The markets seem to be in a current meme crisis. The past few weeks have seen some extraordinary movements; from a reddit-originated wager with Wall Street, to a meme cryptocurrency, Dogecoin, increasing tenfold in the space of a couple weeks. The year 2021 has already thrown us many surprises, with a common name featuring in all the breaking news articles. Which name you ask? None other than Tesla Founder, Elon Musk. Recently, Musk, followed by his army of disciples, has once again made headlines. This time, in the cryptocurrency sphere. Tesla have bet big on Bitcoin, investing $1.5bn into the alternative currency and announcing plans to start accepting it as a payment method.
Last week on Monday, it was revealed that Tesla had bought $1.5billion worth of Bitcoin, amounting to around 43,000 coins. In addition, Tesla announced that the company would begin accepting Bitcoin as payment for their vehicles. The revelations were not difficult to pre-empt; in the week leading up to the announcement, Musk’s Twitter-feed was littered with hints that his $780bn company was due to take a different stance on the cryptocurrency. Furthermore, Musk changed his Twitter bio to ‘#Bitcoin’ whilst tweeting numerous opinions about crypto in general. Overall, the announcement was imminent. However, the news still sent the price of Bitcoin soaring to all-time highs, reaching $49,951. At the time of writing, Bitcoin has surged 20% since the announcement on 8th February.
Since then, there has been yet more discussion on the irrationality of current markets. The reaction of the market, based solely on the influence of one individual, highlights this. In fact, there have been calls from Musk’s lawyers to keep quiet in the future, in fear of market manipulation allegations. However, the abundance of time people have on their hands and the plethora of fee free trading apps indicate that this is the new norm.
Tesla’s self-proclaimed mission is to assist the world’s transition to sustainable energy, however, investing in Bitcoin is pretty hypocritical of this. Bitcoin mining, essential for the operations of Bitcoin, is incredibly energy intensive. In order for transactions on the blockchain to be authenticated, hundreds of thousands of computers (miners) are racing to solve the next block, in order to be rewarded. Consequently, there are a copious number of miners, each trying to earn their share, all of which are consuming an extraordinary amount of power; the carbon footprint has been equivalented to New Zealand’s. Moreover, the rising price of Bitcoin attracts more miners, further scouring the environment. So how does such a cause of environmental damage and degradation align with the principles of Tesla, a company paving the way for a greener future? At a time where ESG issues are so prevalent, it will be interesting to see how Tesla address the fact that their latest investment is not so environmentally friendly after all. Could Musk and Co help turn Bitcoin green?
Implications on the future of Bitcoin and other cryptocurrencies
The news that the seventh biggest company, by market capitalisation, supports cryptocurrencies will undoubtedly act as a catalyst for wider-spread adoption. Tesla have illustrated that large institutions are becoming increasingly aware and accepting of crypto, something that DeFi (Decentralised Finance) is currently missing. However, the lack of belief and trust in Bitcoin still remains and continues to act as a barrier to wider-spread adoption. There is no guarantee that Bitcoin can be exchanged for something with real, intrinsic value, deeming the currency worthless in many eyes. Although now that one can go out and buy a Tesla Model S with Bitcoin, about 2.12 coins to be specific, it will instil confidence in consumers that Bitcoin has tangible worth. Having said that, wider-spread adoption is accompanied with issues of security. The more a Bitcoin is worth, the more people are going to want to possibly steal or hack them.
As a whole, Tesla’s investment into Bitcoin will act as nothing but a catalyst for wider-spread adoption of cryptocurrencies and the accompanying blockchain technology. This move may shape up to be the beginning of the end of the currency adoption discussion.