Bitcoin Energy Consumption: FUD or Real? Whichever, the damage is already done

Recent weeks have seen several developments around Bitcoin and its energy consumption emerge. During this time, there has been a huge impact on prices. Since topping at over $65,000, Bitcoin has nearly halved this in the last two weeks as it found support in the $35,000 region.

The sporadic drop is largely blamed on Elon Musk and his decision to halt Bitcoin payments in his electric vehicle company, Tesla. Earlier in the year, the company had added $1.5 billion worth of Bitcoin to its balance sheet. On top of this, it had started to accept Bitcoin payments for its cars.

This was huge and spurred a trend of institutional purchase of Bitcoin. Not only did a number of companies turn to Bitcoin instead of cash, but others saw a need to accept Bitcoin and hold instead of selling to keep the cash.

The Crack in the Wall

It all began to go wrong after Tesla’s Q1 financial report. Here, it was revealed that Tesla had sold roughly 10% of their Bitcoin at record highs. In fact, because of the timely sale, the company was able to make a $100 million profit. For most investors, this set off an alarm that maybe…just maybe, Tesla and Elon Musk could dump on them. However, Elon Musk defended the company with a perfectly good explanation. This was that the company was simply testing Bitcoin’s liquidity. In case the company was in real need of cash, could it easily convert the Bitcoin? The simple answer was yes.

Although on the face of it, the sale alarmed investors, some market observers quickly pointed out that this was in fact a good thing. Tesla had shown companies that Bitcoin was liquid. Moreover, it had turned a profit which made it better than cash. Companies were quick to flock to Bitcoin.

Elon Turns on Bitcoin

After defending the move and the crypto community burying the hatchet, the real issue began in mid-May. Elon Musk confirmed that Tesla would suspend Bitcoin payments. Musk went on to explain that the company was concerned about its environmental impact.

According to the CEO, the company was concerned by the rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal. This sent shockwaves around the volatile market. In a few hours, the market had dumped billions of dollars. One of the main catalysts was fear that the company would or was already dumping its $1.5 billion BTC holding. Only when Musk made it absolutely clear that the company was not and had no intention of selling these holdings did Bitcoin bounce back and find a little stability.

China Problems

Elon Musk’s change of heart plummeted Bitcoin under $50K, where it struggled to maintain for weeks. But while investors thought it couldn’t get worse, it did. A few weeks later, China started condemning Bitcoin.

First, three Chinese organisations released a report banning all financial institutions from engaging with cryptocurrencies. Effectively traders could only handle virtual currencies through peer to peer. It further explained that the digital asset had no real value and was purely speculative. As China has never been a fan of cryptocurrencies, this only led to a brief price dip.

The real damage came days later when Chinese Vice Premier Liu He said that the government would crack down on cryptocurrency mining. This statement came just months after the crypto community learnt the vital role that China plays in Bitcoin mining.

Mid-April a number of Bitcoin miners in China were shut down following some regular blackouts. At the time, it was reported that the Bitcoin hash rate dropped by more than 20%. This exposed a dangerous level of centralization in Bitcoin, something that Elon Musk has highlighted in recent days while arguing Bitcoin’s flaws with maximalists.

Investors are well aware there is a correlation between Bitcoin hash rate and prices. The Chinese news triggered a panic sell and soon Bitcoin was below $40K and has since struggled to stay above this.

Other FUD Promoters

Since the discussion has been picked up by the wider population, there have been some notable highlights. One is the Pope who recently criticised technology that is highly energy-consuming. A few high-profile Bitcoin advocates took this as a personal attack on Bitcoin and didn’t have the kindest replies.

Greenpeace USA, an environmental campaign group has also moved to halt Bitcoin donations also citing environmental impact.

Conclusion

While some in the crypto community such as Vitalik Buterin, founder of Etheruem and Ripple executives say that Bitcoin is wasteful, others including Twitter CEO Jack Dorsey not only think that Bitcoin is conservative but also incentivizes the use of renewable energy.

Bitcoin can be and has been in the past wasteful with its energy consumption. But this has changed in recent years. A lot of miners now use renewable energy.

There is then some truth to the energy consumption claims but most of it is high-profile individuals pushing FUD to curb the growth of the cryptocurrency king. Some we know aim to promote their ‘better’ projects, but others, we wait to see.

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