After Tesla announced that it would no longer accept Bitcoin for its cars, the crypto community showed anger and frustration on social media. Elon Musk’s take on Bitcoin has shifted several times throughout history, and his Tweets have always been unpredictable, so this really shouldn’t be that surprising.
The PayPal co-founder’s first prominent comments on Bitcoin came during a podcast in 2019 with Cathie Wood, the CEO and CIO of Ark Invest.
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When asked how he felt about crypto during the podcast, he said that “Bitcoin and ethereum scammers were so rampant on Twitter that I said I’d just join in. I said at one point, ‘do you want to buy some Bitcoin?’ and then my account got suspended.”
He also said that “I think the Bitcoin structure is quite brilliant. I’m not sure that it would be a good use of Tesla’s resources to get involved in crypto. We’re really just trying to accelerate the events of sustainable energy. One of the downsides of crypto is that it is computationally quite energy-intensive.”
“Paper money is going away, and crypto is a far better way to transfer value than pieces of paper,” he added.
Later in the year, Musk made his first comments about Dogecoin when he wrote a tweet saying, “Dogecoin may be my favorite cryptocurrency. It’s pretty cool.”
In May 2020, JK Rowling famously said on Twitter that “People are now explaining Bitcoin to me, and honestly, it’s blah blah blah collectibles (My Little Pony?) blah blah blah computers (got one of those) blah blah blah crypto (sounds creepy) blah blah blah understand the risk (I don’t, though.)”
Musk responded to her thread, saying, “Pretty much, although massive currency issuance by govt central banks is making Bitcoin Internet money look solid by comparison.”
Musk riled up crypto-twitter again by posting a meme insinuating that Dogecoin would become the standard by which the global financial system would run.
In December of 2020, Musk posted a not-so-safe-for-work meme about the temptations of Bitcoin while trying to live a normal life.
Michael Saylor, the CEO and founder of MicroStrategy, responded by saying that Tesla would be doing shareholders a favor if it converted some of its balance sheet to Bitcoin.
“If you want to do your shareholders a $100 billion favor, convert the $TSLA balance sheet from USD to #BTC. Other firms on the S&P 500 would follow your lead & in time it would grow to become a $1 trillion favor.”
In response, Musk asked, “Are such large transactions even possible?”
The crypto community was quick to inform Musk that this was entirely possible. Musk then made his Twitter bio #bitcoin and said, “In retrospect, it was inevitable.”
Later, in a Clubhouse room, Musk had very positive comments about Bitcoin.
“I do at this point think Bitcoin is a good thing. I am a supporter of Bitcoin. I was a little slow on the uptake. I think Bitcoin is on the verge of getting broad acceptance by conventional finance people.”
He also noted that he did not have a “strong opinion” on other cryptocurrencies.
In the clubhouse chat, he said that “Occasionally I make jokes about dogecoin, but they are really just meant to be jokes. Dogecoin was made as a joke to make fun of cryptocurrencies.”
Musk doubled down on his support for Bitcoin, though. He jokingly called Bitcoin (BTC) an anagram for The Boring Coming (TBC), and later that December, it was announced that Tesla had purchased $1.5 billion worth of the cryptocurrency.
Then, in March, he announced that Tesla would begin to accept Bitcoin for its cars.
“Tesla is using only internal & open source software & operates Bitcoin nodes directly. Bitcoin paid to Tesla will be retained as Bitcoin, not converted to fiat currency,” Musk said in a tweet after the initial announcement.
All of the actions taken by both Musk and Tesla seemed to support the notion that they were completely on board and would help to further the crypto industry, but soon enough confusion and doubt would surround Tesla and its stance on Bitcoin.
The debate about Bitcoin’s energy consumption from mining has long been a hot topic. It has also been known and understood that Bitcoin requires immense energy levels to provide consensus via proof-of-work.
While the system does use these significant levels of energy, proponents of Bitcoin argue that this is a built-in feature to secure the network from bad actors.
For a bad actor to take control of the network, they would need to make up for over 50% of Bitcoin’s computing power. With how much cumulative power exists in Bitcoin’s network today, this would be near, if not entirely, impossible.
Bitcoin’s intense use of energy for security reasons hasn’t stopped environmentalist concerns over this massive expenditure of energy. The main argument against Bitcoin is the sheer quantity of power it uses. Bitcoin uses amounts of energy comparable to entire nations like Sweden, Argentina and others.
To counter these concerns, members of the crypto industry have researched the types of energy that Bitcoin uses rather than just focusing on the amount it uses.
According to a study done by the University of Cambridge, 76% of Proof-of-Work miners use renewable energies as part of their energy mix, and 39% of the total hash rate is done with renewables.
