Bitcoin prices have been under pressure for the last one month amid a spate of roll backs by Tesla honcho Elon Musk, whose constant social media laurels helped the premier cryptocurrency become mainstream in the first place.
Musk recently hinted that Tesla may sell or has sold all of its bitcoin holding that caused a flash crash. He later tried to put the rumors to rest saying that the company hadn’t sold any holdings of the digital token. Bitcoin prices rebounded though marginally but investors were left fuming at the lack of maverick CEO’s firm stance on bitcoin.
Musk announced last week that Tesla would suspend accepting bitcoin as payment for its vehicles over environmental concerns. “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 said.
The announcement led to a massive sell-off across the crypto market, which wiped out nearly $365 billion of investors’ wealth.
The large whipsaws in bitcoin prices led to a record outflow last week as investors turned to other digital tokens in the face of this uncertainity.
Recent data from digital currency manager CoinShares showed that outflows for bitcoin products and funds totaled $98 million, or 0.2 percent of total assets under management, last week. This equates to nearly 22 percent of the entire 2021 inflows amounting to $4.3 billion.
“While it only represented 0.2 percent of AUM, last week’s largest-ever outflows from bitcoin investment products is noteworthy,” said Matt Weller, global head of market research at Forex.com.
Since hitting a record just under $65,000 in mid-April, bitcoin’s price has plunged 35 percent. At the time of writing this copy, bitcoin was trading around $45,450.03, up 4.16 percent. It touched an intraday high of $45,839.66 and an intraday low of $42,102.35.
Musk’s U-turn on bitcoin as payment is not entirely misplaced as others, including US Treasury Secretary Janet Yellen, have also voiced concerns over “unfathomable” amounts of energy required to mine bitcoin.
In April, a coal mine in the Xinjiang region flooded and shut down. This took nearly a quarter of bitcoin’s hash rate —or computing power—offline, according to crypto industry publication CoinDesk.
In March, China’s Inner Mongolia region said it would shut down cryptocurrency mining operations in the region due to concerns over energy consumption.
Crypto enthusiasts have, however, pushed back, saying that incentivising the use of renewable energy for mining will drive innovation in the space.
A new sheriff in town?
Bitcoin’s apparent fall from grace comes with a silver lining in the form of increased interest in other crypto assets, one of which is ethereum.
“Bitcoin’s perceived environmental costs are becoming a bigger and bigger part of the narrative, boosting the relative appeal of ethereum and its upcoming transition to the less energy-intense proof-of-stake security model,” Weller added.
Ethereum, the second-largest cryptocurrency in terms of market capitalisation, continued to post solid inflows of $26.5 million last week, with a total of $910 million so far this year.
The cryptocurrency has been bolstered by the surge in use of ethereum-based decentralised finance applications, which facilitate crypto-denominated lending outside traditional banking.
Ethereum hit a record high of $4,380.64 last week but was last down 6.3 percent at $3,358. It has gained about 355 percent in 2021.