Cryptocurrency update: BTC hits accelerator on Telsa u-turn
After hitting the brakes on BTC payments, Tesla appears to have changed its tune, while El Salvador is fully in the cryptocurrency fast lane with a daring new strategy.
Musk’s Tesla Bitcoin handbrake turn
Bitcoin hit the accelerator this morning following yet another market-empowering tweet from Elon Musk.
The Tesla CEO and ardent cryptocurrency supporter has partially u-turned from the automaker’s decision to stop accepting Bitcoin as payment owing to crypto mining’s environmental impact.
Musk said Sunday 13th June that Tesla will resume bitcoin transactions once the electric vehicle maker confirms there is “reasonable” clean energy usage by miners.
In response to a tweet from cryptocurrency news aggregator Coin Telegraph, Musk confirmed his stance, while also addressing questions over Tesla’s own BTC holdings.
It’s not clear how exactly Musk and co. plan to vet crypto miners, or how they would check their green energy credentials. However, this is the first indicator we’ve had that Tesla is shifting its stance following its self-imposed BTC payment ban.
Tesla still owns a substantial number of Bitcoin tokens, valued at anywhere between $1-2bn. In selling a 10% stake in Q1 2021, the carmaker allegedly made more profit from BTC sales than from selling actual cars.
As is commonplace when Musk powers up the Twitter app on his smartphone, this latest tweet has acted as propellant for BTC prices. As of Monday morning, Bitcoin was looking to test the $40,000 level after a few weeks of sideways trading – a 12% leap. We’re still someway off April’s $65,000 record highs, though, and it might take time for the token to reach those levels again.
The environmental cost of cryptocurrency mining has been under intense scrutiny in recent weeks. China has cracked down on mining operations citing massive energy consumption concerns. Iran has banned all such activity until September as blackouts in capital Tehran were triggered by mining operations guzzling up power.
Again, there has been no real indicator as to how Tesla ensures its supply of Bitcoin tokens come from environmentally friendly miners. But green power and clean energy are at the core of Tesla’s philosophy. Ensuring its crypto strategy is in line with basic principles is good for brand image, but it does leave you questioning with a carmaker is dabbling with crypto trading anyway.
That’s legal tender! El Salvador pushes ahead with ambitious BTC plan
El Salvador has become the first country in the world to accept Bitcoin as legal tender.
Under Millennial meme-loving President Nayib Bukele, the Central American state has taken the radical step of turning the world’s most popular crypto into actual, legal currency. It will gain full legal tender status in 90 days’ time.
Merchants were already free to accept payment in BTC at their own discretion, but now they must do so unless they lack the proper technology.
The US dollar will remain El Salvador’s primary currency. Prices for goods and services will be listed in USD rather than BTC for instance. But BTC can now be used for everyday purchases and even for paying taxes.
It’s an interesting move, especially for a digital currency that revolves around decentralised finance. How would paying taxes work exactly – especially when regulators worldwide are keen to crack down on crypto-led money laundering and tax evasion?
What about energy and mining? While the bill that passed BTC into law does not specifically mention mining, President Bukele tweeted a drone-shot video showing a geothermal powerplant in action. Bitcoin by volcano anyone?
The government has set about guaranteeing convertibility of BTC to dollars through a $150 million trust created at the country’s development bank BANDESAL.
Why has El Salvador taken this path? Bukele says the move will help foster financial inclusion, investment, tourism, innovation and economic development.
Bukele is particularly hopeful remittance, i.e. payments sent back home from citizens living overseas, can pick up. Using BTC to pay these would cut out the middleman, and possibly result in billions of extra cash by negating conversion fees.
Others are wary of the decision.
The IMF, with which El Salvador is hashing out a $1bn economic relief deal, states the Central American country’s move “raises a number of macroeconomic, financial and legal issues that require very careful analysis”.
We’ve seen institutional digital currency support rise in recent months – but we’ve also seen numerous regulatory bodies urge caution. An entire country taking the leap to legitimising BTC has legal tender is entirely new ground. Cryptocurrencies, and especially Bitcoin, are inherently volatile. What El Salvador is doing could have considerable blowback.
El Salvador is thus a Central American guinea pig with its legal tender experiment.