Shares in Tesla have plunged 13 percent after Bitcoin plummeted to below $50,000 for a second straight day - with analysts warning the electric carmaker's stock price is now tied to the cryptocurrency after its recent $1.5 billion investment.
Tesla's stocks dropped as much as 13 percent on Tuesday, which is the worst day since September, before recovering slightly.
As of mid-morning trading, Tesla's shares were trading three percent lower.
It came as Bitcoin, which Tesla boss Elon Musk has been heavily touting, faced its biggest daily drop in a month, falling 17 percent to as low as $45,000 on Tuesday. In choppy trading, Bitcoin was last down 15.6 percent.
It it the second straight day Bitcoin has dropped below $50,000. The drop took its losses to over a fifth from a record high of $58,354 hit on Sunday and underscored the volatility of the emerging asset - though it is still up around 60 percent this year.
TESLA: Tesla's stocks dropped as much as 13 percent on Tuesday before recovering slightly. As of mid-morning trading, Tesla's shares were trading 3 percent lower
BITCOIN: Bitcoin, which Tesla boss Elon Musk has been heavily touting, faced its biggest daily drop in a month, falling 17 percent to as low as $45,000 on Tuesday
Tesla's $1.5 billion investment earlier this month helped vault Bitcoin above $50,000 but may now lead to pressure on the company's stock price as it has become sensitive to movements in Bitcoin.
Daniel Ives, an analyst at Wedbush, told CNBC that Musk and Tesla were now tied to the value of Bitcoin after the electric carmaker invested $1.5 billion earlier this month.
'Musk is now tied to the bitcoin story in the eyes of the Street and although Tesla made a billion paper profit in its first month owning the digital gold, it comes with added risk, as seen this week,' Ives said.
'With Tesla diving into the deep end of the pool on bitcoin, Musk runs the risk that this side show can overshadow the fundamental EV (electric vehicle) vision in the near term for investors.'
After hitting a market value of $1 trillion last week, Bitcoin is now worth $900 billion, according to CoinDesk data.
Musk, whose tweets on Bitcoin have added fuel to the cryptocurrency's rally, said at the weekend that the price of Bitcoin and ethereum - the second-largest cryptocurrency - seemed high.
Cryptocurrency markets have been running hot this year as big money managers and companies begin to take the emerging asset class seriously, piling money into the sector and driving confidence among small-time speculators.
Musk, whose tweets on bitcoin have added fuel to the cryptocurrency's rally, said at the weekend that the price of bitcoin and ethereum - the second-largest cryptocurrency - seemed high
BITCOIN DAILY: Bitcoin, which Tesla boss Elon Musk has been heavily touting, faced its biggest daily drop in a month, falling 17 percent to as low as $45,000 on Tuesday. In choppy trading, Bitcoin was last down 15.6 percent
BITCOIN YEARLY: The value of Bitcoin started surging last month. After hitting a market value of $1 trillion last week, Bitcoin is now worth $900 billion, according to CoinDesk data
Musk, whose tweets on bitcoin have added fuel to the cryptocurrency's rally, said at the weekend that the price of bitcoin and ethereum - the second-largest cryptocurrency - seemed high
The cryptocurrency's rapid gains in recent months have led to calls from governments and financial regulators for tighter regulation.
US Treasury Secretary Janet Yellen said on Monday that bitcoin was extremely inefficient at conducting transactions and was a highly speculative asset.
She claimed it required a vast amount of energy and she expressed fear it was used for 'illicit' reasons.
'I don't think that bitcoin … is widely used as a transaction mechanism,' she told the outlet.
'To the extent it is used I fear it's often for illicit finance. It's an extremely inefficient way of conducting transactions, and the amount of energy that's consumed in processing those transactions is staggering.
'It is a highly speculative asset and you know I think people should be aware it can be extremely volatile and I do worry about potential losses that investors can suffer.'
Bitcoin's high volatility, critics say, is among reasons that it has so far failed to gain widespread traction as a means of payment - an expectation that has in part fueled its rally.
Analysts said that, with few fundamental factors by which to judge bitcoin's value, key price levels would play a large part in determining the direction of crypto markets.
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