Tesla's (Nasdaq: TSLA) CEO Elon Musk tweeted that the company would no longer accept bitcoin for purchases due to environmental concerns. Instantly, many cryptocurrencies plunged in value with $365.8 billion in value instantly being wiped out.
He also said that Tesla would not be selling the bitcoin on its balance sheet and would start using it once again for transactions, once the environmental issues are sorted out.
Musk's U-Turn
Musk's decision to accept bitcoin as payment and put a portion of Tesla's balance sheet into the asset caused a major spike in bitcoin prices from $36,000 to over $60,000 in a few weeks. Interestingly, his U-turn on the matter has caused a much smaller sell-off as the entire crypto-complex shed about 18% of its value in a couple of hours after his tweet. Since then, there's been a small bounce off these lows as bitcoin flirts with the $50,000 level.
Online, Musk quickly went from being an object of hero among the crypto-community to being dumped on for his decision. Like many of Musk's decisions and statements, there is a puzzling element as the electricity use of bitcoin miners has been well-known and a source of controversy for many years.
Bitcoin Outlook
Despite this recent volatility, bitcoin remains 400% higher over the last 12 months. In part, some of this gain is due to institutions increasingly seeing it as a legitimate investment option. Many companies like Square (NYSE: SQ) are also putting bitcoin on their balance sheet and investment banks are figuring out ways to give their clients exposure.
Unlike fiat currencies, bitcoin is maintained and operated by a network of miners who run a "distributed ledger". This is its ingenuity and also a source of consternation. There are many smart people who are convinced that bitcoin is a scam or a bubble that will inevitably deflate.
On the other hand, there are many who are convinced that bitcoin is the future of finance and will displace other currencies to become dominant. Such an outcome could mean that bitcoin prices have another 10-20x to go up.
The debate increasingly comes down to someone's definition of money. Intrinsically, money has no value. It only has value, because you need it to pay taxes and because it's accepted by other people as a store of value. Thus, it's theoretically possible that if this belief can be created around other assets and certainly true that millions of people around the globe feel this way about bitcoin.
Yet, there are many valid concerns around bitcoin. For one, it's estimated that 70% of all bitcoin is mined in China which could make it a geopolitical issue. Then, there are environmental concerns as bitcoin uses more energy than many small countries. And, this is with it being used for mainly speculative reasons, not commercial ones. Further, like any technology, bitcoin could lose favor if a better alternative emerges.