This week in crypto: Markets shake following Elon Musk tweets
Bitcoin prices sink after Tesla founder’s critique, Cardano rises, and Vitalik Buterin donates memecoins to fight COVID in India
Published on May 17, 2021
Crypto markets sank this week, as the biggest coins — including Bitcoin and Ethereum – took significant hits. One seeming cause? A surprise statement Elon Musk made on Twitter on May 12, announcing that Tesla had stopped accepting Bitcoin as payment for its cars.
In the days since, Bitcoin prices have fallen to levels last seen in February. Ethereum prices are also sharply down, after weeks in which it hit record-setting high after high. Gas prices — or the fees users of the Ethereum network pay to make transactions — were also unusually high this week.
But the news wasn’t all bad. Despite inflated gas prices, decentralized exchanges including Uniswap saw record trade volume. Cardano, the fourth-largest cryptocurrency by market cap, hit new all-time highs. And Ethereum co-creator Vitalik Buterin flipped a memecoin marketing stunt into the crypto-philanthropy story of the year by donating more than a billion dollars worth of the DOGE-inspired token SHIB towards COVID-relief efforts in India and other causes.
Fascinatingly, all of these stories are connected in one way or another. It’s a lot to unpack, so get ready...
Elon Musk reverses course on Bitcoin, rocking crypto markets
Last week, Tesla founder Elon Musk (hot off his stint hosting the most crypto-focused episode of Saturday Night Live ever) issued a tweet that sparked severe volatility in the crypto markets — especially as it seemed to reverse months of pro-Bitcoin moves by the electric-car manufacturer. Via his typically irreverent and meme-packed Twitter feed, Musk announced that Tesla would suspend accepting payment in Bitcoin. The reason? “We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining,” he said via the statement. “Cryptocurrency is a good idea on many levels, but this cannot come at great cost to the environment.”
Since late last year, Bitcoin prices have trended towards historic highs. The bull run has been fueled by a variety of factors, but a major one has been the cryptocurrency’s adoption by institutional investors – including major corporate treasuries seeking to hedge their liquid holdings against rising inflation in the era of COVID stimulus.
Tesla made by far the biggest move of the publicly traded companies that have revealed such investment — buying $1.5 billion in BTC in February.
For months now, Musk has used his Twitter feed to make winking comments about Bitcoin, Dogecoin, and other cryptocurrencies — in the wake of these posts, crypto prices have tended to rise (sometimes dramatically).
Still, Tesla doesn’t appear to be divesting, although Musk muddied the waters by responding “indeed” to a tweet suggesting the company might. Bitcoin prices fell further following the one-word missive, even as Musk later re-clarified that the firm hasn’t sold the remainder of its Bitcoin stake.
Musk has continued to spar with Bitcoin proponents on Twitter. “Hey cryptocurrency ‘experts’, ever heard of PayPal?,” he tweeted, referencing the payment company he cofounded. “It’s possible … maybe … that I know more than you realize about how money works.”
But what does the science say about Bitcoin and the environment?
Like many things, it’s complicated. Bitcoin’s blockchain is verified and secured by a process called mining — which requires more processing power as prices increase. And while everyone agrees that mining is a resource-intensive process, the environmental impact is much harder to tease out.
Some of the best research seems to indicate that many claims about mining’s impact are overstated. For one, mining isn’t a meaningful driver of climate change, according to the Cambridge Bitcoin Electricity Consumption Index. And depending in part on the time of year, between 20 and 70 percent of mining is powered by renewable energy.
“Bitcoin’s energy consumption is trivial compared to legacy financial systems,” according to analysis by ARK Investment Management. “As measured by electricity costs alone, Bitcoin is much more efficient than traditional banking and gold mining on a global scale.”
Miners are strongly incentivized to use the cheapest electricity available, and increasingly that means renewable energy.
A number of major mining companies announced green initiatives. Greenidge Generation Holdings said its New York Bitcoin mining operation would become carbon neutral on June 1. Argo Blockchain announced new operations in Canada using mostly hydroelectric power. Argo also recently joined mining firm DMG Blockchain in the Crypto Climate Accord (CCA), which aims to encourage the entire mining industry to transition to net-zero carbon emissions by 2040.
