Why Tesla Stock Dropped Today - Motley Fool

What happened

Shares of Tesla (NASDAQ:TSLA) fell 4.8% on Wednesday after CEO Elon Musk announced that customers could now purchase its electric vehicles with Bitcoin (CRYPTO:BTC).

So what

Tesla disclosed in February that it invested $1.5 billion in Bitcoin. It said at the time that it expected to begin accepting the cryptocurrency as a form of payment for its vehicles "in the near future." Today, Musk made it official.

A Bitcoin symbol is in the middle of a digital circle.

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

Notably, Tesla will keep the Bitcoin it receives from its customers, rather than convert it into fiat currency like the U.S. dollar. That will increase Tesla's exposure to the cryptocurrency's wild price swings, which could make some shareholders uneasy.

Now what

Tesla's initial investment bolstered Bitcoin's legitimacy among investors and corporate management teams. Combined with Musk's support of Bitcoin on social media sites like Twitter, Tesla's foray into digital assets helped to drive the cryptocurrency's price up to record highs above $60,000 earlier this month. Now, Tesla's move to accept Bitcoin payments could lead other companies to follow suit.

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

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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