Elon Musk’s announcement that Tesla will no longer accept payment in Bitcoin could indirectly signal another Tesla transaction or perhaps even a move with real benefits for the company’s public image.
Tesla Transactions and Improving Brand Image
After Elon Musk’s announcement on Twitter that Tesla will no longer accept Bitcoin payment for cars, no less than $365 billion were wiped off the cryptocurrency market. Analysts are now wondering if this was a message that indirectly signaled another Tesla transaction or maybe even a move that would benefit the company’s public image.
The virtual currency market has long since been forced to come to terms with Elon Musk’s massive influence, and Bitcoin’s reaction to his post is no surprise. After the announcement, BTC dropped over 17%, though it subsequently rebounded, recovering about half of the drop.
For those familiar with the crypto market, the change of heart is obvious. Musk has repeatedly declared himself a fan of virtual currencies in general and Bitcoin in particular, posting a series of vague “crypto” messages. In retrospect, these foreshadowed a Tesla placement. At the start of the year, Tesla had amassed a $1.5bn position in Bitcoin. First-quarter profits were bolstered by the sale of 10% of this position, generating an extra $101m.
Could this, again, actually be a message indirectly signaling another Tesla transaction? We’ll find out at the time of the Q2 financial reports (at the latest), but this theory is not at all unlikely.
Is it more likely to be an image-enhancing move? By showing concern for the environment, Musk is aligning himself with the values of the electric car maker’s mission. Some comments already pointed to inconsistencies: much of the Bitcoin network is powered by cheap coal-fired power, which runs counter to the electric cars’ goal of reducing greenhouse gases. Perhaps anticipating an increase in such criticism, Elon Musk has decided to act preemptively, especially now when competition from traditional carmakers shifting to electric models is growing. It’s also an option to consider.
Keep in mind that Tesla is feeling increasing pressure from the “classic” manufacturers, who have sensed, albeit somewhat belatedly, where consumer preferences lie. In the first quarter of this year, Ford produced 74.1% more electric vehicles than in Q1/2020, GM production jumped 44.8%, VW – 122%, and BMW – 129.8%. VW alone made 133,000 electric units in Q1, while the aggregated figure for the four mentioned carmakers exceeded 320,000 units. In addition, Tesla’s revenue from selling the necessary certificates to other firms in the industry is declining as they develop their own non-polluting models. The opening of the German factory was also delayed: recently, Musk urged suppliers for that location to “step up a gear”. After growing more than 8-fold last year, Tesla has lost about 30% since its peak.
The “Musk factor”: A Bumpy Ride for Bitcoin
The massive sensitivity of Bitcoin to the messages of global super-influential public figures is, however, overshadowed by that of other currencies, such as dogecoin. For those who follow the virtual currency market, it’s clear that, in addition to the traditional risks, the Musk factor is one of the most serious risks of investing in alt-coins.
After Elon Musk’s announcement and another message from the People’s Bank of China, the market capitalization for cryptocurrencies plunged a staggering 47% in just seven days. On May 19, the cryptocurrency market suffered a sharp drop, with the capitalization of digital assets reaching $1.35 trillion, down from a peak of $2.56 trillion on May 12, according to CoinMarketCap.com data. The decline was also triggered by the People’s Bank of China announcing that financial institutions cannot use digital assets as a form of payment. Bitcoin at one point fell as much as 31%, to $30,016.83, while ether fell 44%, to $1,918.77. These are daily lows. At that time, Bitcoin still hadn’t recovered from Elon Musk’s tweet about climate concerns, which sent shockwaves through the digital asset ecosystem.
On May 25, Bitcoin ticked up 4%, to near $40,000 after Elon Musk spoke to Bitcoin miners about the sustainability of the process. Most known cryptocurrencies reacted positively to the Tesla CEO’s announcement, CNBC reported.
What’s Next for Cryptocurrencies?
PricewaterhouseCoopers (PwC), one of the “big four” accounting firms, has recently released its “3rd Annual Global Crypto Hedge Fund Report 2021” with the help of the Alternative Investment Management Association (AIMA) and Elwood Asset Management.
The report found that the total assets under management (AUM) of cryptocurrency hedge funds increased to $3.8 billion, up from $2 billion in the previous year. Additionally, the median hedge fund returned 128% on its investment.
The report also demonstrated that cryptocurrency hedge funds remain incredibly bullish on Bitcoin. The report found that the median predicted price for Bitcoin by the end of 2021 was $100,000. Furthermore, 21% of cryptocurrency hedge funds predicted that the year-end price would be between $100,000 and $150,000.
