Why Tesla's $1.5 billion Bitcoin Buy is Foolish

Tesla’s (NASDAQ:TSLA) $1.5-billion bitcoin purchase is grabbing headlines and driving up prices of bitcoin. The bad news for Tesla shareholders is the added risks in holding the cryptocurrency. The book value of the company will depend on its movements.

Microstrategy (NASDAQ:MSTR) is no stranger to leveraging its balance sheet to hold bitcoin. This lifted the stock until it did not. MSTR stock peaked at over $1,200. It ended last week at $750.

Bitcoin mining takes considerable hydro and is considered environmentally unfriendly. If Tesla sees itself as a green firm, the bitcoin purchase contradicts the company’s values. Tesla owners cannot claim to help the environment if the brand supports bitcoin.

Tesla may have bought the currency to attract cryptocurrency holders. Those who hold it may exchange it for an EV. This could only help sales of Tesla vehicles, assuming cryptocurrency holders want one. The strategy could backfire if these currency holders prefer a gas-powered vehicle or do not want a vehicle at all.

Bitcoin’s fluctuations add risks for TSLA shareholders. Although it’s unlikely, a collapse in the value of bitcoin would now hurt Tesla stock. Tesla’s free cash on hand will depend on the price of bitcoin, disturbing R&D efforts.

Tesla is riskier to own now. Be wary of buying Tesla stock as shares dip