Tesla and bitcoin: a reckoning for Elon Musk?
The mercurial entrepreneur has abandoned the cryptocurrency. What are the likely consequences?
Back in February, when Elon Musk revealed that Tesla had bought $1.5bn worth of bitcoin and would henceforth accept the digital currency as payment for its cars, fans hailed the move as a sign that bitcoin had arrived as “a tool of corporate finance”, said Richard Waters in the FT. Musk appeared to embrace the idea with gusto, adding the hashtag #bitcoin to his Twitter profile and naming his CFO “Master of Coin”. His army of acolytes responded accordingly. By April, bitcoin’s price had climbed above $60,000, a record high at least partly attributable to the Tesla chief, said James Titcomb in The Daily Telegraph. But it turns out that “Musk’s influence works both ways”. His announcement last week that Tesla would no longer accept bitcoin as payment, owing to environmental concerns, whacked both the cryptocurrency and Tesla’s shares – knocking around $3bn off Musk’s net worth. Having fallen some 40% from recent highs to below $40,000 (and falling) bitcoin is now firmly in a bear market.
The pitchforks are out for Musk, said Edward Thicknesse on City AM. And Michael Burry – whose giant bet against the US housing market before the financial crisis was immortalised in the movie The Big Short – has taken out “a sizeable short position against Tesla”. Still, in this instance, Musk made the right call, said Nils Pratley in The Guardian. “Bitcoin is an environmental abomination.” At the last count, electronic mining of the currency was consuming the same quantity of energy as economies such as Argentina and the Netherlands. Moreover, “dirty bitcoin” hardly sits well with a carmaker trading on its clean-energy credentials. There were also “clear dangers” in tying Tesla’s fortunes to a single cryptocurrency. This move may be a belated admission that bitcoin was too risky, even for a “maverick genius”.
Musk is one of a handful of “evangelists for innovation” whose pronouncements drove the day-trading bonanza that gripped Wall Street during the pandemic, said Chris Bryant on Bloomberg. Together with “Spac king” Chamath Palihapitiya and Cathie Wood of ARK Invest, he encouraged an army of retail investors (so-called “Redditors”) “to pour money into extravagantly valued tech stocks and speculative cryptocurrency”. There are now multiple signs that the frenzy is cooling – thanks in part to inflation worries and greater regulatory scrutiny. Tesla’s shares have declined about a third since this year’s peak, as has Wood’s ARK fund. The “positive feedback loop” that boosted them on the way up (the more attention and money they attracted, the more successful they were) could now “work against them on the way down”.