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Bitcoin Vs. Elon Musk: Reasons Behind the Mega Crash

bitcoin vs elon musk

July 24, 2021 | 

1047 Views | 

JOHN K MWANIKI | 

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Elon Musk, who is among the biggest names in the business space, has been at the center of the crypto market. We are talking about crypto mentions on his social media pages to Tesla accepting bitcoin payments. Early 2021, Tesla announced buying $1.5 billion worth of bitcoin.

The rise in several cryptocurrencies, which include bitcoin and Dogecoin, is also credited to Elon Musk.

What happened after Tesla purchased $1.5 million worth of bitcoin?

Tesla's move to hold bitcoin was motivated by the company's need to create flexibility that would help the company diversify and maximize its returns. In the same spirit, the company allowed its clients to make payments for the products using cryptocurrency, but on a limited basis. 

This made Tesla the first automaker to accept digital currency. Tesla's move, of course, had a ripple effect on the performance of the cryptocurrency. To top it up, Elon Musk's positive messages and Tweets on bitcoin not only increased the price of the crypto but also accelerated its adoption and use.

Elon Musk's U-Turn on Bitcoin

Tesla recently announced that bitcoin would no longer be accepted due to environmental concerns. Note that bitcoin mining uses electricity made from fossil fuels. Also, when the crypto's price goes up, there is a consequent increase in the rate of energy consumption.

Miners are usually motivated to mine more coins when the prices go up, causing further environmental concerns. Note that adoption also accelerates when the price rises. 

Was Elon Musk's U-turn on bitcoin behind the mega crash?

Following the announcement, there was a sudden drop in the prices of cryptocurrencies, and it is obvious Elon's U-turn was the cause. This is not new, as in previous events, the businessman triggered price shifts in cryptocurrencies. 

For instance, in 2019, Eon Musk cited that Dogecoin was his favorite cryptocurrency, and that alone was enough to drive its price up. In a subsequent event, Elon made the Dogecoin price soar by just tweeting the word "Doge."

Early this year, Elon Musk again made bitcoin's price rise after adding to his Twitter bio.

It did not stop there. In February this year, Musk caused an upward trend on yet another cryptocurrency, Dogecoin, by tweeting that it was the people's crypto. 

An interesting event that took place on Musk's socials was when he asked if Tesla should accept Dogecoin. This was only a day, if not a few hours before he announced that Tesla would not be accepting BTC. 

Looking back at Musk's thoughts regarding the company's adoption of the crypto, this was to happen. The adoption of the cryptocurrency would go against the company's policies regarding sustainable use of energy, as it is quite energy-intensive. 

What is the first thing that happened after the news?

1. Bitcoin's price dropped 

Within the first few minutes following Tesla's announcement, bitcoin's price dropped by 5%. Something to note is that bitcoin is not the only crypto that is affected by the development. Cryptos like Dogecoin plunged by over 30% within an hour of the announcement.

The total losses for crypto holders and investors amounted to billions of dollars. 

2. There was some degree of recovery

About 24 hours after the announcement, the crypto market, whose value had been significantly affected, impressively started its recovery. The minimum price of bitcoin on Wednesday, which was the day of the announcement, had experienced a minimum of $9000 and a maximum price of $46000.

By mid-Thursday, the price had gone back to $49000. While the recovery was almost immediate, the announcement served as a bottleneck to the crypto's performance. The developments were fast-paced, and the digital currency was soaring to great heights. 

After Tesla's adoption of the digital currency, it would only have been a matter of time before other big companies came knocking on BTC doors. The adoption was expected to not only be as a means of payment but also a store of value. 

3. Tesla's retreat has not really affected the adoption of the cryptocurrency

To what may come as a surprise, Tesla's retreat has not affected bitcoin's growth trajectory. The prices plummeted temporarily, but the adoption of the asset has continued to accelerate over the days. There is still a wide pool of entities that are in support of cryptocurrency. Financial services, banks, and exchanges are still vigilant in helping investors adopt cryptocurrencies. 

Things might have slowed down for the crypto market, but the future remains bright. 

Tesla will still hold the acquired bitcoin

From the look of things, the auto company is not entirely doing away with digital currency. Note that the company will continue to hold the digital currency it already has. At the same time, the company will be considering other crypto options in the market. This time, the company is looking for cryptos that are more energy efficient. 

Tesla is more likely to accept bitcoin again 

As highlighted earlier, Tesla is interested in cryptocurrencies that are green. Already, Musk has mentioned that it is looking for cryptos whose transactions consume less energy. What this means is that if bitcoin can meet Tesla's sustainability goals, then it will be accepted again for payment of Tesla products. 

The condition for readoption is that the miners use approximately 50% clean energy. On top of reasonable clean energy usage, the blockchains should also have positive future forecasts regarding energy consumption. 

Is sustainable energy use achievable in mining cryptocurrency?

While Tesla's boss promises to use bitcoin again if it goes green, the big question is if this is achievable. It might be possible. There are talks on how the mining operations can be run with low demand on local supply of energy. 

Another strategy that can be used is by placing the mining centers in locations where there is accessibility to renewable energy. Going green is also set to come with challenges. For instance, it may not be adequate to sustain the verification of transactions 24/7. 

Conclusion

The U-turn turns out to be a temporary inconvenience for bitcoin. Tesla still has options in the crypto market as there are several other currencies that are climate-friendly.

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