Why Tesla Shares Dropped Today

What happened

Actions of Tesla (NASDAQ: TSLA) fell 4.8% on Wednesday after CEO Elon Musk announced that customers can now buy their electric vehicles with Bitcoin (CRYPTO: BTC).

So what

Tesla revealed in February that it invested $ 1.5 billion in Bitcoin. He said at the time that he hoped to start accepting cryptocurrency as a form of payment for his vehicles “in the near future.” Today, Musk made it official.

Tesla is betting big on Bitcoin. Image source: Getty Images.

In particular, Tesla will keep the Bitcoin it receives from its customers, rather than converting it into fiat currency like the US dollar. That will increase Tesla’s exposure to cryptocurrency price swings, which could make some shareholders uncomfortable.

Now what

Tesla’s initial investment reinforced Bitcoin’s legitimacy among investors and business management teams. Combined with Musk’s support for Bitcoin on social media sites like TwitterTesla’s foray into digital assets helped push the price of the cryptocurrency to all-time highs above $ 60,000 earlier this month. Now, Tesla’s decision to accept Bitcoin payments could lead other companies to do the same.

Still, these moves arguably make Tesla shares a riskier investment, as shareholders must now accept the inherent risks of having an increasing portion of their capital allocated to a highly volatile digital currency. Investors may demand a lower price to account for these risks, which could have contributed to the stock’s move lower today.

This article represents the opinion of the author, who may disagree with the “official” recommendation position for a premium Motley Fool consulting service. We are variegated! Questioning an investment thesis, even one of our own, helps all of us think critically about investing and make decisions that help us be smarter, happier, and wealthier.

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