For most of 2021, the Bitcoin price has been stratospheric, breaking through its all-time multiple times and turning people into crypto millionaires and even billionaires overnight. Exciting times, right?
If you check a Bitcoin price chart right now, you’ll see one thing: a monumental sell-off, dropping the cryptocurrency price by more than 25 percent. It has recovered slightly, but what gives? Why has the Bitcoin price crashed?
What Did Elon Musk Say About Bitcoin?
First up, Elon Musk. In early May 2021, Elon Musk roundly criticized Bitcoin’s environmental impact, decrying its heavy energy use per transaction and the network’s reliance on coal-based power.
Furthermore, Musk added that electric car and battery maker, Tesla, would no longer accept Bitcoin as a payment method. Tesla has significant Bitcoin holdings (it bought around $1.5 billion of the cryptocurrency in January 2021), and although Musk has signaled his discontent, the company is yet to sell.
In the 24-hours following Musk’s tweet, over $400 billion was wiped off the global Bitcoin market, in no short part due to the reactions of Elon Musk’s 52 million Twitter followers reacting to the news. Furthermore, automated selling bots reacting to social media and news sentiment begin selling automatically, triggering other investors to follow suit.
Understandably, Bitcoiners aren’t happy. First, with Musk for criticizing Bitcoin in the first place, even if that criticism is largely correct, and secondly for tanking the price of the cryptocurrency.
Some people have gone as far as developing a community-led cryptocurrency called FuckElon, which has a distant aim of taking down Elon Musk somehow or attacking his Tesla holdings. At the very least, the developers and community hope to express their discontent that one man has so much power over a global currency.
What About Dogecoin?
It hasn’t been clear sailing for Elon Musk’s other pet project, either. As much as Musk criticizes Bitcoin, he talks up the meme cryptocurrency Dogecoin, which uses the same energy-intensive proof-of-work mining algorithm as Bitcoin (although it doesn’t use nearly as much energy comparatively, it’s only fair to point out).
Regardless, when Bitcoin tanks, so does the rest of the market, and the altcoins usually end up worse off at the end. Dogecoin dropped by around 40 percent from its all-time high, similarly wiping billions from its overall market value.
An August 2020 report found that while Bitcoin accounts for around 80 percent of all proof-of-work emissions, other algorithms are still accountable—including Dogecoin.
Others were quick to point out that they didn’t notice Musk shutting down sales of Tesla’s electric cars in China and gave zero discussion to the energy-intensive processes of extracting the heavy-metal and rare earth mineral-dependent batteries that power them.
China Cools on Bitcoin
Adding to the Bitcoin sell-off was the announcement China is imposing restrictions on Bitcoin and other cryptocurrencies with immediate effect. From Wednesday, 19 May, the Chinese government has banned Chinese banks and financial institutions from providing any crypto-related services.
Given China is the world’s largest miner of Bitcoins—tying into Musk’s issues with the cryptocurrency—and one of the biggest cryptocurrency markets, the announcement was another heavy blow.
Bitcoin use is already banned in China, following its 2019 crackdown. Chinese Bitcoin users still trade the cryptocurrency online, which irks the Chinese government. Furthermore, China is set to become one of the first countries to fully roll out a central bank digital currency, the digital yuan.
Critics of the Chinese government and central currencies believe it is another step towards forcing acceptance of the government-issued digital currency in place of decentralized (and, in some cases, anonymous) cryptocurrencies.
Furthermore, as reported in the Financial Times, some Chinese provinces are setting up hotlines to allow concerned citizens to inform on potential cryptocurrency mining operations.
The Inner Mongolia Development and Reform Commission said that it would set up a telephone hotline through which people could report suspected mining outfits as part of an effort to “comprehensively clean up and shut down” these operations.
Bitcoin’s Environmental Credentials Under Serious Scrutiny
Elon Musk may have criticized Bitcoin’s environmental impact and sent the price tumbling as a result, but he’s not wrong.
Bitcoin is coming under increasing pressure. The world’s largest cryptocurrency cannot shake the association with heavy electrical usage, fossil fuels, and the mountains of e-waste created by burnt-out ASIC miners.
Bitcoin users can dismiss the claims all they want, but it’s an established truth.
No matter how you slice the apple, the world’s most prolific mining operations are based in China, which uses many coal-fired power plants. But China is far from the only country using fossil fuels to power Bitcoin mining, and it would be wrong to portray them as so. They just happen to have double the hash rate of any other country.
For Bitcoin, there is no way to stop miners from using fossil fuels to power their mining equipment. A Financial Times study found that around two-thirds of the Bitcoin mining network uses non-renewable energy, although 76 percent of respondents indicated that they use at least some renewable energy sources.
If Bitcoin advocates, thought leaders, and users can push miners towards greener energy sources, it would alleviate at least some of the network’s environmental impact. Some people would like Bitcoin to switch to a proof-of-stake algorithm, which uses substantially less energy to confirm network transactions and ensure decentralization.
However, that would require the entire network to agree to the switch, and it seems incredibly unlikely that enough miners would switch.
Will the Bitcoin Price Rise Again?
Given the now considerable amount of institutional money wrapped up in Bitcoin investments worldwide, many Bitcoin advocates and users aren’t worried by this enormous price drop. In fact, many see the rapidly changing Bitcoin price as a correction rather than the start of a bear market, using the depression to pick up extra Bitcoin at a much lower price.
Dropping from just under $60,000 per Bitcoin to just over $30,000 within a few days is a significant reduction and has wiped billions from the market. However, Bitcoin is still trading at its early February 2021 level, and its overall price remains thousands of dollars higher than in previous years.
Given its history of rebounding, many believe this dip is a blip in the cycle—but only time will tell. As ever with cryptocurrency, never invest more than you can afford to lose, and always do your research before committing your hard-earned cash.
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