Bitcoin is a finnicky business, to say least. With the proper investments, you could become more wealthy than you have ever imagined, but on the other hand, you could endure last month’s fall from grace.
Elon Musk, the eccentric CEO of Tesla Motors, announced that his company will no longer be accepting the cryptocurrency as payment for their vehicles. Unsurprisingly, this caused the value of bitcoin to drop faster than Wile. E Coyote over a canyon holding an anvil.
After this controversial tweet was sent out on May 12th, the market immediately took a hit, falling a staggering 17%. That might be the biggest drop the currency has ever seen.
According to Musk, the reason behind this backtrack was due to a concern about, “rapidly increasing use of fossil fuels for Bitcoin mining and transaction, especially coal.” Musk later tweeted a chart that shows cryptocurrency’s “insane” energy usage trend, based on data from the University of Cambridge Centre for Alternative Finance.
Nearing a month after the announcement, the market still hasn’t seen much of a comeback. This is also coming at an odd time for the company because merely months ago, back in February, Tesla announced that they would accepting Bitcoin as payment and purchased a whopping $1.5 billion worth of the currency.
On top of all this, Musk has also revealed that the company has yet to sell any of its bitcoin and intends “to use it for transactions as soon as mining transitions to more sustainable energy…” Shady agendas aside, more questions may need to be asked about it, we need to consider how this could impact the auto industry.
How has cryptocurrency already impacted the industry?
Years ago, back in the turn of last decade, consumers and many companies were pretty skeptical about bitcoin. This weird digital currency with unknown origins created as a reward for “mining,” it was assumed that this was a trend that was going the way of Zune.
However, by everyone’s surprise, the exchange of bitcoin began to grow over the years and, by 2017, it was estimated that there were approximately 2.9 to 5.8 million unique users using a cryptocurrency wallet, with most of them using bitcoin.
The real beauty of bitcoin comes from how you can invest. When investing in the currency, you don’t have to purchase a full coin, you can actually invest with smaller units which can still be very valuable. Back in February of this year alone, one single bitcoin was worth approximately $51,161.
It also really helps that the government has no way to manipulate your investments with inflation. It cannot be oversupplied or subject to corruption.
So, with all these upsides, of course Musk spent a good amount of time on Twitter promoting the cryptocurrency, even purchasing a good chunk of it as mentioned before. He even went on to say, “Bitcoin is a good thing, and I am a supporter of Bitcoin.”
And when the richest man backs an investment, you know that’s going to make a few waves in the market.
So, one upside of cryptocurrency is that it makes automobile transactions so much simpler. No need to involve your bank or finance company. No need to arrange complex paperwork or calculating interest rates and monthly payments. With just the push of a button, you can transfer the cryptocurrency from your digital wallet to the dealership.
Cryptocurrency has also made “auto-investing” a big game changer to the industry. Think about it, instead of buying a cheap, used vehicle from the early 90’s, you can try investing in bitcoin and then, possibly within six months, you’ll be able to afford a brand new vehicle.
But, like any investment, this could also go south. As we’ve seen with this recent development at Tesla, nosedives in the industry are a possibility. All it takes is one bad investment, one off tweet, or simply one bad day.
However, no matter how you look at it, cryptocurrency is a game changer to the auto industry. When Musk and Tesla announced that bitcoin would be viable currency for purchases, it was the start of going against the established system.
But, now with Musk’s retraction on the bitcoin system…
Does bitcoin really use that much energy?
In the shortest answer possible, yes. “Mining” for cryptocurrency requires computer heavy calculations to verify transactions, making it quite the power-hungry process. Researchers from Cambridge have estimated that the mining process consumes approximately 121.36 terawatt-hours (TWh) a year.
After Tesla’s announcement that bitcoin could be used a currency for his products, this consumption obviously did not improve and many criticized the company for backtracking on its original environmental image. The rising price just means miners will run more and more machines to earn that oh-so-good quick buck.
In order to reduce this consumption of electricity, there must come a truly great price… literally. The value of bitcoin must go down, which would put a lot of investors in financial distress. Approximately 17% of the United States (or 46 million people) have their hand in bitcoin stock, with a high percentage of them open to adding cryptocurrency to their personal financial plans.
That’s a lot of people who’s financial plans are put on hold.
According to experts, more efficient mining hardware would not help, it would simply compete against other mining software causing CO2 production to spiral outwards. What this could all lead to is a carbon tax on cryptocurrencies to balance out the negative consumption… because we’re so enjoying the one we have now.
But, wait until you hear about Musk’s latest strategy.
No longer a joke
Strangely enough, Musk is making a headfirst dive into the latest dogecoin craze… yes really. Over the past few weeks, bitcoin and other major cryptocurrencies have continued to fall sharply over the past couple of weeks. With this constant decline, Musk revealed that he’s considering dogecoin as a “great idea.”
For those unaware, despite being released back in 2013, dogecoin has become a relatively big newcomer to the cryptocurrency market. The payment was created by software engineers Milly Markus and Jackson Palmer only as a joke, modelling it after the popular dog meme of the same name.
But, despite being a clear satire of the crypto craze, some have considered it a legitimate investment prospect. As of May 5, 2021, it has developed its own online community and reached over $85,000,000,000 of market capitalization.
Even today, despite the climbing popularity, the website continues to promote the currency as the “fun and friendly internet currency” as a reference to its origins as a joke. Yeah, who’s laughing now, huh?
So, it can probably go without saying but dogecoin can probably thank the Tesla CEO for most of that market upscale. Musk even went to Twitter to get the public’s opinion on Tesla accepting dogecoin as currency. The results were almost overwhelmingly yes.
But why has Musk decided to back this currency? Well, because it uses a significant less amount of energy than bitcoin. For each payment, bitcoin requires approximately 707 kilowatt-hours while dogecoin only requires 0.12, helping Tesla stay that environmental darling we all know they want to be.
Musk has continued to post memes about dogecoin and other endorsements, helping make dogecoin become the fifth most valuable cryptocurrency on the market, right after bitcoin, ethereum, Binance’s BNB and cardano.
What started as some tongue-in-cheek trolling has transformed into legitimate support for dogecoin, going as far as asking developers to submit updates and improvements via Reddit and Github. He’s even announced that he’s accepted dogecoin as payment for a SpaceX mission called DOGE-1.
Conclusion
Whatever you think of this whole crazy situation, there is no denying that Elon Musk is the most influential person in the crypto market right now. If he says, “jump!,” the market says, “how high?”
His appearance on Saturday Night Live alone was enough to send the price of bitcoin down by 35% and that was before his retraction announcement. Whether or not bitcoin will make a comeback as triumphant as it once was is questionable but not impossible as the market is slowly returning. With that said though, investors certainly can’t ignore the waves dogecoin is making through the market.
While Tesla has not made any announcements, the public’s opinion on the company utilizing dogecoin could really shift the market. This frenzy has rendered predictions virtually impossible, so try investing responsibly while waiting for the market to recover.