The drop in Tesla shares is probably related to the bitcoin bet

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Shares of Tesla Inc. entered a bear market on Tuesday and some analysts attributed it to the Silicon Valley electric carmaker’s recent bid for bitcoin. Tesla TSLA, -5.30% of the stock is about 22% from its record close. A bear market is commonly defined as a decline of 20% or more from a peak. For Tesla, a close below $ 706.47, which is 20% off its record close on January 26, would meet that criteria.

See also: Why did Tesla buy bitcoins? Tesla was last in a bear market in September, at the time of its stock split, the news that a major shareholder had sold part of its stake and a stock offering. “This pullback really started after Tesla made the decision to buy $ 1.5 billion worth of bitcoins,” CFRA’s Garrett Nelson told MarketWatch. “Although Tesla used a relatively small percentage of its total cash to make the purchase, investors question its future growth strategy.” The selloff gained momentum Tuesday after news Monday night that Lucid Motors plans to go public after a merger with a blank check company, he said. The deal’s implied valuation of about $ 24 billion “is considered very disappointing” and reflects negatively on Tesla and other electric vehicle upstarts, Nelson said. The US deposit receipts for China-based Nio Inc. NIO, -8.31%, XPeng XPEV, -5.12%, and Li Auto Inc. LI, -8.41%, as well as shares of Nikola Corp NKLA, -7.41% underperformed the overall market on Tuesday. In a note Tuesday, Wedbush analyst Dan Ives agreed with the bitcoin connection and recent days of “nasty” declines in stocks, adding another reason of his own. Tesla dived “to the bottom of the group” with its bet on bitcoin and the “shares of the company are now strongly tied to this digital currency,” Ives said. In theory, the investment is relatively small and would not “move the Tesla needle,” he said. “Yet perception is reality on the street and Musk and Tesla are aggressively adopting bitcoin (also from a transactional perspective), investors are starting to link bitcoin and Tesla on the hip,” Ives said. “While Tesla on paper made roughly $ 1 billion worth of bitcoin in a month that outpaced all of its 2020 EV earnings, the recent 48-hour selloff in bitcoin and additional volatility have led some investors to exit. , He said. The lingering concern is that the “bitcoin sideshow” overshadows Tesla’s overall EV growth story. The fact that Tesla halts sales of its lower-priced Model Y, coupled with continued price cuts, has raised concerns about street demand as the bears come out of hibernation, Ives said. Tesla’s quarterly sales figures are likely to drive stocks higher and resolve some of those concerns, he said. Meanwhile, it is “‘seatbelt time’ again for Tesla stocks with more volatility on the horizon,” Ives said. Tesla shares have added 279% in the last 12 months, compared to gains of around 15% for the S&P 500 index. SPX, -0.88%