Elon Musk’s Bitcoin Adventure Guarantees Wilder Ride

Tesla Inc.’s technologist Elon Musk said the electric vehicle maker now accepts payments in bitcoin for its cars. Adding more capricious cryptocurrency to one of the fastest growing companies in the world through market capitalization can prove to be an explosion.

Bitcoin has doubled in value this year after trembling in 2020 and reached a record high of 62 62,000 earlier this month. But its journey is far from a one-way ride. With Tesla’s 12-month price target forecast already generating nearly 800% discrepancy between most bullish and bearish estimates, increasing the company’s exposure to digital currencies makes it even more difficult for analysts and investors to value the company.

A few weeks ago, I suggested that allocating bitcoin to a traditional portfolio of 60% to stocks and 40% to government bonds was one way of defending against a decline in equities, at which point there is a risk of failing on the fixed income side. To protect revenue. I found that it was likely to increase the volatility of the investment portfolio, but I did not appreciate it much.

Joseph Albert, a retired computer scientist in Oregon who has spent part of his career in financial services, writes to me, “Bitcoin is very volatile, even a 5% allocation dominates portfolio volatility” Portfoliovisualizer.com.

Adding cryptocurrency will definitely bring more profit. Instability, measured by standard deviation from average, also increases with an allocation of just 5%. It is true that the allotment was taken from an equity or bond division. Double-digit volatility makes the adjusted portfolio even more vulnerable.

Despite healthy skepticism, Wall Street is taking digital currencies more seriously. A report by Bank of America Corporation last week found that there was no “good reason” to own Bitcoin, other than to speculate on the further gains in prices that virtual currency considered “wealth or payment mechanisms impossible”.

Tesla’s new payment method was announced in a musked tweet and it is not clear how Tesla will deal with the volatility of Bitcoin or how many customers are likely to use it. At current values, you can buy a top-of-the-range Model X SUV plaid for two bitcoins; At the beginning of the year, the same car would cost four bitcoins based on its dollar sticker price.

In addition, Musk said Tesla will keep customer crypto payments in the digital realm without converting them into dollars, which is in addition to the $ 1.5 billion invested in Bitcoin in February. To value Tesla is as much an art as a science; Adding more bitcoin to a company’s balance sheet is a nightmare for equity analysts.

Mark Gilbert is a Bloomberg opinion columnist covering property management. He was formerly London bureau chief for Bloomberg News. He is the author of ‘Complete: How Greed and Collection Made the Credit Crisis Unstoppable’.

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