Tesla Motors, Inc. (NASDAQ: TSLA), ($ BTC) – Tesla’s Swoon: Bitcoin The Tail Wagging The Dog?

Tesla Inc (NASDAQ: TSLA) continued its rally from Tuesday morning’s lows, but the stock remains down about 14.8% since announcing the company had bought $ 1.5 billion from Bitcoin (CRYPTO: BTC) on February 8.

Some traders are now concerned that Bitcoin prices will primarily dictate the direction of Tesla’s share price, but DataTrek Research co-founder Nicholas Colas said on Wednesday that another phenomenon is hanging over Tesla at the moment.

Bitcoin prices don’t hurt Tesla: Colas said the relatively small investment of $ 1.5 billion in Bitcoin did not create a significant risk to Tesla’s balance sheet, given that Tesla declared around $ 19.4 billion in cash at the end. 2020. Colas estimates that liquidity gives Tesla a two-year cushion, even though its automotive business has been completely shut down.

Instead, what’s likely weighing on Tesla’s stock is the fact that visionary CEO Elon Musk is investing Tesla’s money outside of the EV space for the first time.

“Tesla has a great valuation because investors are excited about Musk’s vision for a green and possibly self-sustaining transportation future,” Colas said. “As soon as a company starts investing outside of its core competencies, investors need to think about the valuation multiple that a new investment deserves.

Related Link: Bitcoin Long and Tesla Short? Here’s why Elon Musk ‘essentially’ made this deal

Capital allocation issues: Historically, Colas has stated that the market does not place much importance on financial speculation.

Tesla’s share price may not be determined by the company’s Bitcoin position. Instead, the sale will likely come in response to Musk’s capital allocation decisions.

Colas said Musk has a proven track record of convincing the market that he makes decisions that will ultimately result in disproportionate long-term valuations. However, at this point, Bitcoin does not yet have that consensual reputation on Wall Street.

Taking Benzinga: Colas has already discussed the conglomerate valuation problem created by Tesla by diversifying its investments away from EVs and into crypto-currencies. Underperforming companies and investments within a conglomerate reduce the average valuation of the conglomerate, as the cash flows of successful companies end up being used to support lagging companies.

Musk’s Bitcoin investment tells investors that he thinks Bitcoin is a better investment than Tesla’s EV business currently is, or Bitcoin will weigh on the long-term valuation of Tesla’s EV business if the cryptocurrency underperformed in the coming years.

Photo credit: public domain.