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May 14, 2021

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Bitcoin recovers but Musk U-turn still holds sway

Bitcoin popped back above US$50,000 in Asian trade yesterday, clawing back some of the 17 percent plunge that followed Elon Musk’s tweet that Tesla Inc would stop accepting the digital tokens as payment for its cars.

The price of the world’s largest cryptocurrency dropped from around US$54,819 to US$45,700, its lowest since March 1, in just under two hours following the tweet shortly after 2200 GMT. It recovered about half of that drop early in the Asian session, and last traded about US$51,099.

Ether, the world’s second-largest cryptocurrency, followed a similar pattern, dropping 14 percent to touch a low of US$3,550, before bouncing back above US$4,000.

“We are concerned about rapidly increasing use of fossil fuels for bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel,” Musk wrote.

Tesla’s announcement on February 8 that it had bought US$1.5 billion of bitcoin and that it would accept it as payment for cars has been one factor behind the digital token’s surging price this year.

As a result, Musk’s comments roiled markets even though he said Tesla would not sell any bitcoin and would resume accepting the cryptocurrency as soon as mining transitioned to more sustainable energy.

The digital currency is still 30 percent higher than before Tesla’s February announcement.

At current rates, bitcoin mining devours about the same amount of energy annually as the Netherlands did in 2019, data from the University of Cambridge and the International Energy Agency showed.

“The issue (of huge energy use by bitcoin miners) has been long known so it’s nothing new, but taken together with Musk’s recent comments about dogecoin, his latest comments seems to suggest his passion for cryptocurrencies may be waning,” said Makoto Sakuma, researcher at NLI Research Institute in Tokyo.

Cryptocurrency dogecoin lost more than a third of its price on Sunday after Musk, whose tweets had stoked demand for the token earlier this year, called it a “hustle” on the “Saturday Night Live” show. On Tuesday, however, he was asking his followers on Twitter if they wanted Tesla to accept dogecoin.

A broader selling of risk assets in traditional markets was another factor in the plunge, said Jeffrey Wang, Vancouver-based head of Americas at Amber Group, a cryptocurrency service provider. “I don’t think everything is selling off just because of this news. This was kind of the straw that broke the camel’s back in terms of adding to the risk sell-off.”

Smaller cryptocurrencies were less affected by the news.

“Interestingly enough, altcoins are performing well,” said Justin d’Anethan, sales manager at Hong Kong-based head of exchange sales at Diginex, a digital asset company.

“The reason given in the tweet is fossil fuel use for the mining of BTC, but most cryptocurrencies have already found more efficient ways to do that and therefore outperformed.”

Bitcoin has struggled since hitting a record US$64,895.22 in mid-April, falling to the cusp of US$47,000 just 11 days later.

By contrast, ether soared to a record US$4,180.12 on Wednesday, and, even with the current pullback, is up 435 percent in 2021, eclipsing bitcoin’s 75 percent rise.


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