Hydroelectric power makes up 62% of the power sources for mining facilities, followed by coal at 38%, natural gas at 36% and wind at 17%.
Square, a payments company started by the founder of Twitter, Jack Dorsey, has become a growing member of the crypto ecosystem. Jack Dorsey posted a report from the company about Bitcoin’s energy use on Twitter.
The report claims that “Bitcoin mining, – in conjunction with renewable energy and storage – is especially well suited to accelerate the energy transition (to renewables).”
On April 21st Jack Dorsey sent out a tweet that linked this report and said, “Bitcoin incentivizes clean energy.”
Musk simply responded “True” to the tweet.
Tesla Stops Accepting Bitcoin
On May 12th, Musk unexpectedly posted a tweet that announced Tesla would no longer accept Bitcoin for its cars as it is “concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of all.”
This came shortly after he had agreed with Dorsey that Bitcoin could have the potential to push the use of renewables faster.
The post lit Twitter aflame with confusion, anger and frustration. It also dropped Bitcoin’s price from around $58,000 to its lowest trough since of just over $42,000. It has since leveled to about $44,000, but many are still struggling to understand the true motive given Musk’s previous support for Bitcoin and his response to Dorsey regarding the energy question.
One prominent crypto insider and podcaster, Peter McCormack, wrote a Twitter thread about Musk’s confusing actions with crypto and likened him to a troll, to which Musk responded, “Obnoxious threads like this make me want to go all-in on Doge.”
Another Twitter account countered Musk saying that Dogecoin is far more centralized than Bitcoin. Musk retaliated by alleging that Bitcoin has centralization issues as well.
The problem with his response is that Bitcoin can’t be controlled by mining power alone as nodes and other participants also have a say in its direction. This led people to question his understanding of Bitcoin even further.
Musk took another step in the argument and said, “Hey cryptocurrency “experts”, ever heard of PayPal? It’s possible … maybe … that I know than you realize about how money works.”
But this confused people even further as Bitcoin’s purpose was to do away with centralized payments systems such as PayPal that have the authority to freeze accounts.
“PayPal, LMAO. You mean the company which froze Wikileaks account? The company which routinely censors payments?,” asked Peter McCormack in rebuttal.
Musk did eventually clear the air as speculation that Tesla would now sell its Bitcoin started to ramp up.
“To clarify speculation, Tesla has not sold any Bitcoin,” said Musk in a tweet.
Was There an Ulterior Motive?
Many began to speculate on the true motive behind the reversal in Tesla’s Bitcoin acceptance. Why would Musk be so supportive of Bitcoin, including his agreement with Dorsey that Bitcoin can incentivize renewable energy use, if only to make this decision a short while later?
Is it possible that Musk and Tesla truly didn’t understand how Bitcoin mining worked before purchasing $1.5 billion worth of the currency? Many couldn’t believe such a reality and instead thought there had to be another motive.
One Twitter user, Elisabeth Steyn, made note of Tesla’s reliance on the renewable energy credit (REC) market for its business as a possible hidden motive.
“Tesla makes most of its $ from RECs, not cars. Last year, it made $1.58bn from sales of RECs to gas-powered auto companies (which must buy to offset their CO2 emissions). Tesla has never been profitable without REC sales to bolster its auto margins. That’s about to change,” said Steyn.
In Q2 of 2020, Tesla tripled its revenue from RECs from a year prior to $428 million. Garrett Nelson, a CFRA equities analyst, said that “They would not have posted a profit without that revenue. It’s the number one factor why Tesla beat analyst estimates by so much.”
In the first quarter of 2021, Tesla took in $518 million from RECs. In the past, Tesla has made large profits selling RECs to companies that need to offset their emissions. But with all of these car manufacturers making moves into the electronic vehicle space, they will require fewer and fewer RECs.
While these RECs only represent 6% of Tesla’s profits, the sale of RECs comes at no cost, making it 100% profitable. According to an article from Fortune, Tesla would not have been profitable on a net basis in the last six quarters without RECs.
So, how would this motivate Tesla to stop accepting payment in Bitcoin? Well, environmental regulators may not be very fond of Bitcoin’s energy use. Tesla is currently applying with the EPA for more RECs under the new Biden administration, which could have had some level of impact on Tesla’s Bitcoin decision.
The members of the Environmental Protection Agency are comprised of high-ranking individuals of both public and private organizations or companies, most of which are geared toward some level of environmental preservation and protection.
Tesla and Musk’s future with Bitcoin, or really any cryptocurrency, is still very much unknown. The only clear facts are that Tesla still holds Bitcoin and they now accept Dogecoin for cars. With how bumpy Tesla’s crypto road has been so far, there will likely be more surprises ahead.