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Elon Musk’s flip-flopping on Bitcoin knocks crypto confidence

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Tesla CEO Elon Musk.
Tesla CEO Elon Musk.

South African-born billionaire Elon Musk has too much power over the price of crypto-currencies.

This is according to industry players and analysts, as Musk, who is the world’s second-richest man and CEO of Tesla, single-handedly sent the price of Bitcoin tumbling after his tweets.

Bitcoin, the world’s most valuable digital currency, fell to a three-month low after Musk said on Twitter that Tesla will not accept payment in Bitcoin any more due to environmental concerns.

“Tesla has suspended vehicle purchases using Bitcoin. 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 tweeted.

This after the price of Bitcoin rallied to all-time highs after the billionaire endorsed the crypto-currency in February, when Tesla purchased $1.5 billion worth of Bitcoin, sending the digital currency up from $38 000 to $54 000, a 42% gain.

As Bitcoin fell, it also dragged down other crypto-currencies with it. For example, the price of Ethereum – the second most valuable crypto – last week went down 12% to $3 600.

However, Musk, this week, again sent the price of Bitcoin up after tweeting that Tesla has not sold any holdings of the digital currency.

At the time of writing, the price of Bitcoin had recovered to $45 000.

Real consequences

Danyaal Rashid, thematic analyst at GlobalData, a data and analytics company, comments: “Musk’s flip-flopping makes for good entertainment and a great bit of news, but its consequences are much more real.

“For a man who truly believes in the future of currencies being digital and decentralised, he is doing a poor job of selling it.”

Rashid says the fact that Musk can drive such price volatility just though his words should have people worried.

“Whatever Elon’s view on crypto, it is clear that, at present, he has too much influence over prices. One centralised figure exercising so much control completely contrives the idea of ‘decentralised finance’. This is negative for price stability and will likely hinder adoption of crypto-currencies into the mainstream, especially in payments.

“Whether you view cryptos as currencies or assets, some sort of price stability is necessary.”

He adds that every asset will have a certain level of volatility, though one would hope these price swings are in some way related to fundamentals or real-world events.

“Even if you think that the market is irrational and devolved from real-world fundamentals, as the last 15 months has proved, it is rare that an individual can have so much power over prices. If this continues, people may lose faith in these crypto-currencies, as one tweet from Musk can radically change the price – quashing any idea that there are any real fundamentals at play.”

This goes to the heart of the problem, Rashid notes, as some stability is necessary for crypto-currencies to become widespread and embedded.

“This is certainly the case if people expect to make payments with crypto. If we anticipate week-on-week price swings of up to 20%, payments become infeasible.”

Mere PR stunt?

For Nigel Green, deVere Group chief executive, Musk’s sudden U-turn regarding Bitcoin on Twitter – which sent prices plummeting by 15% last week – could be more of a PR stunt than anything else.

“Musk is once again flexing his influencer muscles on social media. In a somewhat Trumpian move, he’s taken to Twitter to announce a major U-turn.

“Just a few months ago, to much fanfare, Musk announced his company Tesla had bought $1.5 billion worth of Bitcoin and that it would accept it as payment for cars. The move was one of the reasons the crypto-currency’s price has soared this year.

“All of a sudden, he’s not so keen due to environmental concerns. But why now? Those issues surrounding the environmental impact have not come up in the last few months. Did Musk seriously not know about them before he bought $1.5 billion Bitcoin?”

Green points out there are serious and important environmental matters which urgently need to be addressed about Bitcoin mining. “Any action to support the further transition to fully using sustainable energy must be championed – it is something I whole-heartedly support.”

He notes that according to research, 76% of crypto-currency miners currently use electricity from renewable energy sources as part of their energy mix.

“This begs the question – why, with all his immense resources and power, is Musk not able to ensure all his Bitcoin is mined this way? In addition, why is he not using this influence to further advance and incentivise renewable energy for crypto-currencies – something that Twitter founder Jack Dorsey has previously tweeted about and with which Musk agreed on the social platform.”

Green asks: Could there also be another driver behind the Bitcoin move?

“Musk likes being known as being a contrarian. He likes to go against the crowd in a high-profile way. Is his waning interest in Bitcoin at a time when huge amounts of institutional investment from major Wall Street banks is pouring in, part of this?”

He believes that with the fundamentals of Bitcoin – the very ones that are attracting enormous institutional and retail interest remaining unchanged – many investors are likely to use this current price drop from recent all-time highs as an important buying opportunity.

Green concludes: “Clearly, Musk still believes in Bitcoin – he didn’t sell any – and I now hope he will use not just words but his immense resources to further expedite the transition to sustainable energy for crypto mining.”

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