Elon Musk and the Great Fall of Bitcoin

At the start of this year, Elon Musk — the CEO of Tesla — became the richest person in the world.

And with money comes power.

Every little thing that he does is watched closely. And every off-hand remark that he makes on Twitter has the potential to affect the financial markets.

The United States dollar (USD) remains the currency most frequently used in international transactions.

“I kinda love Etsy,” he tweeted a few months ago, lavishing a modicum of praise on the crafting website. Soon the company’s stock price had surged by 8%.

So when he appeared to be newly critical of the electronic cryptocurrency Bitcoin on Twitter yesterday, it’s no surprise that its value has taken a sudden nose-dive.

I wrote in February about how Tesla under Elon Musk had invested so heavily in BTC, surprising many in the business community.

He seemed to be backing the currency in a big way. Tesla had even started to accept payment for its cars in Bitcoin.

However, that has now come to an end. Musk, in his Twitter statement, said that Tesla is “concerned about [the] rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel.”

Coal was one of the most important sources of energy during the Industrial Revolution in the 19th century, but increased knowledge of its harmful effects on the environment have made it less attractive in recent decades.

The Centre for Alternative Finance at Cambridge University, England, estimated that the infrastructure behind Bitcoin uses around 121.9 terawatt-hours of electricity every year.

That’s more than the amount of energy used by many countries in the world, and it’s roughly similar to the total electricity consumption of the Netherlands, a highly developed European country.

To give another point of comparison, if you consider the energy used by all of the electric lighting in the United Kingdom, it adds up to less than 60,000 terawatt-hours per year, making the UK’s lights less than half as energy-intensive as the world’s Bitcoin use.

If you’ve looked at your bills recently, you may be aware that the average household’s electricity usage is measured in kilowatt-hours (kWh), a unit that is a billion times smaller than a terawatt-hour (TWh).

A silhouette image of electric pylons and power lines.

So it looks like Elon Musk’s love affair with Bitcoin has proved to be short-lived.

Whether he was genuinely concerned about crypto-caused pollution or was simply worried about how it could be perceived by Tesla’s notoriously green-savvy customers, it’s hard to say. If we put less trust in the public statement, it is also possible to believe that he made the decision from a purely financial standpoint, seeing increased government regulation and other long-term risks as posing a threat to Bitcoin’s continued growth.

What is certain is that the currency’s value fell by as much as 14% after his announcement on Twitter. Tesla’s stock price declined by a significant but smaller amount.

It remains to be seen whether the cryptocurrency’s value will recover from this setback — as it has all others in the past.

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