Elon Musk’s announcement on Wednesday that Tesla would no longer accept Bitcoin as payment to purchase its vehicles caused investors to break the breaks in the booming cryptocurrency market.
Musk said his decision had to do with Bitcoin’s growthHowever, some wondered if this was really the case, considering that Tesla’s core products are eco-friendly electric cars and solar panels, and it’s no secret that mining Bitcoin through massive amounts of computing power is an energy-intensive company.
The result was a rapid collapse in cryptocurrency prices Wednesday night, causing hundreds of billions of dollars in losses to investors and other digital currency holders. Despite muskTesla said it plans to stick with its investment in Bitcoin, which was valued at around $ 1.5 billion at the end of March.
Tesla’s earnings were $ 438 million for the first three months of the year – the highest profit the company has ever made in a single quarter. But nearly a quarter of those profits, or $ 101 million, came from selling part of the company.
“We are concerned about the rapidly increasing use of fossil fuels for bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel,” Musk said on Twitter. He added that cryptocurrency was “a good idea on many levels” but its promise could not result in “high environmental costs”.
Bitcoin price dropped nearly $ 9,000 to just over $ 46,000 on Wednesday night shortly after Musk’s announcement. Other digital currencies also fell. The price of Ethereum fell 12%, or $ 500, to around $ 3,700 late Thursday. Overall, according to calculations by CNBC, Musk’s single tweet cut a value of up to 365 billion US dollars from the cryptocurrency market.
However, some of these losses were quickly made up for. By Thursday noon, the price of Bitcoin had risen to nearly $ 49,000. However, Musk’s announcement exposed a clear risk for Bitcoin investors that could accelerate the currency’s seemingly rapid development.
Much of the recent price hike in Bitcoin has been based on the idea that large companies would soon be adopting cryptocurrency not only as a means of payment but also as a safe place to store cash. Tesla’s announcement in February that the company had invested around $ 1.5 billion in Bitcoin and was soon planning to accept the digital currency as a means of payment for Tesla vehicles only played a role in that belief.
In fact, Bitcoin was priced at just over $ 37,000 in early February when Musk announced his company’s Bitcoin investment. The price soared about 70% in just six weeks to a high of just over $ 63,000. At the time, Dan Ives, an influential tech analyst at Wedbush Securities, referred to Tesla’s move as a “game changer” for Bitcoin. Ives went on to suggest that other automakers would have to start accepting Bitcoin in order to keep up. Tesla’s move could even have a “ripple effect for companies around the world” as more and more companies use Bitcoin as a safe place to keep their money, he argued.
What’s more, at a time when people are concernedThe idea of keeping your money in something other than dollars that seems more inflation-proof seems to make sense.
Ives predicted that no more than 5% of the companies in the S&P 500 stock index would be putting any of their money into Bitcoin over the next 18 months. But, he said, his assumption could go “significantly higher” from there.
And even 5% of the big US companies investing in the cryptocurrency would mean a lot of money. The companies that make up the S&P 500 currently have around $ 1 trillion in cash. Five percent of that would be $ 50 billion, more than enough to significantly increase the price of Bitcoin – with a total market value of $ 900 billion.
Musk’s withdrawal will not change that trend as the adoption of Bitcoin and cryptocurrencies in general continues to expand. In March, Federal Reserve chairman Jerome Powell said he believed the Fed could develop its own digital currency, although he also said the bank had no plans to do so anytime soon. Payment processor Square has also invested money in Bitcoin. Earlier this year, Mastercard announced that it would also process Bitcoin payments.
There are also a growing number of investment services tied to Bitcoin. Banks, exchanges and financial advisors are looking for ways for investors to more easily invest in cryptocurrencies. Executives at mutual fund giant and 401 (k) provider Fidelity have stated that they believe Bitcoin has passed the tipping point and that rollout will continue.
That said, the musk’s U-turn and its immediate impact on digital currency prices could slow the crypto craze. At the heart of the adoption of cryptocurrencies is the belief that it can be a safe place to store cash. Still, Wall Street has long equated risk with volatility. Bonds are considered less risky than stocks because their prices are more stable, for example. Cryptos are far from stable: Bitcoin’s price of $ 50,000 so far this year – $ 30,000 up and $ 20,000 down – could perpetuate concerns that cryptocurrency is unreliable, at least for now.
“Tesla accepts transactions [in] Bitcoin was seen as an important step for the crypto market, “Ives wrote in a statement to customers on Thursday.” Musk’s reversal will have a negative impact on Bitcoin and the crypto landscape in the short term as the market digests this confusing news from one of its biggest supporters. “
The Associated Press contributed to coverage of this article.