In 10 days bitcoin thrice broke the $10,000 psychological barrier but similarities between bitcoin and Tesla are drawn ever since the American automobile maker’s stock gained 200%, since the beginning of 2020. Recently, Tom Lee, a well known personality in the cryptoverse and co-founder of Fundstrat, also made bitcoin-Tesla comparison at Coingeek conference 2020. Some credible news sources compared the two very different asset classes and termed Tesla (TSLA) as ‘bitcoin on wheels‘ but is it really justifiable to compare the two?
How Similar is Tesla to Bitcoin?
Tesla stock‘s price rally from October 2019 has been very similar to bitcoin’s famous 2017-18 rally when it reported record gains as the crypto asset’s price rose from under $1,000 at the beginning of the year to almost $20,000 by December 2017, was fueled by FOMO on a global scale and then followed bitcoin’s subsequent near-90% crash.
It is true that there are some similarities between Tesla and bitcoin’s bull run but they both are mostly cosmetic comparisons. It is fair to say that Tesla’s recent price rally outperformed bitcoin’s due to the fact that Tesla’s relative strength index (RSI), a measure of magnitude and persistence of price movements, topped bitcoin’s in December 2017.
At the end of January 2019, Tesla surpassed Wall Street expectations as it reported record earnings and posted second consecutive quarter of profitability and forecasting it should remain profitable. On the other it is true that bitcoin do not pay any definite dividends nor can it promise any profitability that is mostly speculative and depends on the crypto’s acceptance and adoption globally.
Bitcoin price determining factors are very different to traditional stocks. There will only be 21 million bitcoin, a fact that is known since the inception of the crypto. Every year, new coins are being released at a slower rate, which means that the growth rate has decreased from 9.8% (2015), to 6.9% (2016), to 4.3% (2017). Since bitcoin supply is getting reduced and there is an increase in its demand, the value of bitcoin is widely considered to increase.
On the other hand, Tesla announced on February 13th that it plans to offer approximately $2 billion of common stock in an underwritten registered public offering to take advantage of its surging shares. The company’s CEO, Elon Musk, will purchase up to $10 million. Larry Ellison, a member of the firm’s Board of Directors, will also purchase up to $1 million. The raised money will be used “to further strengthen its balance sheet, as well as for general corporate purposes.”
Apart from many other differences, this very basic difference between two very different asset classes shows the two different dimensions bitcoin and Tesla operate on.
FOMO, the Common Ground..
FOMO (fear of missing out) is the common ground in bitcoin-Tesla comparison, according to Tom Lee. He acknowledged the fact that crypto market is still in its early stage and small as compared to others but that will change soon and said;
“Crypto as a percentage of traditional liquid assets is 0.1%. It’s a lot smaller than people realize,” he added, “Until crypto gets larger, it’s largely a retail market. What happens when institutions start buying crypto? Well FOMO is going to kick in.”
Tesla’s market cap currently stands at $168.31B, more than 50% higher than the combined market cap of the United States other giant automakers in the form of Ford, Chrysler and GMC. On October 23, the company reported a surprise third-quarter profit and at that time its share was priced at $254 and ever since, recorded phenomenal gains after opening its Gigafactory for assembly in Shanghai China and advancements in AI driven research.
Lee compared bitcoin to Tesla stock that saw an astonishing price surge from $231 to $906 in just under 5 months! Many institutions termed Tesla stock dead money till the point it started increasing and everyone joined in. He said;
“We’ve shown that most of the buying for Tesla has been Russell 1,000 fund managers who ignored the stock and suddenly needed exposure,”
“In 4 months, institutions went from an under weighted Tesla to a market exposure which is 0.7% exposure to Tesla, added a $140 billion market cap. The day institutions decide they want to be market weight crypto, you’re going to see the same kind of parabolic move, almost in an instant,” he added.
Bitcoin Adoption on a global scale will truly determine its potential. The crypto’s price remains extremely volatile, the very reason it hasn’t seen much institutional investment nor mass adoption but it is soon expected to change.