Investors around the world are reeling after the price of some of the world’s most widely traded cryptoassets have plunged following the decision by Tesla’s CEO, Elon Musk, to discontinue the acceptance of Bitcoin as payment for the purchase of its vehicles over concerns about the energy usage of the digital currency system.
Following his decision, the value of Bitcoin and other cryptoassets, such as Ethereum, Dogecoin and Cardano, that rely on energy-intensive data mining, have dropped considerably, causing thousands of investors to lose out.
Like any financial market, Bitcoin comes with an inherent risk of the investment losing value but the decision by Tesla to withdraw from the market has had an immediate impact on the wider cryptoasset industry.
It is not surprising given that the current boom was instigated by Tesla’s initial decision to purchase $1.5 billion (US) of Bitcoin and the announcement that it would be accepting payment for its vehicles in Bitcoin
Elon Musk said in a tweet that this sudden change of heart is a response to the “rapidly increasing use of fossil fuels for bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel”.
“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.”
It seems odd that the entrepreneur has reached this conclusion, given that he was criticised at the time of his initial investment about the environmental damage caused by crypto mining’s large electricity usage.
The Bitcoin network, which relies on many computers solving difficult puzzles and mathematical problems to provide ‘proof of work’, is estimated to use around 148 terawatt-hours of electricity.
According to the New Scientist, this is equivalent to the same amount of energy used to power the whole of Poland, with much of the energy coming from non-renewable resources.
Although Elon Musk has withdrawn the prospect of transactions via Bitcoin for now, he doesn’t appear to be leaving the market altogether and the price of eco-friendly cryptoassets, such as Chia, are rising on the prospect of a switch.
Musk himself has said that he still plans to use its reserves once mining “transitions to more sustainable energy”.
However, the billionaire is estimated to have already made around $1 billion (US) on his initial Bitcoin investment, which means the sudden plunge in value may not have such a significant impact on the company’s holdings.
Thomas Hulme, Head of Blockchain and Cryptoassets at Mackrell.Solicitors said: “This sudden shock to the market will certainly have hit some investors hard, but the wider message here is perhaps a shift in the market towards more eco-friendly or perhaps useful forms of cryptoasset.”
“Bitcoin does not really serve much of a function beyond being a digital asset, but there are other networks that produce digital assets based around useful computations related to research and other data-intensive industries, while others are just generally more eco-friendly.”
“It seems surprising that one of the world’s leading producers of electric cars and battery storage systems didn’t consider the environmental impact of Bitcoin when investing, but it seems to have become more of an issue lately.”
“Investors who have seen the value of their cryptoassets fall as a result of this change or who have issues relating to buying or selling devalued cryptoassets via the various platforms should seek advice.”