Tesla CEO Elon Musk introduces the Cybertruck, Nov. 21, 2019, in Hawthorne, Calif. (AP Photo/Ringo H.W. Chiu) / Steam rises from the Svartsengi geothermal power station in Grindavík, Iceland. With massive amounts of energy needed to mine bitcoins, large crypto mining companies have established a base in Iceland, which has abundant renewable energy from geothermal and hydroelectric power plants. (AP Photos/Egill Bjarnason)
Tesla founder Elon Musk made a U-turn on bitcoin, saying that he will no longer allow his company’s electric vehicles to be bought using the cryptocurrency because of environmental concerns. Hundreds of billions of dollars were wiped off the entire cryptocurrency market within three hours of Musk’s tweet.
The value of the whole cryptocurrency market was around $2.43 trillion at 6 p.m. ET on Wednesday when Musk made the announcement, according to Coinmarketcap.com. By 8:45 p.m., the market capitalization was around $2.06 trillion. Bitcoin fell below $50,000 for the first time since April 24, dipping to $47,720.
“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,” Musk said in a tweet. “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.”
The process of mining bitcoin consumes about a half-percent of the world’s total electricity consumption, according to the Bitcoin Electricity Consumption Index. The online tool, created by Cambridge University researchers, estimates that bitcoin electricity consumption now equals Argentina’s annual carbon footprint.
Musk left the door open for using bitcoin again “as soon as mining transitions to more sustainable energy.” He said he is also looking at other cryptocurrencies that use less than 1 percent of bitcoin’s energy per transaction.
Adam Button, chief currency analyst and managing editor at Forexlive, described what he sees as a turning tide in the seemingly unwavering commitment of bitcoin fans.
“The true believers are losing faith,” Button wrote. “The flaws in bitcoin are inarguable and like many early technologies, something better will come along. It’s clear that’s already happened but with so many cryptos, one will have to emerge that solves all the problems bitcoin set out to. I don’t know which one that is, but it’s coming.”
Bitcoin’s energy-intensive mining process and anticipated regulatory hurdles could eventually lead to it losing most of its value over time, according to Canada-based global investment research firm BCA Research, Bloomberg reported.
The expense and slowness of bitcoin transactions make it “unsuitable as a medium of exchange,” BCA chief market strategist Peter Berezin wrote in a report Friday. He warned that environmental, social, and governance-focused (ESG) funds are likely to shun companies associated with the top cryptocurrency, Coindesk reported.
“As ESG funds start to flee [b]itcoin, its price will begin a downward spiral. Stay away,” Berezin wrote in a note before Musk made his bitcoin payments U-turn announcement.
U.S. Treasury Secretary Janet Yellen said in February at a New York Times event that bitcoin is a “highly speculative asset” and an “extremely inefficient” way to conduct monetary transactions. The amount of energy consumed in processing bitcoin transactions is “staggering,” Yellen said.
Tesla announced in an SEC filing in February that it had bought $1.5 billion worth of bitcoin, saying it would start accepting bitcoin as payment. This raised hopes of more widespread corporate adoption. The bitcoin price rose more than 10 percent to an all-time high after that Musk announcement.
Musk is credited with helping drive up the prices of digital currencies including bitcoin and dogecoin. In his tweet Thursday, he said Tesla is “concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel.”
Other companies including Square and PayPal announced earlier that they were entering the crypto payments space. Major investment banks including Goldman Sachs, Morgan Stanley and BNY Mellon have also found ways to allow their wealthy clients bitcoin exposure.
Most electricity used to mine bitcoin comes from fossil fuels. Bitcoin produces 37 million tons of carbon dioxide a year, about the same amount as Switzerland.
Listen to GHOGH with Jamarlin Martin | Episode 74: Jamarlin Martin Jamarlin returns for a new season of the GHOGH podcast to discuss Bitcoin, bubbles, and Biden. He talks about the risk factors for Bitcoin as an investment asset including origin risk, speculative market structure, regulatory, and environment. Are broader financial markets in a massive speculative bubble?
Bitcoins are mined by people connected to the cryptocurrency network. Entire warehouses full of miners use massive computer servers in China, where most bitcoin is being produced in 2021. China’s subsidized coal-fired power plants produce some of the cheapest energy in the world, according to The Phoenix. To mine bitcoin, miners have to solve the same mathematical puzzle using computers. About every 10 minutes, someone solves a puzzle and is rewarded with some bitcoin. Then a new puzzle is generated, and the whole process starts all over again. The puzzles help to ensure that no one fraudulently edits the global record of all transactions. As a reward, miners occasionally receive small amounts of bitcoin in what is often likened to a lottery.
Forex Live’s Button said that he believed bitcoin would get to $100,000 this year on a U.S. ETF, “but the tide has quickly turned and I’m wondering if the SEC might draw the same conclusion,” he wrote. “Ultimately, bitcoin is a psychological trade, not a fundamental one.”
Bitcoin was trading at $50,387.52 as of this writing, up from a $47,720 overnight low. “A clear break below $47,000 clears the way for a much deeper drop,” Button wrote.
