Elon Musk issues blow to bitcoin as Tesla backs away from crypto purchases

13 May 2021

Image: © Ascannio/Stock.adobe.com

The price of bitcoin plunged following the Tesla CEO’s announcement that the company would no longer accept the cryptocurrency as payment.

Electric vehicle-maker Tesla caused a stir when it announced earlier this year that it would begin accepting bitcoin for car purchases.

In February, the company said it had bought $1.5bn in bitcoin and that it could go on to acquire and hold more digital assets.

However, three months down the line, the company has pulled back on the cryptocurrency, announcing this week that it will no longer accept bitcoin for payment.

‘We are concerned about rapidly increasing use of fossil fuels for bitcoin mining’

Tesla CEO Elon Musk cited environmental concerns for the sudden volte-face.

“Tesla has suspended vehicle purchases using bitcoin,” he said in a statement released via Twitter.

“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 added that the company will cease any trading in bitcoin until these energy concerns addressed. “Tesla will not be selling any bitcoin and we intend to use it for transactions as soon as mining transitions to more sustainable energy. We are also looking at other cryptocurrencies that use less than 1pc of bictoin’s energy per transaction.”

How does bitcoin affect the environment?

The mining of bitcoin involves the use of energy-intensive computing processes to solve complex mathematical problems.

According to the University of Cambridge Bitcoin Electricity Consumption Index, bitcoin mining consumes as much energy annually as a small country at 149.63 terawatt-hours. This is more than the annual electricity consumption of countries such as Sweden, Argentina and The Netherlands.

The source of this electricity, as with much of the electricity consumed around the world, relies heavily on fossil fuels.

In one case in the US, bitcoin has even driven the reopening of a previously abandoned power plant, restarting fossil fuel emissions. According to Grist, Greenidge Generation’s natural gas plant in New York uses enough power for around 9,000 homes to mine about $50,000 worth of bitcoin per day.

Instant impact on price of bitcoin

While Tesla’s initial backing of bitcoin drove a surge in the price of the cryptocurrency, the reversal has also had a swift impact.

Reuters reports that the tweet from Musk yesterday (12 May) sent the price of bitcoin down dramatically, by as much as 17pc, hitting its lowest price since 1 March. However, the cryptocurrency reportedly clawed back about half of that drop in Asian trading.

Similarly Ethereum, the world’s second-largest cryptocurrency after bitcoin, dropped as much as 14pc before recovering.

This came just as Ethereum was reaching all-time highs and even outperforming bitcoin. Also known as Ether, this cryptocurrency differs from bitcoin in that it is a platform on which apps can be built. For example, the recently popular non-fungible tokens (NFTs) are typically built on the Ethereum blockchain.

What does this mean for the future of cryptocurrency?

It remains to be seen what impact this move from Tesla may have on others that have recently begun dealing in bitcoin.

At its earnings call this week, data analytics company Palantir said investments in bitcoin are “definitely on the table” as it followed Tesla in announcing that it would accept the cryptocurrency as payment.

PayPal recently rolled out crypto functions and even acquired crypto-security company Curv as it delves deeper into digital wallets.

In March, Visa announced the pilot for a new system to allow cryptocurrency transactions to be settled without converting to traditional currency. This was considered a major move for mainstream cryptocurrency acceptance.

Musk himself reaffirmed his commitment to cryptocurrencies, provided they can consume less energy.

“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,” he said in his statement.

Elaine Burke is the host of For Tech’s Sake, a co-production from Silicon Republic and The HeadStuff Podcast Network. She was previously the editor of Silicon Republic.