musk himself has acknowledged that Tesla would have had to pay a hefty sum in royalties to Waymo for the use of its self-driving technology, but the CEO has had a long-standing grudge against the tech giants he believes are taking advantage of the startup’s patents.
As the rising popularity of bitcoin began to shift the balance of power towards smaller companies, bigger players in the tech space began to fight back. In early 2019, the Securities and Exchange Commission announced in a statement that they were exploring the issue of bitcoin and other cryptocurrencies being securities—a designation which would have required companies to adhere to a stricter set of securities rules. Tesla had been caught up in this rulemaking, as the SEC had repeatedly subpoenaed the automaker in relation to its use of bitcoin, forcing CEO Elon Musk to publicly state that bitcoin was not involved in his investment decisions at the company.
Market analysts argue that Tesla’s exposure to bitcoin (BTC) could be responsible for Big Tech’s sharp rise in recent weeks. On Wednesday, July 14 the 20-day correlation between the company’s share price and the Nasdaq 100 Index was 0.83 on the 17th. June was 0.14.
While Tesla fell nearly 4% during the month, the Nasdaq 100 rose more than 2%. The correlation between Tesla shares and the NYSE FANG+ index has also weakened, BNN Bloomberg reports. Amy Wu Silverman, derivatives strategist at RBC Capital Markets, told reporters:
Tesla is highly correlated with tech megacaps… in the short term, that relationship has really broken down. When I ask people, they tell me it has to do with their involvement with bitcoins and how they will be taken into account when reporting their income.
The electric carmaker’s earnings report is expected on the 26th. July on. Tesla’s turbulent and controversial relationship with bitcoin made headlines – and was arguably the catalyst for the rise of the cryptocurrency market – in February of this year, when the company announced a strategic bitcoin acquisition worth $1.5 billion, which at the time represented 7.7 percent of its gross cash. The company quickly announced that it would begin accepting BTC payments for its cars, suggesting that it plans to hold bitcoins rather than convert them.
The company sold a portion of its bitcoins in the first quarter of 2021 for $272 million, although Musk stressed that he himself had not sold any of his BTC assets. In May, Tesla’s close relationship with the cryptocurrency veteran began to break down: Musk announced that Tesla will refuse to accept BTC payments due to environmental concerns about energy-intensive bitcoin mining.
Related: Elon Musk and bitcoin: A toxic relationship
Time will tell if Tesla’s weak short-term correlation with major tech stocks becomes a solid dynamic. In the crypto-currency space, many have been paying more attention to the huge impact Musk himself has had on the crypto-currency market as a whole, specifically bitcoin and the crypto-currency meme Dogecoin (DOGE).
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