Tesla ditches Bitcoin prompting market volatility
The move is a surprise turnaround from Tesla CEO Elon Musk after the company revealed in February that it had bought $1.5bn (£1bn) of the digital currency, causing its value to surge.
Musk announced the move to temporarily abandon Bitcoin in a Tweet, resulting in the value of Bitcoin falling 10% yesterday, although it has since partially recovered.
Musk said he was concerned about the rapid increase of fossil fuels for Bitcoin mining and transactions. Bitcoin mining is a process of creating a new coin that involves using computers to solve complex mathematical algorithms or puzzles. Bitcoin mining is energy intensive and often relies on electricity generated with fossil fuels, particularly coal.
Laith Khalaf, financial analyst at AJ Bell, said: “Tesla and Bitcoin were always odd bedfellows, given the environmental credentials of the electric car maker, and the colossal amount of energy consumed by the cryptocurrency. Musk hasn’t closed the door on Bitcoin entirely, and Tesla says it will return to using the cryptocurrency once it transitions to using more sustainable energy.
“Even if that happens, one could question whether that energy couldn’t be used more productively in the global economy, rather than solving a payments problem that for most people, simply doesn’t exist.”
Bitcoin backers will be wondering where Musk’s decision leaves the future of the cryptocurrency. Tesla’s move might serve as a wake-up call to businesses and consumers using Bitcoin, who hadn’t considered its carbon footprint. Other companies which accept Bitcoin could be forced to review their practices to appease environmentally sensitive shareholders.
Khalaf added: “Tesla investors might also be wondering where this leaves the electric car manufacturer. Musk says Tesla won’t be selling any of its Bitcoin, leaving the car maker with $1.3bn of inert cryptocurrency on its balance sheet, which is subject to Bitcoin’s sporadic price movements, both positive and negative.
“The decision to suspend Bitcoin activity won’t materially affect Tesla’s main operations, after all, consumers can still pay for its cars in dollars, euros, pounds and yuan. However, it does raise question marks over its purchase of so much of the cryptocurrency less than six months ago. Tesla might have made $101m from selling Bitcoin in the first three months of the year, but now investors will legitimately be asking whether that money could have been better spent elsewhere.”