Bitcoin drops 10% for week as Elon Musk keeps weighing in with energy efficiency debate

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Bitcoin mining requires 66% more electricity than was needed in 2015 – that’s the reason Musk is going light on the cryptoasset. Image Credit: Reuters

New York: Bitcoin was on course for a weekly slump of more than 10 per cent after Tesla Inc.’s CEO Elon Musk doubled down on his attack on the token’s energy demands.

In his latest tweets, Musk said he “strongly” believes in crypto but that “it can’t drive a massive increase in fossil fuel use, especially coal”. Earlier he labeled recent Bitcoin energy consumption trends as “insane”. On Wednesday Musk said Tesla would suspend car purchases using Bitcoin.

The turnaround by one of crypto’s loudest believers took investors by surprise and sent prices tumbling across the board, including a plunge in Bitcoin to about $46,000. The token has pared some of the losses and was fluctuating around $50,000 as of 10:47 am in Tokyo Friday, helping a Bloomberg gauge of cryptocurrencies climb about 6 per cent.

Single-minded attack

Musk posted a chart on Twitter from the University of Cambridge showing Bitcoin’s electricity consumption has skyrocketed this year, extending his criticism of crypto mining for using fossil fuels. “Bitcoin is also a manifestation of the value of the internet, and hence it stands to reason that social media and the cult of celebrity has, and will continue to have, an effect on driving demand,” said Stephen Kelso, head of markets at ITI Capital.

Mining the token consumes 66 times more electricity than it did back in late 2015, according to a recent Citigroup Inc. report. Musk signaled on Wednesday that Tesla might accept other cryptocurrencies if they are less energy intensive, and said the company won’t sell any of its Bitcoin. In more recent posts he said he’s working with Dogecoin developers to improve “system transaction efficiency”, describing the effort as “potentially promising”.

Still, Musk’s tweets raise questions about Bitcoin’s attractiveness as an investment at a time when institutional firms are increasingly vocal about climate change and environmental issues. “Surely he would have done his diligence prior to accepting Bitcoin?” said Nic Carter, founding partner at Castle Island Ventures, and a leading voice among defenders of Bitcoin’s energy use. “Very odd and confusing to see this quick reversal.”

Tesla disclosure in February of a $1.5 billion investment in Bitcoin, and the plan to accept it as a form of payment, were major catalysts in the crypto bull market. In the eyes of analysts, it helped add legitimacy to the token and usher in new investors.

Musk’s crypto tweets have often been in jest, and his attention toward Dogecoin brought the joke token into the mainstream. He’s quipped about being the “Dogefather” in the past, and tweeted on Tuesday, “Do you want Tesla to accept Doge?”

But his Twitter posts can be a problem for many investors because they tend to push around stock and crypto prices. “The community now has to work even harder to push the renewable mining narrative,” said Antoni Trenchev, managing partner and co-founder of Nexo in London, a crypto lender. “Bitcoin’s history has taught us that the pathway to universal acceptance isn’t without hurdles – this one will likely prove its biggest.”

In the futures market, daily volume surged Thursday to the highest for almost three months and there was a jump in open interest as Bitcoin prices slid. That’s a sign that the token’s price may remain under pressure.