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Elon Musk Has Exposed Tesla To ‘Immense Risk’ After Investing $1.5 Billion In Bitcoin

by : Julia Banim on : 11 Feb 2021 10:28
Elon Musk Has Exposed Tesla To 'Immense Risk' After Investing $1.5 Billion In BitcoinPA Images

Experts have claimed that Elon Musk has exposed Tesla to ‘immense risk’ after investing $1.5 billion worth of bitcoin.

On Monday, February 8, Tesla announced in a Securities and Exchange Commission (SEC) filing that it had moved almost 8% of its reserves into bitcoin, causing the price of the bitcoin to soar by more than 16% this week. This is understood to be an all-time high for the cryptocurrency.

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Meanwhile, Tesla’s shares are reportedly down by nearly 6%, and shareholders have voiced concerns that this investment could ‘add volatility’ to Tesla’s stock.

Rising Tesla Share Price Creates Army Of Self-Named 'Teslanaires'PA Images

In this recent filing, Tesla said it had bought the bitcoin as a means of increasing ‘flexibility to further diversify and maximize returns on our cash’.

Tesla has also said that it will begin taking bitcoin payments in exchange for its products ‘subject to applicable laws and initially on a limited basis’, becoming the very first major automaker to implement this.

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As per CNBC, this investment will give Tesla liquidity in bitcoin once it starts accepting this currency for payments.

However, not everyone is sure that the benefits will outweigh the risks, with King Lip, chief strategist at Baker Avenue Wealth Management, which has owned shares in Tesla since 2015, giving the following comment to Reuters:

It will add volatility to the stock due to exposure to bitcoin. This is better for bitcoin than it is for Tesla.

TeslaPA Images
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Furthermore, former chief executive of Aegon Asset Management Gary Black, who is now a private investor, tweeted on Monday, February 8 that he had sold his shares in Tesla.

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Among other reasons, Black cited his reasons for selling as the absence of a 2021 delivery target and the business’s riskier capital allocation strategy.

However, Black did go on to remark that ‘on present value of 2025 or 2030 earnings, $TSLA still looks very attractive’, adding:

I’ve made a lot of money on $TSLA over the past 18 months, and will look for a lower entry point to get back in. I will continue to post my views on Twitter about TSLA volumes, earnings and other developments. I thank everyone for your past and hopefully continued support.

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As per Reuters, Saxo Bank’s head of equity strategy Peter Garnry stated that Musk has exposed Tesla to ‘immense mark-to-market risk’, making reference to an accounting method used to measure the fair value of accounts (assets and liabilities) to provide a measure of current financial performance.

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Garnry also went on to assert that investors with concentrated positions in Tesla – for example, ARK Invest – have now been put at risk.

Despite these fears, it’s anticipated that other companies could well follow Tesla’s lead, with Twitter’s chief financial officer having told CNBC that the social media platform has considered investing in bitcoin.

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Julia Banim

Jules studied English Literature with Creative Writing at Lancaster University before earning her masters in International Relations at Leiden University in The Netherlands (Hoi!). She then trained as a journalist through News Associates in Manchester. Jules has previously worked as a mental health blogger, copywriter and freelancer for various publications.

Topics: News, Bitcoin, cryptocurrency, Elon Musk, Now, Tesla

Credits

CNBC and 2 others
  1. CNBC

    Tesla buys $1.5 billion in bitcoin, plans to accept it as payment

  2. UNITED STATES SECURITIES AND EXCHANGE COMMISSION

    FORM 10-K

  3. Reuters

    Analysis: Investors lukewarm on Tesla's $1.5 billion bitcoin splurge