Tesla and Bitcoin – Half or Double?
Both electric vehicle manufacturer, Tesla and Bitcoin have given massive returns to investors off late. Tesla’s shares have soared in 2020, having given a 700% gain. Shares of Tesla were inducted into the S&P 500 in late 2020. The massive rally of the Tesla share also resulted in its CEO, Elon Musk, being crowned as the richest man, having overthrown Jeff Bezos off that pedestal. Tesla also registered itself in India, in a bid to enter the country. Another asset which has given phenomenal returns in 2020, is Bitcoin. Bitcoin scaled the $20,000 dollar peak last year and is now trading above $30,000.
Bubble or not?
After having soared so much, do Tesla shares and Bitcoin carry much of an upside? Is the risk reward worth it that it would warrant new investors?
Are we in the midst of a bubble? Most investors seem to think so. A recent study by Deutsche Group found that as much as 89% of investors believe that a bubble is in the making and the day it explodes may not be too far away. The rapid rise of both Tesla and Bitcoin has seen several investors pile up on these two assets and their asset allocation has taken a massive hit, exposing them to high risks.
Tesla is now valued at a mammoth $631 billion, more than the next six car companies put together. This valuation is despite the fact that it is a relatively young company and has been profitable for just five quarters till date. Tesla will be announcing its results on January 27th 2021. A loss or a less than expected profit could send the share price tumbling down. Elon Musk too had tweeted that he felt that the share price was too high.
Bitcoin has still not gained acceptance in the mainstream world. Though there are now many financial institutions who have begun to invest in it. The Indian government too has considered taxing Bitcoin trade, and this move could be a massive shot in the arm for its acceptance. However, the volatility with Bitcoin is quite extreme and no one has really been able to reason out its price movements. Bitcoin is prone to sudden falls and rises, making long term investors wary of its viability. Several financial gurus including Warren Buffett and Kevin O’Leary have come out very strongly against Bitcoin and have stated that they would never own it.
Both Bitcoin and Tesla have managed to increase investor wealth multi-fold. However, when the bubble breaks it could wipe out years of investor hard work. It may be time to be prudent with both the assets now.