Tesla's Reversal On BTC Puts Their Commitment To The Asset In Doubt

May 13, 2021 02:10 PM
Crypto Story of the Day

Crypto Story of the Day




BTC was broadly selling off following news that Tesla is suspending payments in the coin. BTC saw a roughly 20% difficulty increase this morning.

Crypto Story of the Day 

Yesterday, Elon Musk tweeted that Tesla would stop accepting BTC as payment due to concerns over the carbon costs of transactions. The apparent U-turn comes 3 months after Tesla announced it had purchased USD 1.5 billion-worth of BTC and that it would accept the coin as payment.

In the post, Musk wrote that the “suspension” is due to “rapidly increasing use of fossil fuels for [BTC] mining and transactions…” The statement adds that Tesla will “not be selling any [BTC] and [intends] to use it for transactions as soon as mining transitions to more sustainable energy. [They] are also looking at other cryptocurrencies that use <1% of [BTC]’s energy per transaction.” Musk followed up the tweet with a chart of BTC’s electricity consumption, writing, “Energy usage trend over past few months is insane.” 

Ahead of Tesla revealing it had purchased BTC, Musk made several remarks hinting at his support for the asset. For example, in February Musk said, “[BTC] is really on the verge of getting broad acceptance by conventional finance people.” 

In April, during a Q1 earnings call, Tesla revealed it had sold USD 272 million-worth of BTC. On the call,  Tesla CFO Zach Kirkhorn said, “...thinking about it from a corporate treasury perspective, we've been quite pleased with how much liquidity there is in the [BTC] market.” Kirkhorn added that Tesla believes “long term, in the value of [BTC], so it is our intent to hold what we have long-term and continue to accumulate [BTC]” from customer transactions paid in the coin.

Elon Musk described the sale on Twitter as “essentially to prove liquidity of [BTC] as an alternative to holding cash on balance sheet” and that the sale amounted to 10% of the firm’s positions. 

Musk has also frequently tweeted support for DOGE, both leading up to and after the Tesla BTC purchase. Most recently, Musk’s SpaceX announced a mission to fly a satellite to the Moon in 2022 called “DOGE-1 Mission to the Moon.” The firm also revealed it would accept DOGE as payment related to the mission. SpaceX VP of Commercial Sales Tom Ochinero described the mission as serving to “demonstrate the application of cryptocurrency beyond Earth orbit and set the foundation for interplanetary commerce.”

Ahead of news breaking that Tesla had purchased BTC on February 8, the coin had spent the previous month trading between about USD 30,000 to 40,000 and rose to roughly USD 48,000 on the move. BTC Dominance at the time stood at about 61%.  

BTC’s contribution to carbon emissions has been cited as an ever-growing threat to the coin’s adoption in traditional media. Tesla’s U-turn will bring additional scrutiny to the practice. Considering that BTC’s environmental impact has remained unchanged since Tesla began accepting the coin as payment, it’s unclear what has motivated the decision. 

Moreover, Musk’s fixation with DOGE, which is arguably a systemic threat to the crypto space due to the possibility of a massive unwind, further brings into question the nature of Musk’s endorsement of BTC. Musk has emerged as a source of uncertainty for BTC and the decision puts Tesla’s commitment to the asset in doubt.

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