Earlier this year, in what appeared to be a massive win for the crypto space, Tesla began accepting payments in Bitcoin. The move was heralded for legitimizing Bitcoin’s transactional utility beyond just a speculative asset class.
But now, Tesla is backtracking its monumental decision.
Tesla CEO Elon Musk took to Twitter to announce that his company would no longer accept payments in Bitcoin, citing concerns over “rapidly increasing use of fossil fuels for Bitcoin mining.”
Tesla & Bitcoin pic.twitter.com/YSswJmVZhP
— Elon Musk (@elonmusk) May 12, 2021
Bitcoin’s environmental concerns are certainly nothing new. Many have criticized the digital asset and its proof-of-work (POW) system for its hefty electrical consumption.
Bitcoin’s surge in price has further incentivized miners to expand their operations, leading to annualized consumption levels surpassing that of small nations. According to University of Cambridge’s Bitcoin Electricity Consumption Index, Bitcoin miners around the world account for approximately 147 terawatts in electrical consumption — roughly 0.5% of global power usage.
Bearish Sentiment Sets in for Bitcoin Following Tesla News
Following Musk’s announcement, Bitcoin prices immediately plummeted 10%, dropping down to $51,000.
According to options data from Deribit Metrics, bearish sentiment appears to be setting in on the futures market as well. The volume on Bitcoin May 28 puts skyrocketed to a daily notional value of $225 million — more than double of the trading volume on May 28 calls. At press time, Bitcoin’s put/call ratio sits at 0.88.
Despite the negative sentiment, however, investors should consider that Tesla has not sold most of its Bitcoin holdings.
Earlier this February, Tesla revealed that it had purchased $1.5 billion worth of Bitcoin. The tech company soon after announced that it would begin accepting Bitcoin — a catalyst that helped Bitcoin rally past $60,000. During its first quarter earnings on April 26th, Tesla revealed that it had sold $272 million of its Bitcoin investment– which was worth well over $2.5 billion at the time.
While Tesla was no longer to accept Bitcoin for vehicle purchases, Musk specified that the company will continue to hold the Bitcoin on its balance sheet, while actively searching for more environmentally friendly alternatives. “We are looking at other cryptocurrencies that use <1% of Bitcoin’s energy/transaction,” he said.
Featured image from UnSplash