Bitcoin dives as Tesla’s Elon Musk reverses course on accepting crypto

The world's biggest cryptocurrency dropped as much as 17% before regaining some ground

Elon Musk, Tesla's chief executive, says the EV maker is concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions. Reuters

Tesla’s billionaire chief executive Elon Musk suspended the use of Bitcoin as a mode of payment for the company’s electric vehicles because of "environmental concerns", triggering a slump in the world’s biggest cryptocurrency.

“Tesla has suspended vehicle purchase 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,” Mr Musk, who is also the co-founder of the company, said on Twitter.

“Cryptocurrency is a good idea on many levels and we believe it has a promising future, but this cannot come at great cost to the environment,” he added.

Tesla had invested $1.5 billion in Bitcoin.

Bitcoin tanked as much as 17 per cent before regaining some ground. Prices for the digital asset were down more than 11 per cent to $50,050 at 4.38pm UAE time on Friday. Bitcoin soared 15 per cent in a single day in February when Tesla said it would accept it as a form of payment.

Tesla's decision in February was widely seen as an important validation of Bitcoin and sparked more interest in the crypto, which is mostly used as a speculative investment instrument rather than a mode of day-to-day payment.

Mr Musk’s decision to stop accepting Bitcoin drove other cryptos lower.

Ether, the second biggest cryptocurrency, dropped more than 8.4 per cent to $3,826.64 a coin at 9.30am UAE time. Dogecoin, which had reached a new level after the token was used to pay for Mr Musk-owned SpaceX's lunar satellite launch, plummeted 20 per cent after the announcement.

Stocks that were linked to digital currencies also dropped.

US-based Coinbase Global fell 4.8 per cent, while Microstrategy, which has invested billions of dollars of its assets into Bitcoin, plunged over 9 per cent.

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Tesla, the world's biggest EV company, officially started accepting Bitcoin from its US customers on March 24. However, Mr Musk has faced criticism over the company's support for digital assets, even from Tesla's own investors who were concerned about the environment.

Electricity is a primary input of Bitcoin and other cryptocurrencies. The coins are mined by computers that process complex algorithms in halls that span the area of several football pitches.

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Last month, researchers at Cambridge University estimated that the electricity consumption of the Bitcoin network is almost 120 Terrawatt-hours per year, more than the energy consumption of the UAE at 119.45 Terrawatt-hours, and on course to overtake Pakistan.

Mr Musk said he is open to other digital currencies that consume less energy than Bitcoin.

“Tesla will not be selling any Bitcoin and we intend to use it for transactions as soon as mining transitions to more sustainable energy. We are also looking at other cryptocurrencies that use less than 1 per cent of Bitcoin’s energy/transaction,” he said on Twitter.

Mr Musk did not mention in his Twitter comments whether any vehicles have been actually sold through Bitcoin. Tesla did not immediately respond to The National's request for comment.

Meltem Demirors, chief strategy officer at digital asset manager CoinShares, said Tesla was unlikely to have sold many, if any, cars using Bitcoin and its change of course has created positive publicity for the company.

"Elon was getting a lot of questions and criticisms and this statement allows him to appease critics, while still keeping Bitcoin on his balance sheet," Mr Demirors told Reuters.

Last month, the California-based company delivered 184,800 cars in the first quarter of this year, beating analysts' estimates. Its net profit surged to $438 million, more than 27 times the $16m earned in the same period a year ago.

It was the seventh straight profitable quarter for the EV maker.

Global mainstream companies are increasingly accepting cryptocurrencies.

Goldman Sachs and Morgan Stanley plan to offer their clients access to crypto investments.

FinTech company PayPal is also offering its US customers an option to use digital currencies to pay for purchases at online merchants. It also created a dedicated business unit to focus solely on blockchain and crypto.

Tesla has invested $1.5 billion in Bitcoin. Reuters

Global payments company Mastercard is reportedly planning to offer support for some cryptocurrencies on its network this year.

Meanwhile, the US-based food and beverage company Pepsi is also discussing options to buy Bitcoin.

Ride-hailing company Uber will accept Bitcoin and other cryptocurrencies as a form of payment if it benefits the business, it chief executive Dara Khosrowshahi said.

Last month, office-sharing start-up WeWork also said it is accepting select cryptocurrencies for payments.