Sinking Bitcoin, Tesla Shares and Other Market Favorites Shake Investors

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Bitcoin, Tesla shares and a high-profile exchange-traded fund (ETF) fell on Tuesday, retreating from recent rallies in a volatile session that gave investors gut control.

It was the latest sign of a possible break in a rally that has supported a wide range of assets. Investors may be wary of sky-high valuations, while recent increases in treasury bill yields may dampen the attractiveness of stocks and other comparatively risky investments.

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“We were in a strong rally and there was a lot of leverage in the system,” said Ty Young, crypto-asset research analyst at Bitcoin’s crypto data platform Messari. “Corrections are to be expected during a bull run and that’s not surprising when looking at previous cycles.

Bitcoin recently fell 11% to $ 48,207, offsetting some losses after Jack Dorsey’s Square Inc said it bought around 3,318 bitcoins for $ 170 million. The cryptocurrency had fallen to $ 44,845 during the session.

Shares of Tesla, which recently revealed a $ 1.5 billion investment in the cryptocurrency, fell 13.4% and cut losses to finish down 2.1%. ETF ARK Innovation, which counts Tesla as its largest holding, ended down 3.3%.

Recently, popular exchange-traded funds (ETFs) focused on sectors such as blockchain, cannabis, and renewables have also been hit over the past week and a half, with some investors increasingly nervous.

Shares of the electric carmaker represent around 10% of the holdings of the ARK Innovation ETF, which has fallen around 9% this week as volatile bitcoin prices have pushed Tesla shares to almost 11% over the course of the same period. Bitcoin fell 17% in two days.

Some investors may have been preparing for a decline in the ETF. Amy Wu Silverman, equity derivatives strategist at RBC Capital Markets, noted that options activity indicated an increase in demand for protection against a decline in the ARKK.

Bullish sentiment for many positions in the ARK Innovation ETF remains high, noted Wu Silverman. Despite recent weakness, outflows from the fund have been minimal, according to a study by Christopher Murphy, co-head of derivatives strategy at Susquehanna Financial Group.

“The ARKK ETF has been the model for great momentum pilots and is popular with retailers,” Wu Silverman wrote.

Many assets whose prices rose on Tuesday have seen meteoric rallies over the past year.

Even with the release of a record over $ 58,000 two days ago, Bitcoin is up 68% this year, increasingly accepted as a traditional investment and payment method.

Michael Saylor, chief executive of MicroStrategy, a large bitcoin lender, told CNBC on Tuesday that the roughly $ 1 trillion total value of digital currency could subsume the market cap of gold to around $ 10 trillion. .

Still, there are signs that investors are becoming more cautious of Tesla. Skew, an indicator measuring demand for positioning protection options, has climbed for Tesla in recent weeks, according to data from Trade Alert.

Investors focused on environmental, social and governance (ESG) factors may also be of concern.

While Tesla has long campaigned to reduce global auto emissions by using its relatively environmentally friendly cars, the company’s decision to invest in bitcoin could weigh on its ESG rating, Valentijn van Nieuwenhuijzen told Reuters on Friday. , director of investments for asset manager NN IP. .

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