Tesla stock fell another 3.75% on Tuesday and has now entered a bear market, with a number of analysts attributing the stock’s drop to a bet on Bitcoin.

Tesla stock is around 22% off their historic highs. Bear markets are traditionally considered a decline of 20% or more from a peak. For Tesla, this would mean a close below $706.47, which is 20% off its Jan. 26 record close.

Bitcoin has been volatile since its inception, and recently dropped from highs above $58,000 to near $47,000 on Tuesday.

“This pullback really started after Tesla made the decision to buy $1.5 billion of bitcoin,” Garrett Nelson with CFRA told MarketWatch. “Although Tesla used a relatively small percentage of their overall cash to make the purchase, it has investors questioning its future growth strategy.”

The selloff began to accelerate on Tuesday following late Monday news that Lucid Motors plans to go public after a merger with a blank-check company, he said. The deal’s implied valuation of roughly $24 billion “is being viewed as highly disappointing” and as potentially damaging to Tesla and other EV upstarts.

Could Musk’s Bitcoin Bet Come Back to Hurt Tesla?

But the association with Bitcoin seems to be a significant catalyst for a number of analysts, such as Dan Ives with Wedbush, who agrees with the Bitcoin connection. Ives pointed to the last few days of ‘nasty’ declines for the shares, adding that the automaker dove “into the deep end of the pool.”

While theoretically the investment is relatively insignificant and would not “move the needle for Tesla,” Ives explained that investors don’t see it that way.

“However, perception is reality on the Street and by Musk and Tesla aggressively embracing bitcoin (from a transactional perspective as well), investors are starting to tie bitcoin and Tesla at the hip,” he noted.

“While Tesla on paper made roughly a $1 billion on bitcoin in a month that exceeded all its EV profits from 2020, the recent 48-hour sell off in bitcoin and added volatility has driven some investors to the exits,” Ives added. The lingering worry is that the ‘bitcoin sideshow’ overshadows Tesla’s overall EV growth story.

ETF investors holding Tesla should monitor funds like the ARK Autonomous Technology & Robotics ETF (CBOE: ARKQ), which is down over 4.61% Tuesday.

The moves in Tesla also directly affect Bitcoin’s viability, and prospects of a Bitcoin ETF. There’s no getting around the fact that Bitcoin has a lot riding on Tesla accepting the currency as a form of payment.

In the meantime, it’s “‘buckle up the seat belt time’ again for Tesla’s stock with more volatility on the horizon,” Ives said.

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