Elon Musk slams Bitcoin’s electricity consumption, sending the price 25% lower in a matter of hours. Tesla does not accept Bitcoin as payment for its cars anymore.
Bitcoin, and with it the entire cryptocurrency market, had a rough start to the trading week. It lost about 25% of its value in less than a trading day, as Elon Musk’s tweets suggested that Tesla will not accept Bitcoin for its cars anymore. Moreover, Musk hinted that Tesla may have sold its Bitcoin holdings, although he denied it later in the day.
The tweets sent the price of Bitcoin in a death spiral. At this point, both bulls and bears do not know what to believe.
On the one hand, bulls are relieved that Tesla did not sell its Bitcoin, worth about $1.5 billion. On the other hand, bears argue that if Bitcoin dropped 25% without Tesla selling, what would happen to the price when Tesla does actually sell?
One thing is for sure – Musk does have a point about Bitcoin’s electricity consumption, even though it is unlikely that he did not know that before announcing Tesla’s investment. The total value of Bitcoin in circulation exceeds $900 billion today, and most of the coins are mined using coal in China.
What Triggered Tesla’s Decision?
The official version is the one given by Tesla’s CEO, Elon Musk. His statement that Tesla has suspended vehicle purchases using Bitcoin suggests the company’s concern with the environmental damage of Bitcoin mining.
He states that Tesla is looking at other cryptocurrencies, and even enquired a few days earlier, asking his followers if Tesla should accept Doge, another cryptocurrency popular with Musk’s fans. The energy/transaction criteria is important, as the currency should use less than 1% of Bitcoin’s rate.
Studies from the Cambridge Bitcoin Electricity Consumption Index, released in the week ending May 13th, showed that Bitcoin mining is using 150 terawatt-hours in one single year, more than the annual consumption of a country like Israel or the Netherlands.
Some say that Tesla has received too many orders for its cars in Bitcoin, and it can only register the proceeds in the balance sheet and not the cash flow statement. Since Bitcoin is not cash, and the company promised not to sell it, we can easily see a problem for a company known for its lack of liquidities.
Whether this is the case or not, we will not know for sure. However, everybody welcomed Elon Musk’s decision – everybody except Bitcoin holders.