The crypto markets have been in a strong decline for nearly a week. The action and its negative trajectory began when Tesla Motors decided to stop accepting bitcoin tokens as a payment for their vehicles. This big negative news brought about an even larger level of insecurity into an already jittery market. The chain reaction that took place after that was already familiar to many in the crypto community – it was negative and quickly spun out of control. The immediate narrative was that Elon Musk believes, along with his company, that the bitcoin network is bad for the natural environment.
The market expected that other big investors would also get spooked by the prospect of having more public scrutiny into their crypto holdings and the same did occur to a point. The market movement that came after it was unmistakably negative and the prices began crashing. The wave of south-pointing market movement began in bitcoin but it did not end there. Instead, it pulled down the ethereum network and many other altcoins as well. Some smaller alternatives, like dogecoin or unknown esports tokens, managed to set into a better position, but the general trend remains very negative and is open to even worse news. That would be a potential for a prolonged bear market that many in the crypto community are presently fearing.
The Elon Musk Move
The breakdown in the bull market came abruptly and it was very faithful to the way Elon Musk generally does things. In other words, it came through a tweet. In it, Musk explained – in a very short statement – that Tesla Motors can no longer accept bitcoin BTC tokens as a form of payment for its vehicles. This decision was at that point only a couple of months old and it is an open question how much (if any) was used. However, the option was from that point off the table and Musk explained it by saying that the same cryptocurrency uses too much electrical power to keep working.
He characterized this as an issue of environmentalism and the carbon footprint BTC leaves behind, which is why Tesla can no longer accept the same payment alternative. Now, it is unclear if Musk simply was not thinking before he came out with this statement or if he was under pressure from both his board of directors and executive figures. In any case, the same brought down the first domino which would then lead to a cascade. This cascade took the BTC price below 50,000 USD in a matter of days.
PR Stunt gone Bad
It was back in February that Tesla announced that it will begin accepting BTC tokens as payments. Even at the moment when the news came out, many stated that everything about it feels like a public relations stunt. Also, right about the same time, the company revealed that it is purchasing 1.5 billion in BTC tokens as a diversification of its company holdings. This also felt illogical. If BTC was supposed to be a reserve asset that is used by Tesla as a form of hedge against fiat inflationary debasement, then why would the company use it in the form of a payment token.
Furthermore, there are some general issuers that quickly suffice when the notion of payment through bitcoin is taken into consideration. First of all, it comes with long confirmation times because of network congestion. Then, it includes high fees. In many places around the world, especially those that do not have steady access to traditional banking systems, it still beats the competition, whatever it might be. However, these places are rarely the same locations that purchase high-end electrical luxury sedans for BTC in the equivalent of tens of thousands of USD. That makes the potential Tesla clients very unlikely to use BTC for their purchases, as most would simply use bank transfers or payments through platinum credit cards.
Tesla Relativizing its Own Hedge
The signals coming from Tesla Motors and Elon Musk at the start of the year were all positive, but also contradictory. The notion of having both a good reserve asset and an active financial method of payments presents a contradiction. Besides, the number of actual paying customers who employed bitcoin for this purse seems to be either incredibly small or simply nonexistent. Now, with the recent rejection of one – payments – but keeping hold of the other – reserve currency – Tesla ends up either being very rash in the decision or potentially harboring its own market plans that can be swayed in an unregulated ecosystem.
But, the baseline issues that Elon Musk presented still failed to gain traction with the crypto community which continues to be well aware of the energy consumption and the need to move to greener alternatives, which applies to every other thing that runs on electricity. So, with Tesla undermining its own hedge BTC savings, did it provide lasting damage to the crypto domain? No, it did not. Instead, in many ways, it strengthens its cornerstone values.
Going Green, Going Long
Another figure from the domain of online and tech celebrity sphere recently chimed in about the discussion of the BTC network energy usage. That figure is Jack Dorsey, the CEO of Twitter. He said even before the Elon Musk controversy that bitcoin really incentivizes the use of green energy. Another research showed that over 70 percent of energy usage in bitcoin comes from renewable sources. That is logical after all, not because the mining pools want to see a green planet, but because it makes financial sense to use renewable energy sources.
So, the entire issue of energy consumption is a no-starter for anyone who is knowledgeable about bitcoin. But, the recent turbulence shows that there are strong fundamental values to the bitcoin network, as well as crypto in general. These include the ability of the same ecosystem to take sudden hits like those from Elon Musk and keep going. It also shows that any destruction of the network based on actual reasons – the energy usage in this case – is something that the community is already actively grappling with.