Musk sends Bitcoin tumbling with shock U-turn on payments

Tesla Inc’s CEO Elon Musk said the electric-vehicle manufacturer is suspending purchases using Bitcoin, triggering a slide in the digital currency.

In a post on Twitter Wednesday, May 12, Musk cited concerns about “rapidly increasing use of fossil fuels for Bitcoin mining and transactions,” while signaling that Tesla might accept other cryptocurrencies if they are much less energy-intensive. He also said the company won’t be selling any of the Bitcoin it holds.

The largest cryptocurrency dropped as much as 15% to just above US$46,000, before paring some of the retreat. It was down about 6% to US$51,210 as of 7:03 a.m. in London on Thursday. Other tokens such Ether and Dogecoin also slid. The rush to sell briefly caused outages at some cryptocurrency exchanges. Bitcoin is still up more than fivefold in the past year.

Musk’s move comes after Tesla disclosed in February that it had purchased US$1.5 billion in Bitcoin and planned to accept it as a payment. That announcement added legitimacy to the cryptocurrency as an increasingly acceptable form of payment and an investment, especially coming from a large member of the S&P 500 with a high-profile CEO who commands a big following among retail investors and the general public.

Tesla’s website, which had a support page dedicated to Bitcoin, noted that the token was the only cryptocurrency that Tesla accepts in the continental US Musk has also tweeted frequently about Dogecoin, a cryptocurrency started as a joke in 2013 -- and he quipped about being the “Dogefather” before and during his stint hosting the “Saturday Night Live” show on May 8. He tweeted on Tuesday, “Do you want Tesla to accept Doge?”

Tesla’s addition of Bitcoin to its balance sheet was the most visible catalyst during this year’s rally in the digital currency. Bitcoin jumped 16% that day, the biggest one-day gain since the Covid-19 induced financial markets volatility in March 2020.

Optimism grew after Mastercard Inc., Bank of New York Mellon Corp. and other firms moved to make it easier for customers to use or invest in cryptocurrencies, fueling the mainstream resurgence that took Bitcoin from about $29,000 at the end of last year to as high as almost $65,000 in April.

Bitcoin mining is consuming 66 times more electricity than it did back in late 2015, and the carbon emissions associated with it will likely face increasing scrutiny, according to a recent Citigroup Inc. report.

Cathie Wood’s Ark Investment Management LLC published a report last month saying cryptocurrency mining can drive investment in solar power and make more renewable energy available to the grid. Twitter Inc.’s Jack Dorsey retweeted a post on the white paper with the comment that Bitcoin “incentivizes renewable energy.” Musk replied to Dorsey’s tweet, saying simply, “True.”

Musk’s tweet on Wednesday took many in the cryptocurrency community by surprise, including Nic Carter, founding partner at Castle Island Ventures, and a leading voice among defenders of Bitcoin’s energy use.

“Surely he would have done his diligence prior to accepting Bitcoin?” Carter said. “Very odd and confusing to see this quick reversal.”

It’s unclear what prompted the decision and Musk and Zachary Kirkhorn, Tesla’s chief financial officer, didn’t immediately respond to an email inquiry for comment. Kirkhorn in March added the tongue-in-cheek title “Master of Coin,” according to a regulatory filing.

Tesla’s first-quarter earnings were bolstered by the sale of 10% of its Bitcoin holdings. Musk said last month the disposal was intended to demonstrate the token’s liquidity, and added that he’s retained his personal investment in the cryptocurrency.

Kirkhorn said on the firm’s earnings call in late April that Tesla believed in Bitcoin’s long-term value and planned to accumulate the tokens from transactions with customers.