Bitcoin and cryptocurrency markets plummeted by around $300 billion overnight before slightly rebounding after Tesla billionaire Elon Musk and ethereum co-founder Vitalik Buterin sent shockwaves through the sector.
The bitcoin price briefly dropped under the closely-watched $50,000 per bitcoin level before climbing back above it, while dogecoin, a meme-based cryptocurrency that’s exploded in popularity over recent months, led the crypto market lower with a 10% price drop.
The sharp fall was sparked by Buterin, the world’s youngest-known crypto billionaire, suddenly moving over $2 billion worth of cryptocurrency and then exacerbated by the shock news Tesla billionaire Elon Musk is pulling the plug on customers’ use of bitcoin to buy Tesla cars.
Yesterday, Buterin donated $1 billion in dogecoin-inspired meme tokens to the India Covid Relief Fund and a range of other charities and moved $1.3 billion worth of ethereum’s ether tokens from his main public address to a separate wallet.
The moves caused concern the ethereum co-founder was about to cash out of his huge cryptocurrency holdings, knocking the ethereum price from its recent highs of over $4,000 per ether token and sending dogecoin sharply lower.
The cryptocurrency market has ballooned to over $2 trillion this year, with bitcoin—the world’s largest cryptocurrency—now sporting a market capitalization of around $1 trillon. The crypto market’s growth has also been supported by the soaring ethereum price and dogecoin’s meme-powered, speculative frenzy.
Elsewhere, Elon Musk, the Tesla chief executive and long-time bitcoin supporter, announced his company would suspend customers’ use of bitcoin to purchase its vehicles.
“Cryptocurrency is a good idea on many levels and we believe it has a promising future, but this cannot come at great cost to the environment,” Musk said via Twitter.
Musk, who helped the bitcoin price climb to over $60,000 earlier this year with his support, cited environmental concerns around how those who secure the bitcoin network, known as miners, power their machines.
In February, Tesla revealed it had bought $1.5 billion of bitcoin and began accepting bitcoin as payment for cars in March, sending the bitcoin price higher by 20%.
“Elon Musk has the ability to pump or dump bitcoin’s price almost on his own when it suits his interests,” Alex Kuptsikevich, senior financial analyst at FxPro, said in emailed comments, adding it will be “no surprise” if Telsa next announces its sold some of its bitcoin and warning that could cause “an even fiercer sell-off.”
“This heavy reliance on the entire market’s outlook on statements from one major investor is a huge gap for the crypto market, demonstrating its vulnerability. It should be noted that bitcoin’s fall coincided with a correction in the S&P 500, once again proving that the investor composition of both markets may be well correlated.”
However, Musk did say Telsa would continue to hold bitcoin on its balance sheet and hoped to restart bitcoin transactions in the future. He added the company, which is reportedly hoping to enter the multi-billion dollar U.S. renewable credit market, is looking into other cryptocurrencies that have a less environmental impact.
“We are also looking at other cryptocurrencies that use <1% of bitcoin’s energy/transaction,” Musk said.
The bitcoin price plummeted by around 17% in the immediate aftermath of Musk’s bitcoin bombshell before recovering some of its losses. Meanwhile, Tesla’s stock price also fell during after hours trading.
“Tesla and bitcoin were always odd bedfellows, given the environmental credentials of the electric car maker, and the colossal amount of energy consumed by the cryptocurrency,” Laith Khalaf, financial analyst at brokerage AJ Bell said in emailed comments.
“Environmental matters are an incredibly sensitive subject right now, and Tesla’s move might serve as a wake-up call to businesses and consumers using bitcoin, who hadn’t hitherto considered its carbon footprint. Tesla might have made $101 million from selling Bitcoin in the first three months of the year, but now investors will legitimately be asking whether that money could have been better spent elsewhere.”