In recent months, Elon Musk has contributed to the growth of the biggest cryptocurrency. The Tesla corporation even bought $1.5 billion worth of Bitcoin. Then, things changed abruptly. On May 12, the CEO tweeted his company would no longer accept Bitcoin as a payment method. So, what happened?
Officially, the turnaround was due to environmental concerns. This decision made headlines in the global media, while coinspeaker analysts started searching for a hidden agenda. So, why did Musk do a 180?
Here is the actual quote from the billionaire: “We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel”. Of course, Bitcoin mining is extremely energy-consuming and unsustainable. However, these drawbacks have been known for years, so why now?
It was only in March that Tesla started accepting the coin for its vehicle purchases in the United States. Back then, the company's CFO Zach Kirkhorn announced the corporate intention to continue these transactions in the long term. The rationale was quite simplistic, though: “Elon and I were looking for a place to store cash that wasn’t being immediately used, trying to get some level of return.”
And why did Musk suddenly become so concerned about the carbon footprint? His other projects are hardly eco-friendly. For example, SpaceX rockets emit massive amounts of carbon dioxide. The tunnel drilling project called The Boring Company is not sustainable, either.
The price of the most basic Tesla car is roughly equal to just one bitcoin. This means the company's investment exceeded the amount of crypto it would have accumulated from its sales over many years. Obviously, the vetting and approval of this investment are dubious.
Analysis of the Effects
The effects of the announcement were comparable to the aftermath of the purchase. First, Tesla pushed the value of Bitcoin by over 10 p.c. Now, its CEO's decision has caused a 10+ p.c. plunge. The cryptocurrency is extremely sensitive to Musk's tweets.
This makes one wonder if BTC is really a stable store of value, which is crucial for any currency. If one billionaire can cause such dramatic swings, experts have questions. This point of view is supported by Paul Donovan of UBS.
In addition, the controversial stance could cast a cloud over Dogecoin, which Musk is now supporting. After all, its mining is based on the same Proof of Work protocol, which is extremely energy-hungry. Finally, the adoption and rapid dropping of Bitcoin could be merely a PR stunt to draw attention to green virtual currencies. In any case, let us keep updated on the recent news in cryptocurrencies.