Tesla And Bitcoin Have More In Common Than You Think

At first glance, Tesla and Bitcoin may appear to be completely different technologies with distinct users, use cases, and investors. Tesla is the amalgamation of car manufacturing, alternative energy, computer software, and artificial intelligence. The company plans on combining these disciplines to launch a fleet of autonomous robotaxis in the not too distant future. Bitcoin is a decentralized asset promising to reboot the global financial and monetary system.

In short, Tesla is revolutionizing transportation and energy, whilst Bitcoin is revolutionizing money and finance. Tesla has an enigmatic, polarizing, charismatic leader in Elon Musk who is often prone to gaffs. However, Bitcoin derives much of its value from having no leading figure or central point of failure.  

Despite these obvious differences, the two assets have been amongst the best performing assets this year, often moving together in lockstep. At time of writing, Tesla has appreciated 72% and Bitcoin 23% year-to-date, compared to a decline of 13% for the S&P 500 year-to-date.

In order to quantify the relationship between Tesla and Bitcoin, I analyzed the price movements of the two assets in relation to the S&P 500 over the last three and a half years. I calculated the daily percentage price changes over this time period and then indexed them starting at 100 to visualize the performance of each asset, shown below.

Indexed price movements of Bitcoin, Tesla, and the S&P 500 from 2017 until now. Bitcoin shown in blue, Tesla in orange, and the S&P in gray.

Interestingly, the highest price correlation between Bitcoin and Tesla was in the last six months during the period of October 2019 to April 2020.

Zooming in on the last six months of indexed price movements for Bitcoin, Tesla, and the S&P 500. Tesla and Bitcoin price correlations can be easily visualized

One explanation for this high correlation may be that the investor base is similar for both assets. Advocates of Tesla and Bitcoin share a common set of values. Beyond technophiles who believe technology can solve many of society’s pressing problems, Bitcoin and Tesla holders are optimists who believe in narratives of a sustainable future powered by alternative energy and sound money. Proponents of both believe in the ethos of open source technology. Bitcoin is an open source protocol anyone with an internet connection can access. Similarly, in 2014, Elon Musk famously released all of Tesla’s patents to the public “in the spirit of the open source movement.”

Tesla and Bitcoin will continue to be volatile assets largely driven by retail sentiment. However, at their best, they represent society’s ambitions to use technology and entrepreneurship to solve its biggest issues today and in the future.

Source: Fobes