Elon Musk’s change of course on bitcoin is a threat to Tesla stock, Wedbush says

• Dan Ives of Wedbush said Tesla’s reversal on accepting bitcoin was a “shocker, and that it could increase volatility for Tesla.
• The move will have a short-term negative impact on bitcoin and the crypto landscape as well, he said.
• Ives has an outperform rating on electric vehicle maker.
• Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Elon Musk’s reversal on allowing Tesla to accept bitcoin as payment sent shockwaves across the digital asset ecosystem, and is “very surprising and confusing”, not only to cryptocurrency enthusiasts but to Tesla shareholders, Wedbush’s Dan Ives said in a note Thursday.

“For Tesla and the stock, not accepting bitcoin does not change the thesis or growth trajectory for the EV story, however, it does add to the noise and volatility around the name at a time in which risk assets are under enormous selling pressure on the Street with Tesla leading the charge,” Ives wrote.

Musk’s Twitter announcement saying Tesla has suspended vehicle purchases using bitcoin just came three months after the company invested billions in the cryptocurrency and accept it as payment for its electric cars.

Following news of Musk’s reversal, bitcoin plunged nearly 15%. Other digital assets such as ether and XRP, as well as crypto-linked stocks including Coinbase, MicroStrategy, and Square, all sank on the news.

Ives said the move was a “shocker”, and added that this could increase volatility for Tesla.

“Musk is now concerned about the use of fossil fuels in bitcoin mining and transactions, yet the nature of bitcoin mining has not changed in the last three months, which speaks to why backtracking on the crypto transaction three months later is a very surprising and confusing move to both Tesla and crypto investors,” Ives said in a note Thursday.

In February, the electric vehicle maker announced that it invested $1.5 billion in bitcoin, sending the price of the cryptocurrency higher by 16%.

And as bitcoin rallied early in the year, Ives in February estimated that Tesla may have racked up paper profits worth $1 billion thanks to its investment.

Tesla’s move was viewed by many as among the major catalysts for bitcoin’s rally this year, and other corporations and financial institutions followed suit.

But for Ives, who has an outperform rating on Tesla, Musk’s major reversal on Tuesday night may also serve as a catalyst.

“[The move] will have a short-term negative impact on bitcoin and the crypto landscape as the market digests this confusing news from one of its biggest supporters, Musk,” Ives said in a note.

Musk clarified Tesla will not sell its bitcoin holdings, and instead, will use the digital currency for transactions as soon as “mining transitions to more sustainable energy.”