Two of the world’s most high-profile cryptocurrency advocates are suddenly at odds over the environmental impact of Bitcoin.
With his surprise announcement that Tesla Inc. would suspend vehicle purchases using the biggest digital currency, Elon Musk became the most prominent voice yet to draw attention to the carbon-emitting energy sources used to sustain Bitcoin’s decentralized network.
The billionaire’s about-face came just three weeks after he appeared to endorse research from Cathie Wood’s Ark Investment Management LLC asserting that Bitcoin mining could end up being good for the planet by incentivizing renewable power.
While Musk offered few details about what prompted his rethink, the episode underscores the growing importance of environmental concerns for companies and investors as they weigh whether to increase exposure to Bitcoin and other cryptocurrencies. The apparent split between Musk and Ark on the issue is particularly notable given Tesla is one of the money manager’s biggest stock holdings.
Bullish pronouncements on Bitcoin from both Musk and Wood have been credited with helping propel the cryptocurrency’s dizzying rally to all-time highs this year. Bitcoin sank about 15% after Musk announced the payment suspension in a tweet, though losses have since moderated. It was trading at $51,050 as of 1:35 p.m. in Hong Kong.
While Musk expressed concern about the “rapidly increasing” use of fossil fuels for cryptocurrency mining, he said Tesla won’t be selling any of its Bitcoin holdings and the company will resume accepting it for payments as soon as mining becomes more sustainable. He said Tesla is looking at other cryptocurrencies that use less energy.
Last month, researchers at Ark made waves with a report saying cryptocurrency mining can help bolster investment in solar power and make more renewable energy available to the grid. “A world with bitcoin is a world that, at equilibrium, generates more electricity from renewable carbon-free sources,” they wrote.
That view was endorsed by prominent figures such as Twitter co-founder and Bitcoin proponent Jack Dorsey -- and seemingly by Musk himself.
The Tesla chief executive officer’s latest tweet left some crypto proponents befuddled. It’s odd that the company would reject Bitcoin as a method of payment while still retaining its holdings, said Vijay Ayyar, head of Asia Pacific at crypto exchange Luno Pte in Singapore. “It doesn’t add up,” Ayyar said.
Also unclear is why Musk decided to act now. The massive electrical cost associated with Bitcoin mining has long been criticized by detractors and held up as a reason why mainstream institutions will ultimately reject the asset class. Whatever his motivations, Musk’s latest pronouncement is likely to be welcomed by Bitcoin skeptics.
“Cryptos are heading for a world of pain,” Peter Berezin, chief global strategist at BCA Research in Montreal, wrote in a recent report with colleagues. “ESG concerns will force companies to step back from their newfound infatuation with these magic beans.”
©2021 Bloomberg L.P.