Musk’s U-turn sends bitcoin tumbling

Tesla CEO Elon Musk says the electric-vehicle manufacturer is suspending purchases using bitcoin, triggering a slide in the digital currency.

In a post on Twitter on Wednesday, Musk cited concerns about “rapidly increasing use of fossil fuels for bitcoin mining and transactions”, while signalling that Tesla might accept other cryptocurrencies if they are much less energy intensive.

The company will not be selling any of the bitcoin it holds, he said.

The largest cryptocurrency dropped as much as 15% to just above $46,000, before paring some of the retreat. It was down about 6% to $50,980 at 1.09pm in Tokyo on Thursday. The rush to sell briefly caused outages at some digital-token exchanges. Bitcoin is still up more than fivefold in the past year.

Musk’s move comes after Tesla disclosed in February that it had bought $1.5bn in bitcoin and planned to accept it as a payment. That announcement added legitimacy to the cryptocurrency as an increasingly acceptable form of payment and an investment.

Tesla’s website, which had a support page dedicated to bitcoin, noted that the token was the only cryptocurrency that Tesla accepts in the continental US. Musk has also tweeted frequently about dogecoin, a cryptocurrency started as a joke in 2013 — and he hasquipped

CATALYST

Tesla’s addition of bitcoin to its balance sheet was the most visible catalyst during this year’s rally in the digital currency. Bitcoin jumped 16% that day, the biggest one-day gain since the Covid-inspired financial markets volatility in March 2020.

Optimism grew after Mastercard, Bank of New York Mellon and other firms moved to make it easier for customers to use cryptocurrencies, fuelling the mainstream resurgence that took bitcoin from about $29,000 at the end of 2020 to as high as almost $65,000 in April.

Bitcoin mining is consuming 66 times more electricity than it did back in late 2015, and the carbon emissions associated with it will likely face increasing scrutiny, according to a recent Citigroup report.

Musk is no stranger to considering the issue of crypto’s environmental impact.

Cathie Wood’s Ark Investment Management published a report in April saying cryptocurrency mining can drive investment in solar power and make more renewable energy available to the grid. Twitter’s Jack Dorsey retweeted a post on the white paper with the comment that bitcoin “incentivises renewable energy”. Musk replied to Dorsey’s tweet, saying “true”.

Musk’s tweet on Wednesday took many in the crypto community by surprise, including Nic Carter, founding partner at Castle Island Ventures, and a leading voice among defenders of bitcoin’s energy use. “Surely he would have done his diligence before accepting bitcoin?’ he said. “Very odd and confusing to see this quick reversal.”

It is unclear what prompted the decision and Musk and Zachary Kirkhorn, Tesla’s CFO, did not immediately respond to an e-mail inquiry for comment.

Tesla’s first-quarter earnings were bolstered by the sale of 10% of its bitcoin holdings. Musk said in April the disposal was intended to demonstrate the token’s liquidity, and added that he’s retained his personal investment in the cryptocurrency. Kirkhorn said on an earnings call that the company believes in bitcoin’s long-term value.