Thursday, 13 May 2021 -
Tesla CEO, Elon Musk, has today suspended vehicle purchases using bitcoin, that’s after he raised concerns over the rapidly increasing application of fossil fuels (especially coal) in bitcoin mining and related transactions, which is detrimental to the global objectives of the Paris Climate Agreement (2015).
This turnaround comes a little over a month after the automaker's CEO authorized the purchase of Tesla vehicles in the U.S using Bitcoin, the world’s most popular form of cryptocurrency. And hours after Musk posted the announcement via his official Twitter account, Bitcoin prices plunged 16% early Thursday morning. The knock-on effect has seen the Bitcoin price slump by $3100 and more, whereas shares on Tesla stock declined by 1.3%.
The automaker sites the upsurge in the use of coal, which has the worst emissions of all fossil fuels, as a factor in this swift turnaround. Many customers had hailed the acceptance of cryptocurrency as a great idea on multiple fronts, but Musk – Tesla’s wealthy founder, said the promise of a bright future shouldn’t come at the expense of the environment.
The Bitcoin Slumps
Tesla, on February 8, made public through official accounts that it had bought $1.5 million worth of Bitcoins. Moments later, Musk tweeted that the automaker would start accepting it as payment in the U.S. But after his tweet today, Bitcoin price immediately took a hit from $55,000 to 45,500, which represents the lowest price since March across the U.S and Asian markets. Though, after-hours trading, Bitcoin has recouped some losses already.
Musk further added that the automaker wouldn't put up any of its Bitcoin for sale, but would be open to using it once Bitcoin mining transactions transition to other forms of sustainable energy. Meanwhile, he opened the door to other forms of crypto that use sustainable energy to mine.
Although it is not definitive as to how much of the $1.5 million cryptos the automaker has sold since, executive reports from last month indicate the disposal of 10% of its Bitcoin holdings, resulting in a profit of over $100 million. Musk later revealed that the sale represented a market liquidity test, and indicated he had no plans to sell more stock.
Why the Turnaround?
Days after Tesla's purchase of Bitcoin stock, the Center for Alternative Finance at the University of Cambridge reported that the announcement had caused a spike in the electricity required to mine Bitcoin. The report further indicated that Bitcoin mining and related transactions were using tremendous energy (122.1 terawatt-hours), similar to an annualized amount of energy required by countries such as Holland and Argentina.
Moreover, Xinjiang – the Chinese company that represents the world’s main center for Bitcoin mining, is reported to largely use coal as fuel.
What Now?
Despite the Bitcoin crypto suspension – which comes into place in the interest of environmental conservation – Elon Musk has opened the door to other forms of cryptocurrencies that use fewer fossil fuels in mining. Bitcoin has somewhat recovered its losses, but it remains to be seen where we go from here in the coming days.
