Tesla and Crypto: Two Sides of the Same Coin

What do Tesla and crypto have in common?

Both now have a significant political element to them, which either gives (bitcoin), or takes (Tesla), depending on what or who is on the current administration’s naughty or nice list. Mixing investing with politics was never a great idea, but now it’s become almost unavoidable.

Tesla is an interesting case in corporate image and how it can make or break a stock. Not so long ago, Tesla was the EV pioneer, the company that changed the image of EVs from fancy golf carts to fast, sleek, computer-savvy vehicles of the future. Add in a dose of eco-activism, and Teslas became the vehicle in every left-leaning upper-middle-class neighborhood. In just a few years, the Model Y became the world’s best-selling vehicle. Whatever you think of Elon Musk, that’s quite an accomplishment — the last person to do it was Henry Ford, over 100 years ago.

But, as it turns out, what you think of Elon Musk is important, because he is and always has been the very public face of Tesla. Musk is a polarizing figure, and he’s not afraid to do or say whatever he pleases. His involvement with the current administration has offended his original customer base (and that would be an understatement). Similar to Bud Lite, in which management badly misunderstood, or took for granted, its core customer base, Tesla is now in the midst of a serious customer revolt. Adding to the fire is the fact is that if you want to buy a fancy EV, there are now many other attractively priced and readily available alternatives to Tesla. All this has led to sharply declining sales, with Q1 looking to be down as much as 8% year-over-year.

On top of Tesla’s image problems, there are also questions about whether Musk is paying sufficient attention to his businesses, or is so involved with DOGE, etc. that he is ignoring what made him the world’s richest man in the first place. When Tesla was early on having production line issues, there were reports that Musk was sleeping at the plant and involved down to the smallest detail. Not anymore. Is Musk overextended?

Tesla is now an attractive target for short sellers and for those who view the company as a toxic symbol of the current administration. Year-to-date, TSLA is down over 37% year-to-date and has given up all its gains since the November election. With this has come a healthy dose of skepticism and uncertainty, both of which are reflected in the recent 38 percentage point spike in TSLA’s implied volatility:

Note that as the worst of the plunge moderated, Tesla’s IV came off significantly and now stands in the high 60s. Similarly, the IV skew between 0.50 and 0.25 strikes (i.e., the out-of-the-money to at-the-money spread, see chart below) has also contracted after its initial blowout. TSLA skew and implied volatility remain at elevated levels, but will revert to more normal levels if the stock goes sideways or recovers. On the other hand, if TSLA resumes its plunge, it’s implied volatility should increase accordingly. Keep that in mind if you are trading TSLA options.

Crypto is facing a situation that is opposite to the one that confronts Tesla, but similar nonetheless. President Trump has made crypto one of the centerpieces of his administration. As I discussed last week, that includes both deregulation and, possibly, the formation of the nation’s first crypto reserve. Each new announcement from the administration has been accompanied by a bitcoin rally. Unfortunately for crypto bulls, the opposite has also been true; no new announcements lead to a declining or sideways market. And just like Tesla, crypto finds itself hitched to the policies, focus, and style emanating from the current administration.

What does that mean for bitcoin options traders? Interestingly, not much. Bitcoin futures implied volatility seems to have limited connection with movements in the underlying:

Although the evidence is limited, it seems that bitcoin’s implied volatilty will increase if the underlying looks ready to make new recent lows under $80,000 or new highs over $100,000. In other words, bitcoin needs to break out before long volatilty players can make any money. Again, at this point TSLA seems at the mercy of the administration’s policies and pronouncements.