After the news was announced, bitcoin also rose in response. The market is currently teasing that this is Musk’s way of pulling the trigger again when the bitcoin market is in the doldrums, and he has become the cryptocurrency world’s shout order master.
As netizens say, when Musk was mentioned before, people would think of PayPal, rockets, Mars immigration, super tunnels, tesla and other products or business plans, but now people think of Bitcoin.
So, how did Musk’s path to bundling with Bitcoin come about? And why does Tesla stand up for Bitcoin so often?
Tesla and Bitcoin’s Highly Tied Path
In fact, this is not the first Time Musk has given a digital currency a boost.
Earlier, even if Musk just changed his signature to “Bitcoin” on social media, or talked about how much he approved of digital currencies in an audio broadcast, the digital currency would rise in response.
Musk’s influence in the digital currency space is not only limited to Bitcoin, but even the very niche digital currency, dogcoin, has been able to skyrocket because of Musk’s words.
So why does Musk have such a big influence on virtual currencies? We’ll start with Tesla’s big buy of bitcoin on this one.
Although some Wall Street investors believe that Bitcoin is in a serious bubble and is significantly overvalued. But there is also a growing interest in bitcoin from a group of institutional investors. For its part, Tesla, one of the world’s highest market capitalization companies, is the first tech giant to hold non-traditional currencies as part of its cash assets.
In January 2020, Tesla revealed in an SEC filing that it had purchased $1.5 billion worth of bitcoin at the time. Tesla’s investment in bitcoin was quickly followed by the price of bitcoin crossing the $40,000 mark within a month.
Analysts at Wedbush say that with Bitcoin’s average price of $34,730.12 in January of this year, Tesla has made more than $1 billion in profit since buying Bitcoin, more than the profit it made from selling cars in 2020.
That is, the money Tesla makes in a year from selling cars is less than a month of coin speculation.
And Musk’s reason for investing in Tesla is simple. He has told the media that holding bitcoin is slightly better than holding cash, and that the nuances of the two make it a better asset. In short, he sees bitcoin as an anti-inflationary financial tool.
Last year, central banks around the world were flooded by the Epidemic, leading to an increase in investor demand for Inflation-fighting assets. Since the outbreak, the U.S. government has launched three rounds of fiscal stimulus packages totaling about $3 trillion. With this easy money policy, global inflation expectations have risen and market demand for anti-inflationary assets has increased dramatically.
Now, several Wall Street institutions are using bitcoin as a “financial tool to fight inflation”.
This has contributed to the rapid rise in the price of Bitcoin, which rose over 300% in 2020, and Tesla’s investment in Bitcoin has further pushed up its price.
All for one, all for one
While Tesla’s investment in bitcoin has yielded significant investment returns, it has also created certain problems for Tesla.
That is, in the eyes of Wall Street, Tesla is now closely tied to bitcoin. Daniel Ives, an analyst at investment bank Wedbush, said the company is now closely tied to bitcoin. Ives says that after investing $1.5 billion in bitcoin, Tesla’s stock price is now directly tied to the price of bitcoin.
Forbes columnist Leeor Shimron also compared the price correlation between Tesla, Bitcoin and the S&P 500 over the past six months in an article that found that Tesla and Bitcoin have shown a strong correlation of 0.615 over the past six months, far exceeding the correlation between the two assets and the S&P 500.
This means that Tesla’s stock price and Bitcoin’s price action are highly correlated, and there is a high probability that they will go up and down at the same time.
You should see this and realize why Musk has been standing up for bitcoin so often.
The deeper reason behind this is that investors who hold bitcoin and investors who buy Tesla stock are likely to be the same group of people.
On one hand Tesla and Bitcoin have similar investor bases and share similar values – a belief in the power of technology. Also, retail investors make up a large percentage of the investors who hold both of these assets.
On the other hand they both appeal to a younger generation. A previous survey published by Charles Schwab showed that Tesla and Bitcoin Trust Grayscale Bitcoin Trust ranked in the top five in terms of equity assets held by millennials, accounting for more than Nifty, Microsoft, and Alibaba.
In the opinion of many market analysts, Musk’s choice to invest in Bitcoin could be called a sure thing. Because their users are the same group of like-minded investors, coupled with Musk’s unparalleled influence, Tesla then ended up buying Bitcoin in a big way, holding a certain amount of liquidity.
All of the above makes it possible for Musk to “control” Tesla.
Recent Comments