Billions and Bitcoins

Billions and Bitcoins

by Gill D on December 21, 2020

Today is the day when EV maker, Tesla officially joins the S&P 500 index. It’s the perfect way for the car manufacturer to end off one of its best years yet. Not only has Tesla boss, Elon Musk had a significant year personally, but his company has had five consecutive profitable quarters. Tesla shares also saw an upswing when its share value increased more than 730% in 2020 bringing its market capitalization to over $658 billion.

Today, the S&P 500 will see a historic moment with Tesla’s entry being the largest to date and the most dramatic ever. Investors who use the index as a point of reference charged into Tesla shares on Friday in the final approach, which pushed caused the stock to increase by almost 6% and closed at a phenomenal high of $695 per share. Friday also saw more than 200 million Tesla shares change hands, which also caused the 30-day trading volume to quadruple.

Tesla is one of the most valuable corporations to enter the S&P 500 index, yet its impact on the index’s valuation was less than many investors had predicted. Analysts say the S&P 500′s 2021 price-earnings ratio will rise to 22.6 from 22.3 but the S&P 500 dividend yield will drop to 1.53% from 1.56% as Tesla doesn’t pay dividends.

However, with Tesla being a high-growing stock, it could influence the performance of the S&P 500. For every fluctuation of $11.11 on Tesla stock, it changes the index by 1 point. Previously, Goldman Sachs had estimated Tesla would move the S&P 500′s total return by 2% if the EV company had joined at the beginning of 2020.

BUZZ ABOUT BITCOINS

Then yesterday, Twitter was abuzz with Musk’s comments on bitcoins. The EV CEO was approached on the social media platform by Michael Saylor, founder of MicroStrategy and Saylor Academy. Saylor tweeted Musk with the comments:

If you want to do your shareholders a $100 billion favor, convert the $TSLA balance sheet from USD to #BTC.  Other firms on the S&P 500 would follow your lead & in time it would grow to become a $1 trillion favor.

Musk responded by asking if such large transactions were even possible. And Saylor’s response was, “Yes. I have purchased over $1.3 billion in #BTC in past months & would be happy to share my playbook with you offline - from one rocket scientist to another”

Musk proceeded to poke fun at the idea by posting memes and making further comments such as “Bitcoin is almost as bs as fiat money”, and “Bitcoin is my safe word”. While it made for entertaining reading, one analyst said the “internet will break” if Musk followed the advice.

However, Bitcoin and Tesla do have something in common. Both their market values have surged recently. Besides Tesla’s share price hitting new highs, Bitcoin has seen the same increase with a value currently sitting at $23,630.48 per coin.

Bitcoin has a total market cap of more than $439 billion and anyone who owned Bitcoins within the past 12 months would have made a 240% profit. Musk is not the only Bitcoin sceptic. The digital currency has faced criticism in the past over its wildly fluctuating price. In 2017, it was approaching $20,000 only to fall to below $3,500 a year later.

Brian Armstrong CEO of Coinbase, a Bitcoin trading platform has cautioned investors about the risks of the digital currency current surge in price. Last week, he penned his warning in a blog post:

“While it’s great to see market rallies and see news organizations turn attention to this emerging asset class in a new way, we cannot emphasize enough how important it is to understand that investing in crypto is not without risk.

Crypto can be a volatile asset class. Often more so than the types of traditional financial instruments that most investors are used to. For example, this means that the market can move in either direction much faster than equity markets.”

 

 

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