Musk is well positioned to guide the future direction of cryptocurrency travel


When Elon Musk revealed three months ago that Tesla had purchased $ 1.5 billion worth of bitcoin, fans of the digital currency claimed the move would accelerate its wider adoption as a business financing tool.

On Wednesday, however, Musk withdrew his personal endorsement, swearing to accept cryptocurrency as payment for Tesla’s cars and undermining the company’s rationale for using it as a destination to park its reserve money.

As usual, Musk’s comments provided immediate fuel for crypto traders as well as ammunition for warring crypto tribes on Twitter. But it was harder to say if his announcement would have an effect on a broader perception of the currency or what role Musk’s views will play in the next phase of crypto adoption.

“He always says things every other day and isn’t consistent,” said John Coffee, a professor at Columbia Law School. Tesla’s claims to push bitcoin into the mainstream of corporate use has always seemed secondary to its interest in pure financial speculation, Coffee added. “I think his first investment was more of a currency investment than anything else.”

Whatever lies behind Musk’s recurring, recurring love affair with Bitcoin, his effect on market prices has been. hard to ignore. The currency’s price jumped 15% on the day Tesla’s investment was revealed, and fell 6 percent within 24 hours of this week’s announcement.

The latest drop came just days after Musk jokingly denounced dogecoin – another cryptocurrency he had heavily promoted – as “An unrest” on American television, sending its value down 15 percent.

“Without a doubt, it has become the most important factor in crypto” when it comes to price movement, JP Thieriot said. Its influence also extends to the way people think about digital currencies, Thieriot suggested.

Even Musk, however, cannot force cryptocurrencies into mainstream commercial use. He said this week that Tesla had given up on accepting payment in currency due to the environmental effects of the energy-intensive “mining” that goes into validating transactions – a well known problem he ignored in the past.

Many crypto experts have said Musk’s change of mind seemed to reflect an acceptance that bitcoin was unsuitable for payments. Other companies that had accepted bitcoin as a payment method in the past, including Dell and Microsoft, also abandoned it later.

“I don’t think a lot of people want to spend their bitcoin,” said Wilson Withiam, analyst at crypto research group Messari. “If there was real money behind it, [Tesla] did you really do that?

Musk’s change of mind went beyond the issue of payments. He also vowed to his electric car maker to become an active participant in the bitcoin market, claiming that he “will not sell any bitcoin.”

The engagement came two weeks after Tesla surprised Wall Street with a Profit of $ 101 million to sell part of its holdings, which raises fears that the company’s performance is increasingly linked to crypto trading.

The promise not to sell may have reassured some investors, but it has also undermined Tesla’s case for using the currency as part of its daily corporate treasury operations.

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Zach Kirkhorn, chief financial officer of Tesla, told Wall Street two weeks ago that the liquidity of the bitcoin market justified Tesla owning the cryptocurrency because it meant the company could actively buy and sell.

This flexibility was especially important, he said, as Tesla faced a greater demand for cash to fund factories in Texas and Germany while also facing extreme financial strains in its supply chain caused by the global semiconductor shortage.

“Being able to access our money really quickly is very important to us right now,” Kirkhorn said. With a tweet that promised to lock down the company’s crypto investment, Musk torpedoed that rationale.

Some bitcoin backers have said Musk has always helped pave the way for wider adoption of bitcoin by corporate treasurers by encouraging other companies to view it as a valid stake – even if there is. had almost no examples others announced that they were buying the currency.

His initial enthusiasm for bitcoin had sparked interest – including among treasurers – that was likely to continue well beyond its recent turnaround, said Rayne Steinberg, chief executive of digital asset management group Arca. “People were talking about it, it has become fashionable.”

Some corporate treasury experts, however, said Tesla’s flirtation with cryptocurrency holdings had done nothing to encourage wider adoption.

“It created a conversation between treasurers, but I don’t think it changed anyone’s mind,” said Jerry Klein of Treasury Partners in New York. The absolute obligation on treasurers to preserve the value of their businesses’ cash flow had ruled out cryptocurrencies altogether, Klein added.

But if Musk dabbled in Bitcoin failed to change the currency’s position in the corporate world, his latest intervention raised another perspective: that he could become a kingmaker for a future cryptocurrency to rival or even replace bitcoin.

Using her fame to draw attention to Bitcoin’s high energy consumption – and the fact that many grid participants are in China, relying on coal-fired power plants – could speed up the search for alternatives, according to supporters. Surveys Generation Y and Generation Z, who are big buyers of cryptocurrency, have shown they are also deeply concerned about climate change, Thieriot said at Uphold. “Ultimately, these things have to converge,” he said.

Musk’s comments caused an immediate stampede among supporters of cryptocurrencies who claim to have less negative effects on the environment. These included Bitcoin Zero – a carbon neutral version of Bitcoin – and Cardano, one of several networks that use a so-called proof of stake mechanism to validate transactions, consuming less power.

Most of the newer networks, however, have struggled to gain attention and a share of crypto investing. Most of the shifted attention has focused on ether, the digital token used on the ethereum network. With a total value of $ 440 billion, its tokens are worth almost half that of bitcoin.

Ether is already being used by some investors as a form of digital currency, and its long-planned shift to a proof-of-stake system may finally be completed within the next year, putting it in a strong position to gain wider support, said Withiam, the analyst at Messari.

Musk did not immediately show which cryptocurrency would gain his favor as he shied away from bitcoin, but he hinted. On Thursday, he tweeted, “Working with Doge developers to improve system transaction efficiency. Potentially promising. “

He said Tesla wanted to use a token that consumes less than 1% of energy than bitcoin, a comment will inevitably leave crypto investors in doubt – and ensure all eyes are on his tweets for the next hint of his. reflection.

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