Elon Musk's Evolving View of Bitcoin

Yesterday, Tesla CEO Elon Musk sent shockwaves around the crypto world with his announcement that the EV manufacturer will no longer accept Bitcoin payments, due to concerns over its environmental impact. 

“We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel,” the Tesla CEO said in a tweet, adding that Bitcoin’s recent energy consumption is “insane.”

In his tweet, Musk reaffirmed his faith in cryptocurrencies as a “good thing” and announced that Tesla is looking at other cryptocurrencies that use less than 1% of Bitcoin’s energy per transaction.

Over the last seven years, Musk's position on Bitcoin has shifted from curiosity to full-scale adoption—making his decision a shock to Bitcoin advocates, many of whom have grown accustomed to having Musk as one of their most influential backers.

Elon Musk's history with Bitcoin

Musk's history with Bitcoin goes back as far as March 2014; asked by a Twitter user for his stance on cryptocurrencies, he replied with the elusive statement, "Well, now that Satoshi Nakamoto has been discovered, I guess it is case closed."

Later that year, at Vanity Fair’s New Establishment Summit, interviewer Walter Isaacson was able to pin Musk down, asking for his opinion on Bitcoin. Musk responded that Bitcoin was “probably a good thing,” with the caveat that "it's primarily going to be a means of doing illegal transactions."

He also noted that he didn't personally hold any Bitcoin.

But it was some time before the Tesla CEO began to seriously pay attention to Bitcoin. In 2017, he took to Twitter to dismiss rumors that he was the inventor of Bitcoin, noting that "A friend sent me part of a BTC a few years, but I don’t know where it is," and posting the occasional joking reference to the idea that he might be Satoshi Nakamoto. 

In 2019, the first signs of a shift in his position emerged when he appeared on a podcast with tech investment company ARK Invest. He described Bitcoin as “quite brilliant,” adding that “paper money is going away, and crypto is a far better way to transfer value than pieces of paper, that’s for sure.” 

In May 2020, Musk responded to a tweet from Harry Potter author J.K. Rowling, saying that, “massive currency issuance by government central banks is making Bitcoin Internet money look solid by comparison.”

A month later, Musk was one of a number of world-famous figures whose identity was borrowed by crypto scammers, the latest in a series of long-running scams. The viral crypto fraud raked in about $2 million in just two months. 

But that proved to be just a bump in the road, with Musk continuing to voice his support for the flagship cryptocurrency. In December 2020, Musk was at it again. He briefly tweeted that Bitcoin was his “safe word,” before clarifying that he was "just kidding."

Shortly afterwards, he shared a risqué meme suggesting that he was tempted by the cryptocurrency. 

It marked a turning point in Musk's view of Bitcoin, as MicroStrategy CEO (and ardent Bitcoin advocate) Michael Saylor replied, telling Musk to convert the $TSLA balance sheet from U.S. dollars to Bitcoin.

Musk responded, asking Saylor if such large transactions were "even possible", with Saylor offering to "share my playbook with you offline."

One month later, Musk updated his Twitter bio to "#Bitcoin", setting in motion a trend that saw famous YouTubers and NFL stars follow the Tesla CEO’s example. A study published by the Blockchain Research Lab showed that Musk’s public musings had pumped the price of Bitcoin up by 18.99%. 

In February 2021, Musk appeared on audio social media platform Clubhouse, and if it wasn’t already clear, he confirmed that he was a Bitcoin supporter. “Bitcoin is a good thing,” he said, adding that he was “late to the party.”

Later that month, Musk put his money where his mouth was, overseeing Tesla’s $1.5 billion investment into the flagship cryptocurrency. A jubilant Saylor stated that he expected an "avalanche of companies" to follow in Tesla's footsteps, and, indeed, a number did add Bitcoin to their treasuries, among them magazine publisher TIME, Norwegian multinational Aker ASA and Latin American e-commerce platform Mercado Libre.

By the end of Q1 2021, Tesla's Bitcoin holdings had swollen to $2.48 billion, with the company divesting itself of $272 million worth of the cryptocurrency during the quarter. Musk took to Twitter once again, to clarify that the automaker had done so "essentially to prove liquidity of Bitcoin as an alternative to holding cash on balance sheet," and that he personally hadn't sold any Bitcoin.

At this point, the crypto world had well and truly embraced the Tesla CEO as one of Bitcoin’s biggest influencers. 

But not so fast. Apparently, the only thing more volatile than Bitcoin’s price is Musk’s stance on the cryptocurrency. 

Elon Musk u-turns on Bitcoin

Musk has dealt a potentially fatal blow to his image as one of Bitcoin’s biggest advocates. 

After Musk posted his tweet citing concerns about Bitcoin’s impact on the environment, Bitcoiners who'd previously sung his praises rushed to criticize him—including Saylor, and Anthony Pompliano, who argued that Bitcoin derives 75% of its power from renewable energy.

Jason Deane, Bitcoin analyst at Quantum Economics, told Decrypt that Musk’s thinking is “flawed.” “It is true that Bitcoin uses considerable power, but then so does the dollar—which he is still accepting—and a myriad of other industries including his own manufacturing facilities,” Deane added. 

But Musk is right; Bitcoin has a carbon footprint problem. Per Cambridge University, Bitcoin consumes almost 150 terawatt-hours of electricity per year, meaning that if Bitcoin was a country, it would comfortably rank as one of the top 30 countries in the world by electricity consumption. 

Despite claims to the contrary, much of this energy also comes from non-renewable sources. Again per Cambridge University, only 39% of Bitcoin mining energy is renewable. There is disagreement about this figure, though, with crypto asset manager Coinshares placing the figure as high as 77%. 

However, when a flooded coal mine in China shut down last month, Bitcoin’s hash rate dropped to levels not seen since November 2020—indicating that the network is still heavily reliant on fossil fuels such as coal.

What is next for Musk and Bitcoin? 

Speculation is raging about Musk's sudden volte-face on Bitcoin, coming as it does just three months after Tesla poured $1.5 billion into the cryptocurrency. 

“Tesla’s due diligence would have identified the energy usage issue and determined this was not enough of a risk factor to stop them buying 1bn of the asset late last year,” Luke Sully, CEO of Ledgermatic, told Decrypt. 

Musk may have concluded that Tesla cannot produce electric cars with one hand and support an environmentally damaging cryptocurrency with the other; however, per his announcement, the automaker will not divest itself of its Bitcoin holdings.

In any case, with Musk having toppled from his lofty position of influence among the Bitcoin faithful, the notoriously fickle community will be on the hunt for a new celebrity A-list influencer. 

They may not need to look very far. Earlier this week, billionaire Facebook founder Mark Zuckerberg introduced the world to his goats, Max and Bitcoin.