Bitcoin Plummets as Elon Musk Reverses Course on Accepting the Crypto at Tesla

Elon Musk's decision to no longer accept Bitcoin to purchase Tesla's electric cars slashed billions from the cryptocurrency's valuation, but won't kill investor interest in the sector, analysts believe.

Bitcoin, the world's leading cryptocurrency, fell to $46,294.72 Thursday after Musk's tweet—28.59% below its record high of $64,829.14. It has since recovered about $4,000, but still remained down for the day.

Elon Musk said Tesla won't accept Bitcoin
Elon Musk said Tesla won't accept Bitcoin due to environmental concerns. In this photo, SpaceX owner and Tesla CEO Elon Musk poses on the red carpet of the Axel Springer Award 2020 on December 01, 2020 in Berlin, Germany. Pool / Pool/Getty

"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," Musk tweeted. "Cryptocurrency is a good idea on many levels and we believe it has a promising future but that cannot come at great cost to the environment."

In a February filing with the U.S. Securities and Exchange Commission, Musk disclosed that Tesla had invested $1.5 billion in Bitcoin and would accept it as payment.

Musk did not say whether he planned to dump his Bitcoin holdings. Tesla is one of 25 companies that have doubled their initial investment in the cryptocurrency.

"Bitcoin is an asset that is, unfortunately, still just young enough to be influenced by the actions of a single, albeit very influential figure, both positively and negatively," Jason Deane, Bitcoin analyst at Quantum Economics in London, told Newsweek.

"Over time, this effect will reduce as adoption and market cap continues to grow to the point where the asset's fundamentals and clear use case benefits outweigh the views of any individual" Deane said. "Clearly we're not there yet."

He predicted that the market will be "choppy" in the short term but over time, Bitcoin's price will rebound.

"Most major investors have publicly stated that they consider Bitcoin a very long-term play, and will not be phased by temporary blips like this," Deane said. "Some may even consider this a buying opportunity."

Kevin Kang, co-founder of BKCoin Capital, a Miami-based asset management firm, said Musk's comment underscored the power a prominent investor can have on individual investors.

BKCoin Capital logo
Logo of BKCoin Capital, a Miami-based asset management firm.

"It shows the market is still nascent and how much retail investors follow Elon Musk," he told Newsweek. "From an institutional perspective, the narrative hasn't changed and more institutions are expected to diversify their portfolios into Bitcoin to hedge against the inflation that's already showing up,"

While many believe Bitcoin has emerged as a distinct asset class, it was created in 2009, and proponents say it's still building a track record.

Kang said there's no indication that institutional investors dumped Bitcoin after Musk's tweet and he expects major firms will announce additional purchases in a few weeks.

"This is a good entry point for any investors as Bitcoin is going through a supply crunch," he said. "We're still in the early innings of institutional adoption."

The number of Bitcoin is capped at 21 million. If demand is strong, this drives the price higher.

lennerd neo stack funds
Lennard Neo, head of research, Stack Funds, Singapore (Photo credit:

"It will be critical to see if the $50,000 support will hold, which creates a triple bottom coinciding with late March and April levels," Lennard Neo, head of research at Stack Funds in Singapore, told Newsweek. "As we advance, we expect Bitcoin to continue trading sideways within the range, slowly building upside momentum as it emerges from this consolidation phase."

Some see Bitcoin mining as a controversial issue, particularly from an environmental perspective.

Bitcoin miners solve hexadecimal-based puzzles to earn new Bitcoin as reward for their efforts.

A hexadecimal number based on 16 rather than the familiar 10. A hexadecimal uses digits 0 to 9 and the letters A, B, C, D, E and F in place of decimal numbers 10 to 15.

Mining is necessary to assure that blockchain ledger and Bitcoin network are secure. Bitcoin miners earned a record $1.5 billion in March, CoinDesk reported.

The more computing power applied to the problem, the greater chance of solving the puzzle—and the power used has raised concerns.

Cambridge University estimates that Bitcoin miners use about 130 terawatt hours of electricity a day, or about 0.6% of the world's consumption. A terawatt is equal to 1 trillion watts. Critics say Bitcoin mining uses more power than small countries like Sweden or Finland.

Square, a major Bitcoin investor, has announced plans to become a net zero carbon company by 2030. It's also devoted $10 million to support companies to speed adoption of renewable sources of energy in what it calls the "Bitcoin ecosystem."

One CEO said it never made sense for Tesla to accept Bitcoin as payment for its cars.

Luke Sully CEO Ledgermatic Twitter
Luke Sully, CEO of Ledgermatic. a Dublin, Ireland -based provider of online payment and financial management systems.

"Buying a car, a depreciating asset, with Bitcoin, a highly volatile and currently appreciating asset, doesn't make much sense, and Tesla has not disproved that assumption," Luke Sully, CEO of Ledgermatic, a Dublin, Ireland -based provider of online payment and financial management systems, said in a statement.

"It's difficult to understand how (the issue of energy use) was not identified during (Tesla's) initial due diligence process" Sully said. "For me, the timing of the announcement seems arbitrary. This news is neither new nor surprising. It really demonstrates the vast information asymmetry in this industry and the oversized role Musk has on influencing the price of Bitcoin. These issues will consistently catch retail investors out."

