Cryptocurrency prices began their nosedive after billionaire investor and Tesla founder, Elon Musk, announced that the company would no longer be accepting bitcoin as payment for its cars. Cryptocurrencies around the globe have been affected, hitting investors and digital currency holders with losses in the hundreds of billions of dollars.
What precipitated this announcement and subsequent plunge in cryptocurrency prices? Seemingly, Musk is just now realizing that mining cryptocurrencies uses enormous amounts of energy, around 0.6% of global electricity consumption according to TechCrunch.
If you are not familiar with how mining cryptocurrencies work you can read about it here while you ponder the question of why cryptocurrencies are so volatile and how Musk has so much influence over the market?
As to why bitcoin and other cryptocurrencies like Dogecoin (Musk’s favorite) are so volatile, well there are many reasons. Too many to list them all but here are a few from smartinsights.com:
• Cryptocurrencies are new compared to regular money (an emerging market)
• The average jane or joe does not understand it (the technology is still very new)
• It’s faith-based belief in the value of cryptocurrency with no physical asset to back it up (the price is set by the law of supply and demand)
• It is extremely susceptible to media influence like an announcement by someone like Musk to a news organizations
• Anybody can trade cryptocurrencies, no license or law degree required, so it is a market flush with a lot of inexperienced first-time traders.
Elon Musk caused crypto markets to surge when he announced earlier this year his company Tesla had invested $1.5 billion in Bitcoin and that his vehicles could be purchased with it. This was a watershed moment that sent world markets into overdrive with speculation that other corporations would be forced to consider the currency.
But as the old saying goes, “what goes up, must come down.” Reversing that decision Musk tweeted, “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. Tesla will not be selling any Bitcoin and we intend to use it for transactions as soon as mining transitions to more sustainable energy.”
So it appears Musk has not lost faith in cryptocurrencies reiterating it has a “promising future” and adding a pledge to investigate more environmentally friendly ways to mine it.
Tesla’s brand is environmentally friendly technology. No fossil fuels needed to power their vehicles. So why didn’t Mr. Musk do his homework before he invested billions in the cryptocurrency market? The answer is, who knows?
Critics were quick to point out it’s no secret that mining bitcoin requires massive amounts of fossil-fuel generated electricity. However, computers can use power from any source, such as hydropower (converting fast flowing water into electricity) or solar. So it’s a just a matter of transitioning away from fossil fuels to more green sources of energy, which proponents say could increase the demand for more widespread use of that type of sustainable power.
Is that all part of Musk’s master plan? Again, who knows?
It is believed by some environmental groups and business executives that bitcoin mining will push governments around the globe to invest in more efficient ways to mine cryptos without using fossil fuels.
“I see Bitcoin mining increasingly playing a role in the transition to a clean, modern, and more decentralized energy system,” said one such Canadian business consultant, Magdalena Gronowska. “Miners can provide grid balancing and flexible demand-response services and improve renewables integration.” ~ techcrunch.com
What we do know with relative certainty is that cryptocurrencies will continue to be a volatile roller coaster ride for investors for the foreseeable future as the technology improves and more people of Musk’s fame and fortune invests in it.