Bitcoin shares soar after Elon Musk’s Tesla announcement
The price of popular cryptocurrency Bitcoin (CRYPTO: BTC) raised over $ 40,000 per coin following Elon Musk’s comment on social media. Musk is the founder and CEO of the electric vehicle company You’re here (NASDAQ: TSLA) and said his company will resume accepting Bitcoin as a payment method once certain renewable energy criteria are met. Considering that some are blaming Musk for the current bearish Bitcoin market, it seems entirely appropriate that he is getting a boost from him today.
Bitcoin-related stocks are also getting a boost today. Starting at 12:30 p.m. EDT, Riot blockchain (NASDAQ: RIOT) the share is up 21%, Digital bit (NASDAQ: BTBT) is up 25%, and Marathon Digital Holdings (NASDAQ: MARA) is up 18%. Finally, the shares of the cryptocurrency fund Grayscale Digital Large Cap Fund (OTC: GDLC) are up 12%.
The price of Bitcoin collapsed in May after Musk said Tesla would no longer accept Bitcoin as a form of payment, citing concerns about the lack of sustainable energy used in the mining process. At its highest in May, Bitcoin was around $ 58,000. Following Musk’s comments, it dropped to around $ 35,000. But in a social media post yesterday, Musk said Tesla is not banning Bitcoin payments forever. First, the company needs to confirm that roughly half of Bitcoin’s electricity comes from green sources. Second, the mining process should be more environmentally friendly in general.
It is not known how exactly Tesla will confirm Bitcoin’s energy sources. By some estimates, the blockchain network already far exceeds Musk’s 50% benchmark. For example, according to a December 2019 study by CoinShares Research, 73% of Bitcoin’s energy comes from renewable sources. However, the exact percentage is hotly debated. After all, not all miners disclose where they get their electricity.
This uncertainty calls for some more transparency among Bitcoin miners. Therefore, some companies have voluntarily merged to form the Bitcoin Mining Council. These companies met for the first time on May 23. MicroStrategy is a founding member of the board, and its CEO Michael Saylor has said on social media that the board “will standardize energy reporting.”
Riot Blockchain, Bit Digital, and Marathon Digital are all companies that mine Bitcoin, and they know how important this renewable energy issue is to Bitcoin. For example, on June 8, Bit Digital provided a transcript of CEO Bryan Bullett’s presentation at the LD Micro Conference. There, Bullett said: “In April 2021, we estimated that we were using carbon-free majority energy, on an annualized weighted average basis, which represents these seasonal migrations.” By “seasonal migrations,” Bullett is referring to Bit Digital’s strategy of moving miners to places that can have cheaper renewable energy at certain times of the year.
Today’s news on Tesla and Bitcoin may only increase the price of Bitcoin in the short term – this does not seem fundamental to a cryptocurrency investment thesis. Consider that during the short time that Tesla was theoretically allowing Bitcoin as a payment method, it seems like no one actually did. And in reality, it’s hard to see what the benefit would be for a consumer anyway. Bitcoin investors believe the value will continue to rise over time. Therefore, it is up to them to hold Bitcoin rather than spend it.
Today’s comments from billionaire Paul Tudor Jones are more fundamental to a long-term Bitcoin thesis. Jones appeared on CNBC today and said he wants 5% of his Bitcoin investments. Jones raised concerns about US dollar inflation and high stock valuations, but the implications are far-reaching. If more people, businesses, and even countries buy and hold Bitcoin, as Jones and others suggest, it could create increased demand that pushes the price up in the long run.
A higher price for Bitcoin would obviously be good for companies like Marathon Digital, Riot Blockchain, and Bit Digital that operate directly in this space and even hold bitcoins on their balance sheets in some cases. But that would also be good for funds like Grayscale Digital Large Cap Fund – a diversified cryptocurrency fund that is 69% invested in Bitcoin.
If you decide to take Jones’ advice on Bitcoin, mentally prepare yourself for volatility. Even though Bitcoin’s market cap is around $ 750 billion, a simple social media post from a celebrity still surprisingly has the power to easily send coins of 10% or more. Expect plenty of more endorsers and detractors to make headlines in the weeks and months to come, making it a hectic race. This may be more than most investors can mentally manage with 5% of their portfolios.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.