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May 24, 2021

Bitcoin resumes slide as energy usage debate whipsaws investors

Crypto and blockchain is where the world wants to go: Bruce Croxon

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Bitcoin traded lower on Tuesday as prices pulled back from a double-digit percentage rally, stoked in part by Elon Musk’s effort to bolster the token’s green credentials on Twitter.

The largest digital currency slipped as much as 6.5 per cent to US$36,494 in New York, following a 16 per cent jump on Monday. The wider Bloomberg Galaxy Crypto Index and peer coins including Ether also dropped, while Dogecoin stayed lower in the wake of another Musk tweet about his influence over the token.

In a tweet sent Tuesday in reply to a post that said “With Elon as ‘Doge CEO’, we are in good hands!” Musk said Dogecoin had “no formal organization & no one reports to me” and implied his control over it was “limited.” Dogecoin was down 4.1 per cent as of 4:33 p.m. in New York, according to CoinMarketCap.com.

The Tesla Inc. CEO has roiled Bitcoin’s -- and others’ -- price this month, triggering a selloff by criticizing its energy profile and suspending Bitcoin payments. Heightened regulatory rhetoric on cryptocurrencies from China also pressured the sector.

 “If the market continues to see wild swings based on Elon Musk tweets, it’s going to be a big set back for this asset class,” said Matt Maley, chief market strategist for Miller Tabak + Co. “The fact that it sees such wild swings to the tweets from one person takes away the legitimacy of the asset class.”

Pledges to make the industry more green have picked up since Musk’s criticisms. Several miners joined the Crypto Climate Accord, a private-sector initiative to decarbonize the crypto industry by 2030.

Musk and Michael Saylor, another long-time Bitcoin booster, tweeted Monday that they had held a call with major North American miners, including Michael Novogratz’s Galaxy Digital and publicly traded Hut 8 Mining Corp., to discuss “energy usage transparency.”

Saylor said the group agreed to form the Bitcoin Mining Council “to standardize energy reporting.” Saylor reiterated his comments during a conference interview Tuesday.

Musk and Saylor’s initiative to make Bitcoin “‘greener’ bodes well for ESG narrative and institutional adoption,” David Grider, strategist at Fundstrat Global Advisors LLC, wrote in a note.

At the same time, it will take years for many of the largest miners to recalibrate where they source their energy.

Bitcoin’s heavy use of power fired by polluting fossil fuels is a long-standing problem. Miners use hundreds of computers that run around the clock to verify Bitcoin transactions in exchange for new coins.

Despite that, Musk in February plowed US$1.5 billion of Tesla’s corporate cash into the token and said the electric-vehicle maker would accept it as payment for vehicles, before rescinding the latter decision earlier in May.

Nursing losses

While the billionaire has since said he strongly believes in cryptocurrencies as long as they don’t drive a massive increase in fossil fuel use, digital tokens are still nursing losses from his spate of comments.

The market value of more than 7,000 coins tracked by CoinGecko is down more than US$800 billion from a May peak of some US$2.6 trillion. Bitcoin is about US$25,000 off its mid-April record.

A measure of implied volatility on Bitcoin comparable to the U.S. equity market’s VIX indicator sits at 129, higher than the stock version has ever reached in 30 years.