Is Elon Musk a hypocrite?

by Pratik Bajaj

Well, the answer is not so simple and any conclusion needs to be well differentiated from allegations by stating clear facts. So this podcast will be a detailed timeline of Elon musk’s journey of bitcoin and tweets. And the story goes long back to 2017 when few people started to think Elon is the mystical bitcoin inventor Satoshi Nakamoto. However, Elon put all rumors to rest with a tweet denying such theories. The story gets only more thrilling from here.

In February 2019, during a podcast with Cathie Wood, Elon said the bitcoin structure is quite brilliant but he doesn’t know how to use it at Tesla since bitcoin is energy-intensive and evidently goes against Tesla’s motto of sustainable energy. Fast forward to March 2021, when bitcoin’s energy usage had almost quadrupled from that of 2019, he proudly tweeted: “You can now buy a Tesla with Bitcoin”. And now 2 months into such buzz, it suddenly dawned upon him that Bitcoin consumes an insane amount of energy and returned to his previous stance, saying- “Tesla would no longer accept bitcoin as payment”. Interestingly, the Cambridge Bitcoin Electricity Consumption Index that he cited in his tweet has been there in the public domain for a long time now. Let’s just be honest, the sequence of events doesn’t add up. And for environmentalists, carbon emissions by SpaceX should be equally alarming. However, it is conveniently ignored in the name of the future and tech. Two words, those also kinda justify Bitcoin. Isn’t it? Future and tech.

In the recent tweet, Elon also mentioned that the company will not sell its $2.5 billion in bitcoin holdings, but plans to use them as soon as mining transitions to more sustainable energy. Well, there’s two caveats to that-

1. Holders of crypto are every bit as responsible for the network’s emissions as those who buy and sell on the blockchain which is based on proof-of-work calculations. Such calculations drive crypto’s power usage and aren’t carried out just to register new transactions, but to sustain the entire network and verify the ownership of every Bitcoin ever mined, yes of course including Tesla’s owned stack.

2. About 70% of the calculations done on the Bitcoin network happen in China. If Tesla is planning to hold on to its Bitcoin until mining “transitions to more sustainable energy,” it’s not going to be selling until China’s electricity grid is decarbonized somewhere close to 2060. Do we really see Elon being patient for 40 years?

In this whole change of heart, Elon is still rooting for dogecoin which uses the same energy-intensive proof-of-work mechanism. So what is it? Why made Elon play the reverse card? Well, there are three obvious but hidden reasons why Tesla stopped accepting bitcoin as payment. Let’s deduce each one of them-

· First is, Elon musk’s compensation is tied up with Tesla’s market cap which will be taking a beating if Tesla’s revenues are as volatile as bitcoin prices. Because investors don’t like uncertainty. Over the past five years, the daily standard deviation of Bitcoin was ten times that of [the pound] sterling. It is worth remembering here that a 50% fall wipes out a 100% gain. In this scenario, if Tesla had been selling cars in bitcoin, its revenue and profit in dollar terms would have fallen for the portion of vehicles it managed to sell in bitcoins.

· Second one is, of course, Bitcoin does use an “insane” amount of energy, and promoting such an instrument could get Tesla kicked out of the ESG fund, funds that pride themselves by investing in environmentally friendly companies. Moreover, the CEO of a publicly traded company with a market value of more than $550 billion, offering views on a cryptocurrency in which his company has investments, influencing its price, is bad corporate governance.

· And finally, the third reason is new crypto regulation taunted by US treasury secretary Janet Yellen can make it hard for tesla to trade in bitcoin. Tesla wouldn’t like to sit on an illiquid instrument.

And while we are talking about the liquidity of Bitcoin, of course, you’d have heard in the news that Tesla made a profit of $101 million by selling around 10% of its bitcoin holdings in March, when bitcoin prices were around 70% above tesla’s purchase price. A move that Elon justified by saying that he wanted to prove- Bitcoin is a liquid instrument and an easy alternative to cash. Well, if this isn’t front-running, one doesn’t know what is. It ends up influencing retail investors in the wrong way. One tweet from a billionaire on May 12 & nearly 15% were wiped off the cryptocurrency’s value. And it’s surprising that the American financial regulators have not done anything about it. Possibly, a message to Musk has quietly gone out from the very top.

The only silver lining we see here is Elon Musk has always expedited the acceptability of newer technology and sustainable energy. With tesla, with SpaceX, and now with bitcoin. He has become a brand, for good or worse, which people want to follow. This move of his can actually drive renewable energy innovation and force crypto miners to switch to cleaner energy sources faster. Hoping this time that fast is not as furious.

P.S.: This is an excerpt from our podcast “Unfiltered Finance

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