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Cryptocurrencies Drop After Tesla Suspends Bitcoin Purchases

Crypto assets decline on Elon Musk’s comments that Tesla stops accepting Bitcoin. The digital market attempts to recover the losses on Thursday.

SageFX - May, 13, 21

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Principal Points

  • Crypto assets decline on Elon Musk’s comments that Tesla stops accepting Bitcoin
  • The digital market attempts to recover the losses on Thursday

The digital asset market suffered another setback on Wednesday after the CEO of Tesla, Elon Musk, announced on Twitter the electric vehicle company stops car purchases with Bitcoin due to environmental concerns. As a result, the price of Bitcoin dipped to a low of $45,900 in the early hours of Thursday, marking a decline of 20% for the past two days.

Before the Tesla news, the world’s biggest asset was trading to the downside and the announcement only aggravated the decline as investors in the crypto space were uncertain what to make of Elon Musk’s Twitter note.

“We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel,” Mr. Musk said in the tweet released in the late hours of Wednesday. “Cryptocurrency is a good idea on many levels and we believe it has a promising future, but this cannot come at great cost to the environment.”

The Musk Effect Continues

The self-proclaimed Technoking of Tesla, Elon Musk, has been a vocal proponent of Bitcoin and other cryptocurrencies, particularly Dogecoin. In February, he announced Tesla had purchased $1.5bn worth of Bitcoin. That stake had grown to roughly $2.5bn by end of March, of which the company had sold about 10% for a profit of $101 million.

The opportunity window for people to purchase Tesla cars with Bitcoin stayed open for 51 days, from March 24, when it was first allowed, to today. Tesla suspending Bitcoin as a means of payment raised questions about whether Mr. Musk was previously unaware of Bitcoin’s environmental impact or whether his involvement in the cryptocurrency was timed to profit from the price increase.

On that issue, according to the tweet from earlier today, Elon Musk assures that Tesla will continue holding the cryptocurrency as the company believes in its long-term potential for growth. However, the electric car maker will use it for transactions only if “mining transitions to more sustainable energy”. In addition, Mr. Musk said that he and his company are open to adopting other cryptos that use “<1% of Bitcoin’s energy/transaction.”

Tesla’s decision to stop accepting Bitcoin as payment for its electric cars resulted in a significant drop for the whole cryptocurrency market. As much as $500bn of the total market capitalization of the crypto space was wiped off in the hours following the news. Some coins, however, were able to pare some of the losses. The price of Bitcoin is now trading around $51,000, higher by 11% from the intraday low.

Ether, the next biggest coin, reached a bottom on Thursday at $3,500 but later recovered to levels near the opening price. The Ethereum token is now trading at $4,000, higher by 12% from the session low and 3% away from its Thursday open. Dogecoin dived to $0.42, marking a correction of 45% from its peak at $0.75.