What do Musk’s crypto musings mean for the Tesla share price?

The Tesla share price [TSLA] is down 2.8% since the start of 2021 to $656.95 at the close on 12 July. While its share price is up 129% in the last 52 weeks and up 27.1% from its 2021-low of $539.49, recorded in early March, the Tesla share price has fallen 23.8% from its all-time high of $900.40, set on 25 January.

The Tesla share price lost its charge in the first quarter of the calendar year — as did other electric vehicle (EV) stocks — due to general market volatility and China sales worries. This led to a steep reversal in the price of ETFs as well. Take the Amplify Lithium & Battery Technology ETF [BATT], for instance. The fund has a year-to-date daily total return of 6.5%, according to Yahoo Finance, and is currently trading at its highest price since the end of February.

The first quarter of 2021 was also when Tesla revealed it had purchased $1.5bn worth of bitcoin and announced plans to accept the cryptocurrency as payment, before shelving said plans in May, citing environmental concerns.

  

Fake shares take to DeFi

Nevertheless, the company’s connection to bitcoin could explain why fake Tesla shares are now being traded on decentralised finance protocols, along with fake FAANG stocks.

The so-called synthetic equity essentially allows users to trade tokens whose value mirror the Tesla share price. As one protocol proposal puts it: [‘Synthetic stocks] will allow traders to profit from bullish or bearish bets on the value of shares on some of the best-known publicly traded companies.’

According to Fortune, synthetic equity trading volumes aren’t high enough to give Wall Street cause for concern — yet. There is the possibility that more and more retail investors may turn to trading fake stocks instead of the real thing, attracted by the lack of regulation. If this were to happen, then the Securities and Exchange Commission would most likely step in.

So, while these fake shares aren’t currently having a direct impact on the Tesla share price, how the crypto community feels about CEO Elon Musk could move the Tesla share price. Musk’s crypto musings on Twitter have helped drive up the price of bitcoin and dogecoin over the last year, although there are arguments that his power over the crypto market is waning.

 

The clean effect

Tesla’s future relationship with bitcoin will however be worth keeping eye on. The EV maker intends to accept bitcoin as payment again once clean energy goals have been met.

Wedbush analyst and long-term Tesla and all-round EV bull Dan Ives said in March to MarketWatch that accepting bitcoin as payment was “a seminal moment for Tesla and for the crypto world, with Musk now cutting the red ribbon on bitcoin transactions within the broader Tesla ecosystem”. But Ives is under no illusion. As profitable as cryptocurrency can be for the bottom line, there is the risk that Musk conflates bitcoin as a plaything.

Ives told CNBC in an email in March: “Musk is now tied to the bitcoin story in the eyes of the [Wall] Street and although Tesla made a billion paper profit in its first month owning the digital gold, it comes with added risk.”

“Musk is now tied to the bitcoin story in the eyes of the [Wall] Street and although Tesla made a billion paper profit in its first month owning the digital gold, it comes with added risk” - Dan Ives 

 

He continued: “With Tesla diving into the deep end of the pool on bitcoin, Musk runs the risk that this sideshow can overshadow the fundamental EV vision in the near-term for investors.

“On the downside, it’s playing with firecrackers and risks and volatility are added to the Tesla story.”

Away from crypto, the Tesla share price could be subject to issues created by scrutiny the company is facing in China, where regulators have detected possible defects with its vehicles that will require a software fix.

“With Tesla diving into the deep end of the pool on bitcoin, Musk runs the risk that this sideshow can overshadow the fundamental EV vision in the near-term for investors. On the downside, it’s playing with firecrackers and risks and volatility are added to the Tesla story” - Dan Ives 

 

In a June note seen by MarketWatch, Ives described the China news as a “black eye moment”. He said it isn’t “the news bulls want to see as it adds to the negative PR issues in China, which is poised to represent 40% of global deliveries for Tesla by next year”.

Growth in China will be key to long-term success for the Tesla share price. But the company faces increased competition from domestic peers XPeng [XPEV], Li Auto [LI] and Nio [NIO].

Despite the headwinds, fund managers remain bullish on the stock. Cathie Wood’s Ark Innovation ETF [ARKK] still has Tesla as its top holding with a weighting of 10.4%. The fund has a year-to-date daily total return of -0.20% but has returned 59.6% in the last 52 weeks.