Why is Cardano gaining as the broader crypto market struggles?
In his statement, Musk also claimed that Tesla was looking at cryptocurrencies that use “<1% of Bitcoin’s energy/transaction.” Following the news, prices for Cardano have trended up – even as the broader crypto markets have seen sharp declines. So why Cardano? Traders presumably guessed that Cardano might be one of the cryptocurrencies Musk was checking out.
Cardano’s goal is to be the most environmentally sustainable blockchain platform. It uses a unique proof-of-stake consensus mechanism called Ouroboros, as opposed to the energy-intensive proof-of-work system currently used by Bitcoin and Ethereum. (Ethereum is also moving to a proof-of-stake system via the ETH2 upgrade).
Proof of stake uses a network of invested participants called validators in place of miners. And instead of contributing processing power to secure the network and verify transactions as miners do, validators stake their own ADA.
Cardano is designed to be a next-gen evolution of the Ethereum idea — with a blockchain that’s a flexible, sustainable, and scalable platform for running smart contracts, which will allow the development of a wide range of decentralized finance apps, new crypto tokens, games, and more.
Cardano’s smart-contract functionality has yet to go live. Developers say it will happen later this year.
Ethereum’s rising fees vs. Vitalik Buterin’s memecoin philanthropy
Besides Bitcoin, the token that has been the most prominent beneficiary of Musk’s attention has been Dogecoin (DOGE), which has seen prices rise from a fraction of a penny at the beginning of the year to a little under 50 cents earlier today — making the token the fifth-largest cryptocurrency by market cap. In the wake of DOGE’s wild ride, memecoin clones like SHIB, AKITA, and Dogelon Mars have emerged — and created a meme-y frenzy among short-term traders looking to ride ephemeral hype cycles and cash out on top.
The memecoin frenzy has contributed to a huge spike in gas prices — which are the fees users of the Ethereum network pay for things like making DeFi transactions.
Memecoin developers had “gifted” Vitalik Buterin’s wallet with trillions of the tokens in a presumed effort to convince other traders that Ethereum co-creator is a fan.
Buterin proceeded to donate nearly $1 billion worth of SHIB to a COVID-19 relief fund in India. He then “burned” 90 percent of the remaining tokens, forever removing them from circulation.
Ethereum is currently undergoing an upgrade to the ETH2 blockchain — which will use a proof of stake consensus mechanism similar to Cardano’s and should hugely increase speeds and lower costs.
According to one of the ETH2 developers, Ethereum is “about six months from proof of stake.” (According to the Ethereum Foundation, the current blockchain and the ETH2 blockchain will merge in “~2021/22”.)
In other news: eBay sells NFTs, Uniswap volume reaches all-time high
eBay is opening its platform for NFT sales. Users can bid on NFTs like they would any other item on the site, following last week’s announcement by the CEO that the company is exploring new ways to incorporate blockchain technology.
Bitcoin, due to its fixed and transparent monetary supply, is often touted as a hedge against fiat currency inflation. But last week, when U.S. inflation readings came higher than most economists expected — and search interest for “inflation” spiked — traders actually sold Bitcoin.
Around 46 million Americans own Bitcoin today, according to a survey by crypto-finance firm NYDIG. And more than half would consider investing in crypto.
Last week, trading volume on Uniswap reached all-time highs. Collectively, the largest decentralized exchanges (or DEXs) — which also include Sushiswap, Balancer, and 1inch — processed over $30 billion worth of trading volume. (Learn more about DEXs and how to use them.)
Palantir, the publicly traded data-analytics company co-founded by Peter Thiel, announced it is now accepting Bitcoin payment and is considering adding BTC to its balance sheet.
Samsung has begun to add support for cryptocurrency hardware wallets to its Galaxy smartphones.
Wondering which cryptocurrencies would have provided the biggest return on investment (or ROI) over the last week, month, and year? Then check out our weekly chart: