Bitcoin prices swoon after Tesla chief Elon Musk goes negative on it

New York: Tesla Inc.'s CEO Elon Musk said the electric-vehicle manufacturer is suspending purchases with Bitcoin, triggering a slide in the digital currency.

In a post on Twitter, Musk cited concerns about "rapidly increasing use of fossil fuels for Bitcoin mining and transactions", while signaling that Tesla might accept other cryptocurrencies if they are much less energy intensive. He also said the company won't be selling any of the Bitcoin it holds.

The Musk remark has so far wiped off $365 billion from crypto assets.

The largest cryptocurrency dropped as much as 15 per cent in Asian trading, sliding below $50,000, before paring some of the drop. It was down about 8 per cent to $50,190 as of 10:53am in Tokyo. The were reports of outages at digital-token exchanges as people rushed to sell.

Stockpiling the Bit

Musk's move comes after Tesla disclosed in February that it had purchased $1.5 billion 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, especially coming from a large member of the S&P 500 with a high-profile CEO who commands a big following among retail investors and the general public.

Tesla's website, which had a support page dedicated to Bitcoin, noted that Bitcoin 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 quipped about being the "Dogefather" before and during his stint hosting the Saturday Night Live show on May 8. He tweeted on Tuesday, "Do you want Tesla to accept Doge?"

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 per cent that day, the biggest one-day gain since the COVID-19 inspired financial markets volatility in March 2020.

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

16 %

The single-day spike in Bitcoin prices after Tesla announced that it would add the cryptocurrency to its holdings

Mining deep

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 Inc. report. Musk is no stranger to considering the issue of crypto's environmental impact.

Cathie Wood's Ark Investment Management published a report last month saying cryptocurrency mining can drive investment in solar power and make more renewable energy available to the grid. Twitter Inc.'s Jack Dorsey retweeted a post on the white paper with the comment that Bitcoin "incentivizes renewable energy". Musk replied to Dorsey's tweet, saying simply, "True."

Musk's tweet on Wednesday took many in the cryptocurrency 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 prior to accepting Bitcoin?' Carter said. "Very odd and confusing to see this quick reversal."

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