Investors jolted by sinking Bitcoin, Tesla and other market favorites

A dive in Bitcoin’s price this week spilled onto Tesla shares, shaving more than US$110 billion off the electric carmaker’s value and some US$20 billion from CEO Elon Musk’s net worth while slamming exchange traded funds holding the stock.

FILE PHOTO: A man wearing a face mask following the coronavirus disease (COVID-19) outbreak walks by Tesla Model 3 sedans and Tesla Model X sport utility vehicle at a new Tesla showroom in Shanghai, China May 8, 2020. REUTERS/Yilei Sun/File Photo

LONDON/NEW YORK: Bitcoin, shares of Tesla and a high-flying exchange traded fund (ETF) fell on Tuesday, retreating from recent rallies in a volatile session that gave investors a gut check.

It was the latest sign of a possible pause in a rally that has buoyed a broad range of assets. Investors may be growing wary of sky-high valuations, while recent rises in Treasury yields could dim the allure of stocks and other comparatively risky investments.

“We have been in a sustained rally and there was a lot of leverage in the system,” said Ty Young, cryptoasset research analyst at crypto data platform Messari, of Bitcoin. “Corrections are to be expected during a bull run and not surprising when looking at previous cycles.

Bitcoin was recently down 11per cent at US$48,207, paring some losses after Jack Dorsey’s Square Inc said it bought around 3,318 bitcoins for US$170 million. The cryptocurrency had fallen as low as US$44,845 during the session.

Shares of Tesla, which recently disclosed a US$1.5 billion investment in the cryptocurrency, fell as much as 13.4per cent and pared losses to end down 2.1per cent. The ARK Innovation ETF, which counts Tesla as its biggest holding, finished 3.3per cent lower.

Recently popular exchange-traded funds (ETFs) focused on industries such as blockchain, cannabis and renewable energy have also taken a hit in the past week-and-a-half, with some investors growing skittish.

The electric carmaker’s shares represent about 10per cent of holdings for the ARK Innovation ETF, which has fallen around 9per cent this week as volatile bitcoin prices have pushed Tesla’s shares down almost 11per cent in the same period. Bitcoin has tumbled 17per cent in two days.

Some investors may have been preparing for downside in the ETF. Amy Wu Silverman, equity derivatives strategist at RBC Capital Markets, noted that options activity indicated a rise in demand for protection against a decline in ARKK.

Bullish sentiment for many holdings in the ARK Innovation ETF remains high, Wu Silverman noted. Despite recent weakness, outflows from the fund have been minimal, according to research from Christopher Murphy, co-head of derivatives strategy at Susquehanna Financial Group.

“The ARKK ETF has been the poster child of momentum high fliers and is beloved by retail,” Wu Silverman wrote.