Elon Musk was front and centre in the crypto markets again this week, as he tweeted that Tesla [NASDAQ:TSLA] would no longer be accepting payments in Bitcoin.
This seems to have been a blow for many Bitcoin owners, who have seen Musk as the poster boy of crypto more generally. The sever the cord between Tesla and Bitcoin so publicly led many investors to dump Bitcoin this week.
It was costly for Tesla, of course, which is sitting on a Bitcoin mountain of its own. But it also raises an intriguing question. Tesla is a company with very strong environmental credentials, and there has been a lot of publicity recently over just how much electricity Bitcoin mining is now consuming.
Tesla & Bitcoin pic.twitter.com/YSswJmVZhP
— Elon Musk (@elonmusk) May 12, 2021
How much did Musk just cost Tesla shareholders?
Analysis by Nickel Digital Asset Management, a fund manager that specialises in connecting traditional finance with the digital assets market, suggests that Musk’s tweet contributed to the company losing as much as $370 million in a single day as the value of its Bitcoin holdings fell as the cryptocurrency’s price dropped by as much as 17% in one day.
Nickel has analysed the purchases of Bitcoin made by Tesla and estimated the value of its holdings in the cryptocurrency – which it says was around $2.18 billion before Musk’s tweet – and then the potential losses as Bitcoin fell in value following the announcement.
Tesla’s decision to accept Bitcoin as payment for its cars contributed to the cryptocurrency’s value increasing, and its announcement earlier this week to reverse this saw its price fall. Just before the tweet, on the opening of 12 May Bitcoin’s value was $56,700, and over the next 12 hours it fell by as much 17% to a low of $46,980, according to Coinmarketcap.
Musk said the decision to stop accepting Bitcoin as payment for its cars had been made over environmental concerns regarding the amount of energy used in mining Bitcoin.
“The proof-of-work consensus algorithm used in Bitcoin mining is an energy-intensive exercise, but what is critical here is not the absolute amount of energy used, but the energy mix – what percentage comes from renewable sources,” said Anatoly Crachilov, co-Founder and CEO of Nickel Digital.
Listen: Podcast: Stephen Ehrlich, CEO of Voyager Digital, on trading and investing in cryptocurrencies
Most Bitcoin miners are using renewable energy sources
According to the Cambridge Centre for Alternative Finance as much as 76% of miners use some form of renewables in their energy mix, while 39% use exclusively green energy sources. These figures are expected to improve further as miners are constantly searching for the cheapest form of energy – their main expense item – and increasingly this comes from renewables.
Musk has chosen to undertake a drastic change to Tesla’s corporate policy, highlighting that nobody can afford to ignore environmental concerns today, even if this comes at a punchy marked-to-market loss of your own investment.
But bringing public debate about greener standards is likely to trigger faster transition of the entire mining industry toward renewable sources of energy. To address investors’ demand for ESG-compliant investment products, Nickel Digital says it has been evaluating the opportunity to launch of a dedicated “green” Bitcoin fund, which will buy and hold only those coins that have been mined using exclusively renewable sources of energy, offering full compliance to ESG standards.