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Tesla Stock Performance Outshines Bitcoin After Latest Rally

By Joe Tenebruso - Feb 4, 2020 at 7:05PM

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The electric vehicle maker and the popular cryptocurrency have delivered strong gains to investors.

The past year has been a good time to own Bitcoin. Yet it's been even better to be a Tesla (TSLA 4.67%) investor.

Bitcoin's price has surged by more than 165% over the past 12 months. The popular cryptocurrency has seen its price boosted in recent months as investors have sought a "chaos hedge." This is a term used to describe an asset that rises in value during periods of great fear and uncertainty -- such as that which has been brought about by trade wars between the U.S. and China and heightened military conflict in the Middle East -- and can be used to offset losses on other assets that decline in value during these volatile periods.

The recent outbreak of coronavirus, which has sickened more than 20,000 people around the world and resulted in the deaths of over 400 people, has only served to increase fear and uncertainty among investors. Bitcoin's price has unsurprisingly risen sharply in recent weeks against this backdrop, and the cryptocurrency's ascent could certainly continue in the coming days and months.

Yet even Bitcoin's torrid gains have been surpassed by those of Tesla's stock. The electric vehicle maker's shares have surged by a staggering 116% so far in 2020  and a total of 187% over the past year. 

A person pointing to an upwardly sloping line above another line

Image source: Getty Images.

A host of powerful factors have combined to propel Tesla's stock price to dizzying heights in recent days.

A series of analyst price target increases helped to kick Tesla's share gains into high gear. On Jan. 21, New Street analyst Pierre Ferragu boosted his target price to $800 from $530, citing Tesla's "technological dominance" and the "strong sustained demand" for its vehicles. The next day, Wedbush analyst Daniel Ives jacked up his price target by nearly 50%, based in part on his growing bullishness on Tesla's growth opportunity in China.

Tesla's gains accelerated following its blockbuster fourth-quarter results, which saw the hard-charging company's revenue and earnings per share come in nicely above Wall Street's expectations.

The stock's rise steepened after analysts at investment firm ARK Invest laid out an incredibly bullish forecast for Tesla's shares. "Based on our updated expectations for electric vehicle (EV) cost declines and demand, as well as our estimates for the potential profitability of robotaxis, our 2024 expected value per share for TSLA is $7,000," the firm said. Tesla's stock was trading for less than $700 at the time.

That brings us to today. Tesla's stock finished the trading day up another 13.7%, to $887.06 per share, after rising more than 20% earlier in the day. This latest jump in Tesla's stock price came after major shareholder Ron Baron said the automaker's revenue could rise to as much as $1 trillion within a decade -- up from $24.4 billion today -- during an interview with CNBC.

Volatility cuts both ways 

While it has no doubt been quite a ride for Bitcoin and Tesla owners over the past year, investors should brace themselves for a possible sharp pullback in both assets' prices.

Bitcoin's price is notoriously volatile. And while the cryptocurrency could certainly continue to ascend to new heights -- particularly with the "halvening" only months away -- it could also just as easily see its price turn sharply to the downside.

As for Tesla, many people are understandably rooting for its success. Electric vehicles can be part of the solution to the threat posed by climate change -- something we'll all likely be thinking about a lot more in the coming years.

But while the bulls will have you believe that there's nothing but upside ahead for Tesla, the stock may have gotten ahead of itself in recent days. That's because, in addition to the bullish catalysts mentioned previously, it's likely that a massive short-squeeze -- forced buying by short sellers who have suffered sizable losses -- is also contributing to Tesla's recent gains. So it's possible that Tesla's stock could pullback violently once this buying pressure abates.

As such, Bitcoin and Tesla investors should brace for sharp moves to both the upside and downside in the days ahead.

Joe Tenebruso has no position in any of the stocks or cryptocurrencies mentioned. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has no position in any of the cryptocurrencies mentioned. The Motley Fool has a disclosure policy.

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