Tesla-Bitcoin-Ark positions have entered a dangerous tailspin scenario

Equities 6 minutes to read
Peter Garnry

Chief Investment Strategist

Summary:  Shares in Tesla are under pressure these days as Bitcoin is experiencing a steep sell-off. This in turn is causing selling pressure in Ark Innovation ETF and overall this risk cluster Tesla-Bitcoin-Ark is reinforcing the intertwined dynamics both on the upside and now certainly on the downside. In today's equity update we revisit this new risk source in equity markets and how it is impacting the wider equity market.


Two weeks ago we wrote a note about the risk cluster in Tesla-Bitcoin-Ark and how these trades were getting highly correlated driven by the investor preferences and lately reinforced by Tesla’s $1.5bn position in Bitcoin. Our note was a follow up note to our initial warning of this risk cluster on 22 January. Following our recent warning on Tesla-Bitcoin-Ark we updated our ‘bubble stocks’ theme basket consisting of 40 stocks globally with every aggressive valuations and negative earnings expectations saying that this segment of the market also have a large overlap with Ark Invest positions. In fact, the risk-off in technology stocks yesterday hit our ‘bubble stocks’ basket hard being down 5.9% falling aggressively in tandem with other speculative equity segments such as E-commerce, NextGen Medicine, and Green Transformation stocks.

The sell-off was exceptionally brutal in Tesla shares down 8.6% yesterday and down another 5% in pre-market. This decline in Tesla shares came as Bitcoin had 16.5% trading range to the lows yesterday driven likely by a combination of Elon Musk’s comments over the weekend that both Bitcoin and Ethereum “do seem high” and Janet Yellen’s, US Secretary of the Treasury, comments about the inefficiencies about Bitcoin and other cryptocurrencies. Bitcoin recovered most of the losses yesterday but is down again 15% today adding to volatility and exposing the massively increased earnings volatility for Tesla due to Musk’s decision to add Bitcoins to Tesla’s balance sheet. For Ark Invest the game has turned as the investment firm has benefitted for years of consistent inflow into its funds and especially the past year with asset under management almost increasing 20 times from $3bn to $60bn. Ark’s most famous and biggest fund, the Ark Disruptive Innovation ETF, was down 5.8% yesterday and is down another 4% in pre-market. These declines could accelerate outflows which then creates a selling pressure in the underlying shares which then intensifies the risk-off dynamics and then it becomes a negative feedback loop.

Source: Bloomberg

Another interesting observation is the rolling correlation between Bitcoin/Ethereum and Ark Disruptive Innovation ETF which is quite high despite no direct link between the two instruments indicating vaguely that they do respond to the same risk drivers and thus might be owned by the same investors.

Source: Bloomberg and Saxo Group

The risk-off in Tesla-Bitcoin-Ark positions have delayed our upcoming note on cost of capital and how rising interest rates impact various parts of the equity market. Our analysis is under way and expect to publish it tomorrow.

The 5-year chart below is for regulatory purposes.

Source: Bloomberg

Quarterly Outlook 2024 Q4

01 /

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Head of FX Strategy

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Head of FX Strategy

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...

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/en-gb/legal/disclaimer/saxo-disclaimer)

Saxo
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. 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. Read more
Additional Key Information Documents are available in our trading platform.

Saxo is a registered Trading Name of Saxo Capital Markets UK Ltd (‘Saxo’). Saxo is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo assumes no liability for any loss sustained from trading in accordance with a recommendation.

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. Android is a trademark of Google Inc.

©   since 1992