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Elon Musk, eh? His influence on cryptocurrency seems total. Even his smallest tweet can cause seismic price movements. He’s been at it again, this time with a major statement that has wiped billions off Bitcoin’s market cap. 

Musk voices big Bitcoin concerns 

On Wednesday, Musk announced Tesla will no longer be accepting payment in Bitcoin. The enigmatic billionaire cited concerns over “rapidly increasing use of fossil fuels for bitcoin mining”, as reasons for this big U-turn. 

“Cryptocurrency is a good idea on many levels, and we believe it has a promising future, but this cannot come at great cost to the environment,” Musk wrote in a long statement posted as a tweet. 

Tesla & Bitcoin

— Elon Musk (@elonmusk) May 12, 2021


It appears, at least on the surface, that Musk’s cryptocurrency jitters have been triggered by some pioneering research from Cambridge University.  

The Cambridge Bitcoin Electricity Index measures the volume of electricity needed to power Bitcoin mining, the complex computational conundrum that generates the in-demand tokens. 

Cambridge’s findings are shocking, to say the least. Generating new Bitcoin tokens requires more energy than countries like Sweden or Malaysia. Fossil fuels, particularly coal, are heavily involved in Bitcoin’s power generation chain.  

The conclusion is simple: heavier Bitcoin mining means higher greenhouse gas emissions. 

Musk’s decision to stop accepting Bitcoin as payment is also a realisation of a fact: people don’t want to spend their Bitcoin. People are investing in it, not spending it. It’s less a currency than an investment asset to buy and hold (or HODL). 

The U-turn that turned into a slide 

Markets were not happy. Losses mounted quickly. Musk’s comments initially led to a $365.8 million drop in value for Bitcoin, heavily biting into its previous $2.5tn market cap valuation. 

Bitcoin, which recently passed the $61,000 mark for the first time, had been trading around $56,000. It subsequently dipped below $50,000, hitting $46,000 to reach the lowest levels since early March.  

Bitcoin is a crypto bellwether. Usually, when it goes, all the other tokens go with it. That was the case on Wednesday evening. 10 of the major cryptos, including joke-but-not-actually-a-joke token Dogecoin, a pet favourite of Musk, fell precipitously too. 

Despite its wild price swing, BTC is still making gains at a frenzied pace. The world’s most popular crypto is up 400% year-to-date.  

What’s next?  

It all depends on how Bitcoin mining reacts. If it keeps up its current energy consumption levels using fossil fuel-powered energy generation, then the damage to the environment will rise. That may cause further ripples of discontent against the crypto. 

The complexity of the algorithm required to mint fresh Bitcoin tokens is increasing too. It will require more computing power to create new coins. More power will be needed. Not great for the environment. 

Some steps are being taken. China announced in March that crypto mining operations in the Inner Mongolia region will be shut thanks to their power-hungry energy requirements becoming too high for example. 

Others say increased crypto mining activity could act as a catalyst for renewable energy.  

Cathie Wood of Ark Investment fame, alongside Square’s Jack Dorsey, has put out a memo with words to that effect, but critics are not so sure. They claim Woods and Dorsey have a vested interest in touting Bitcoin’s potential positive environmental impact when the current research suggests the opposite. 

There’s a bit of hypocrisy, or at least contradiction, at play for Tesla too. The company makes electric vehicles that are viewed as the environmentally-friendly alternative to internal combustion motoring (questions around battery component mining notwithstanding).  

Can it really be seen to continue investing in Bitcoin for its balance sheet with the current conversation around crypto mining’s sustainability? 

Eagle-eyed crypto hounds will no doubt recall Tesla padding its balance sheet with $1.5bn of Bitcoin earlier in the year. Its stake had grown to $2.5bn as of May 2021.  

Trading reports suggest the automaker even made more profit from cryptocurrency trading than from the actual sales of cars in Q1 2021. 

CFO Mark Kirkhorn said in Tesla’s April earnings call that he believes in the token’s long-term value and was planning on using customer purchases to acquire more. Obviously, customer-generated BTC acquisition is off the cards, but will Tesla continue to dabble on crypto exchanges? 

ESG, environmental, social & governance, is a growing concern for investors. Some Tesla shareholders may be feeling a little queasy at the automaker’s crypto dalliance. After all, this is meant to be a company pioneering a greener mode of travel. If it continues to work with Bitcoin, some shareholders’ green thinking may cause them to pull out and that could affect the share price. 

Bitcoin probably isn’t going anywhere any time soon either. This volatility is something we’ve come to expect from the world’s most popular crypto. But with ESG and sustainability conversations intensifying, it’s going to be an interesting year for the digital currency. 

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