It is time to get cautious on the Tesla-Bitcoin-Ark connection

Equities 5 minutes to read
Peter Garnry

Head of Equity Strategy

Summary:  In today's equity update we take a look at the overlap of investors with positions in Tesla, Bitcoin, and Ark Innovation ETF, and how that could suddenly become a forceful market risk if the recent selloff in Bitcoin triggers risk adverse behaviour among this group of investors, which is mostly Millennials, and they start selling correlated positions. We are basically putting out the warning this interconnectedness of positions could drive each other and become the epicenter of the next correction in growth equities.


Bitcoin was down 11% yesterday and is still struggling this morning to stabilize. Despite $65bn of wealth disappeared and maybe closer to $100bn across all cryptos there was no real risk contagious to observe across equities or other asset classes. In an internal Strats meeting we discussed whether crypto is a leading indicator for equities or it is a closed system. As we talked about on our Saxo Market Call podcast ‘It’s time to take some chips off the table’ this morning others in the market has also been wondering whether this is a link from Bitcoin to other parts of the equity market and especially Tesla has been brought many times. It is difficult to quantity with certainty although the past year there has been a remarkably high correlation and especially co-movement on large up and down days. A survey done by Charles Schwab last year indices that Tesla and Bitcoin are in the top five holdings for the Millennials group. Given the large downward move yesterday in Bitcoin and muted reaction in Tesla it could be that the negative reaction in Tesla shows up in today’s session.

Source: Bloomberg

But there might be another important link in the Tesla-Bitcoin trade and that’s the Ark Innovation ETF which according to a recent Barron’s article might have become too successful for its own good. The ETF investing in some of the hottest growth stocks with past year might have reached a capacity limit and is pushing the underlying stocks in the ETF higher on no other basis than just enormous AUM inflow. The biggest position in the ETF is Tesla with a 9.2% weight as of yesterday with the next three positions being Roku, CRISPR Therapeutics, and Square. See the rest of the top positions in the ETF below. While the Tesla position is the biggest for Ark it is only 0.3% of the outstanding Tesla. But our thinking is that a selloff in Bitcoin can cause risk adverse behaviour among investors with the Tesla-Bitcoin-Ark positions and suddenly a vicious selloff has started. Our view is that investors have a large overlap across these combined positions should consider taking some chips off the table, either directly or through hedging using options or futures. John Hardy, our Head of FX Strategy, also mentions on the morning podcast the classic risk-on currency pair AUDJPY is also a way to hedge a risk-off move across markets.

Source: Bloomberg

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank (Schweiz) AG
Beethovenstrasse 33
CH-8002
Zürich
Switzerland

Contact Saxo

Select region

Switzerland
Switzerland

All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed here or within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law.

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.