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Bitcoin's steep drop drags Tesla, ARK ETFs along for the ride

Stock MarketsFeb 23, 2021 15:49
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2/2 © Reuters. FILE PHOTO: FILE PHOTO: FILE PHOTO: FILE PHOTO: FILE PHOTO: Man walks by Tesla Model 3 sedans and Tesla Model X sport utility vehicle at a new Tesla showroom in Shanghai 2/2

By Julien Ponthus, Aaron Saldanha and April Joyner

LONDON/NEW YORK (Reuters) - A dive in Bitcoin's price spilled onto shares of Tesla Inc, which recently disclosed that it held a $1.5 billion investment in the cryptocurrency, and slammed exchange-traded funds holding the stock on Tuesday.

Bitcoin (BTC=BTSP) slumped 13.3% to $46,951.51, tracking toward its biggest daily loss since March. Tesla's shares in turn fell 3.3% to $690.59.

The drop in Tesla shares hit exchange-traded funds (ETFs) such as the ARK Innovation ETF, down 4.9%, and the ARK Autonomous Technology & Robotics ETF, down 4.3%. Both ETFs feature Tesla as their biggest single holding.

Meanwhile, the GraniteShares 3X Long Tesla Daily ETP, a levered exchange-traded product aimed at tripling the daily moves in Tesla shares, ended 22.8% lower in London.

The losses come amid a broader market downturn over the last few days that has seen investors sell shares in a wide range of assets that have notched big rallies in recent months, from technology stocks to cannabis and solar ETFs.

"Over the long term, we think there could be reversion to the mean" among many of those recently high-flying funds, said Todd Rosenbluth, director of ETF and mutual fund research at CFRA.

Rosenbluth added that he had a positive long-term outlook for ARK's ETFs but that their recent performance illustrated the perils of having a concentrated position in one stock. The ARK Innovation ETF has fallen more than 13% since Feb. 12 as volatile bitcoin prices have jostled Tesla shares.

Indeed, some investors may have been preparing for downside in the ETF. Amy Wu Silverman, equity derivatives strategist at RBC Capital Markets, noted that options activity indicated a rise in demand for protection against a decline in ARK.

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

"The ARKK ETF has been the poster child of momentum high fliers and is beloved by retail," Wu Silverman wrote.

Yet some signs point to investors becoming more cautious on Tesla. Skew, an indicator showing the level of demand for protective options positioning, has climbed for Tesla over the past few weeks, according to data from Trade Alert.

Investors focused on environmental, social and governance (ESG) factors may also have cause for concern.

While Tesla has long campaigned to cut global auto emissions through use of its relatively environment-friendly cars, the company's decision to invest in bitcoin could weigh on its ESG rating, Valentijn van Nieuwenhuijzen, chief investment officer at asset manager NN IP told Reuters on Friday.    Meanwhile, Barclays (LON:BARC) analysts noted there had been a drop in conversations about the company on Reddit's WallStreetBets forum, a popular discussion spot for individual investors, which could explain some of the loss of appetite for the stock.    "With only 2-3 total submissions on each of the past several days, we remain below the trend in attention that has come along with big returns jumps in the past," the analysts said in a note.    Even with the shake-out from a record high above $58,000 two days ago, bitcoin is up 62% this year, and is increasingly being accepted as a mainstream investment and means of payment.

Michael Saylor, chief executive of MicroStrategy, a major corporate backer of bitcoin, told CNBC on Tuesday that the approximately $1 trillion total value of the digital currency could subsume the market capitalization of gold at about $10 trillion.

Bitcoin's steep drop drags Tesla, ARK ETFs along for the ride
 

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