Much Bitcoin mining takes place in China, an economy heavily reliant on coal-powered generating plants.

Last month, power in the Xinjiang region shutdown, disrupting Bitcoin mining operations and sending Bitcoin's price down nearly 20% less than a week after reaching a new high.

Automatic sell orders kicked in, deepening the "flash crash" and underscoring the crypto's volatility.

It's not clear what the long-term effect of Musk's decision will have on Tesla's stock, but his partial backtrack on Bitcoin could make what some see as a risky investment in a new electric car technology more volatile.

In mid-day trading Thursday, Tesla traded at $591.84 a share, down $11.05 or 1.87%. The 52-week range is $152.80 to $900.40.

In mid-day trading Thursday, Bitcoin fetched $50,250.04, down 8.70% for the day, but still up 72.44% for the year. The market cap is $940.09 billion. On Wednesday, the market cap was $1.04 trillion.

Market Pulse

Kingston, New York and Springfield, Illinois represent the alpha and the omega of the post-pandemic real estate market.

Kingston,New York
The Rondout Creek Harbor in Kingston, New York, which posted the greatest increase in the nation in the median sales price of existing single-family homes from 2019 to 2020, according to the National Association of Realtors.

Kingston, located about 95 miles north of Manhattan in the picturesque Hudson Valley, led the nation with a 35.5% jump in prices in 2020, but Springfield, the capital of Illinois, experienced a 2.4% decline—the only metro area where prices fell, the National Association of Realtors (NAR) said.

Nationwide, the median price of existing single-family houses rose at an average annualized pace of 16.2% to $319,200—the highest since 1989.

"Significant price increases throughout the country simply illustrate strong demand and record-low housing supply," Dr. Lawrence Yun, chief economist at NAR, a Washington-based trade organization, said in a statement. "The record-high home prices are happening across nearly all markets, big and small, even in those metros that have long been considered off-the-radar in prior years for many home seekers."

Metro areas experiencing strong demand and a sharp increase in median sales price were:

Kingston, New York (35.5%; $303,100); Bridgeport-Stamford-Norwalk, Connecticut (34.3%; $580,400); Atlantic City-Hammonton, New Jersey (34.0%; $277,200); Barnstable Town, Massachusetts (33.1%; $567,600); Boise -Nampa, Idaho (32.8%; $422,600); Sherman-Denison, Texas (29.8%; $234,800); Elmira, New York. (29.1%; $126,900); Austin-Round Rock, Texas (28.2%; $437,900); Youngstown-Warren-Boardman, Ohio-Pennsylvania (27.7%; $119,500); Decatur, Illinois (27.5%; $102,400); and Glens Falls, New York (27.5%; $214,600).

Higher values are good news for sellers, but rising prices appear to be forcing some people—especially first-time buyers—out of the market.

"With low inventory already impacting the market, added skyrocketing costs have left many families facing the reality of being priced out entirely," Yun said.

Many fled big cities during the coronavirus pandemic and bought a house in outlying areas, driving up prices and often creating bidding wars in desirable areas with limited inventory.

About 110,000 residents fled New York City during the pandemic and prices in Manhattan fell about 5%. But StreetEasy said the median price for a condo or co-op apartment is still $1,395,000.

Based on change-of-address data compiled by the U.S. Postal Service, about 15.9 million people moved during the pandemic.

COVID-19 deepened the divide between those who can work from anywhere on a laptop and those who must report to work each day.

The Federal Reserve, the nation's central bank, has kept interest rates low as part of the effort to support the pandemic-battered economy.

The average national mortgage payment increased to $1,067 from $995 a year ago even though the 30-year fixed mortgage rate fell to 2.93% in the first quarter of 2021 from 3.57% a year ago.

On average, families with a median income of $90,547 spend 14.1% of their money on mortgage payments with a 20% down payment on a 30-year fixed mortgage. Financial advisors typically say mortgage payments are affordable if they total no more than 25% of a family's income.

All regions of the country experienced double-digit year-over-year price increases: Northeast (22.1%), West (18.0%), South (15.0%) and Midwest (14.4%).

To the surprise of no one, the nation's most expensive markets posted double-digit price growth: The Silicon Valley cities of San Jose-Sunnyvale-Santa Clara, California ($1.5 million; 11.1%); San Francisco-Oakland-Hayward, California ($1.2 million; 21.8%); Anaheim-Santa Ana-Irvine, California ($1.0 million; 14.3%); Urban Honolulu, Hawaii ($940,400; 19.2%); San Diego-Carlsbad, California ($763,500; 14.0%); Boulder, Colorado ($726,600; 16.7%); Los Angeles-Long Beach-Glendale, California ($682,400; 15.1%); Seattle-Tacoma-Bellevue, Washington ($653,400; 17.9%); Naples-Immokalee-Marco Island, Florida ($599,500; 24.9%); and Nassau County-Suffolk County, Long Island, New York ($598,600; 22.7%)

But if you're bargain hunting, the median home price in Springfield, Illinois is $128,200.

History buffs will note that Abe Lincoln slept there when he served in the Illinois State Legislature prior to the Civil War.

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