What’s the deal with Tesla and Bitcoin?
In February 2021, Tesla announced that it had purchased $US1.5bn of Bitcoin and planned to accept the cryptocurrency as payment from its customers.
This one move literally ignited a bull run that led to an all-time high of $US65k in April. After accruing a paper profit of over US$1bn, Tesla decided to sell 10% of its Bitcoin holding to reportedly ‘prove the digital currency’s liquidity’ (…and turn over a profit of cUS$100m). What a coincidence that Tesla ended up with a record profit for the year!
Ironman…cough Elon…has also recently announced that Tesla will no longer accept bitcoin as payment due to concerns about the use of fossil fuels in bitcoin mining. To be fair this is actually a legitimate concern given Bitcoin mining reportedly uses the equivalent amount of energy as Egypt! In fact, a chart from Cambridge Bitcoin Electricity Consumption Index estimated that Bitcoin mining currently uses 149 terawatt hours of energy (as a frame of reference the whole of google only uses 12.2 terawatt hours!).
All well and good except surely Musk knew this beforehand right?! (We love you Elon).
Tesla has noted that whilst it won’t accept bitcoin as payment, it will continue retain its Bitcoin holdings and will consider accepting payments in cryptocurrencies that have less than 1% of Bitcoin’s energy footprint.
In response to the recent tumble in Bitcoin’s price, Musk tweeted that Tesla has ‘diamond hands’ which suggests it will hang onto its position despite the slump. (by way of reference my hands are made of mashed potatoes ☹ )
Check out the chart below that shows how Musk’s tweets influence Bitcoin’s price — yikes!
source: coindesk
China’s Crypto Ban
China has recently banned banks and online payment companies from providing cryptocurrency related services. This pretty much means that any transactions involving cryptocurrencies (think trading, initial coin offerings etc) will not be permitted — though individuals can still hold cryptocurrencies.
Though this is easier said than done as people can apparently trade under the radar through just sending money to each other through banks without using any cryptocurrency jargon..
A statement made by three China State backed industry associations (National Internet Finance Association of China, China Banking Association and the Payment and Clearing Association of China) said that the ‘wild swings in cryptocurrency prices are disrupting the normal economic and financial order’ (…farout sounds serious should I wear a helmet?).
Noting that more than 50% of Bitcoin mining in the world is currently done in China, we can see why this has sparked a huge concern.
Broader global regulation on the cards?
US Treasury Secretary Janet Yellen recently commented on the increased societal risks linked to cryptocurrencies through their enablement of criminal activities (think fraud, money laundering and terrorist financing).
These concerns are not without examples: in early May one of America’s biggest fuel pipelines (Colonial) reportedly paid a ransom of US$4.4m in cryptocurrency to a group of hackers in exchange for ‘unscrambling their data network’.
Some crypto enthusiasts welcome the potential increased government scrutiny of cryptocurrencies claiming that it adds a layer of legitimacy to crypto as a currency.
The US Treasury Department stated that it will require reporting on crypto transfers of more than $10k (as already done with cash).
Thanks for reading and stay stress free!
