Elon Musk's Bitcoin Breakup: Does It Still Make Sense?

In 2021, Tesla and its owner Elon Musk, the man who once called Bitcoin “a good idea on many levels,” turned their backs on it, citing environmental concerns.

In May 2021, Tesla and its owner Elon Musk made headlines when they announced that the company would no longer be accepting Bitcoin as payment for its electric vehicles. The decision came as a surprise to many, especially considering that Tesla had only begun accepting the cryptocurrency a couple of months prior.

At the time, Musk cited environmental concerns as the primary reason for the decision. He noted that Bitcoin mining, which is the process of verifying and adding new transactions to the blockchain, consumes vast amounts of energy, a significant portion of which is still derived from fossil fuels.

"Tesla is concerned about the 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 it cannot come at great cost to the environment."

The announcement had an immediate impact on the crypto market. Bitcoin's price dropped by more than 10% in a matter of hours following Musk's tweets. The decision also sparked a heated debate among crypto enthusiasts and the wider public.

Many Bitcoin believers were critical of Musk's decision, accusing him of being hypocritical and arguing that he knew full well how Bitcoin worked before Tesla decided to accept it. They also pointed out that other industries, such as traditional banking, also have a significant environmental footprint.

Others speculated that Musk's decision to stop accepting Bitcoin was actually a strategy to cash out during the cryptocurrency's bull run in 2021. They noted that Tesla had purchased a large quantity of Bitcoin earlier in the year and that selling a portion of its holdings would have netted the company a substantial profit.

Whatever Musk's motives may have been, his decision to stop accepting Bitcoin payments marked a turning point in Tesla's relationship with the cryptocurrency and in Musk's relationship with the crypto community.

There is some validity to Musk's environmental concerns. Reports from the Cambridge Centre for Alternative Finance have shown that Bitcoin mining uses more electricity annually than entire countries, such as Sweden or Malaysia.

Given Tesla's image as a poster child for clean energy and sustainability, its association with an energy-intensive process that is largely powered by fossil fuels could be seen as problematic.

However, it's worth noting that the Bitcoin mining industry has made some progress in adopting renewable energy sources. Recent estimates suggest that around 52% of Bitcoin's global mining operations now use renewable sources, up from 39% in 2021.

Despite these improvements, Bitcoin mining still has a massive overall environmental footprint due to its high electricity consumption. This allows Tesla to maintain its sustainability argument, even if it may appear outdated.

Interestingly, while Tesla stopped accepting Bitcoin payments, the company never sold its Bitcoin stash. Instead, it has held onto the cryptocurrency throughout, and this gamble has paid off handsomely.

According to Tesla's latest financial filings, the company still owns 11,630 Bitcoins, which are currently valued at around $440 million. This remaining portion of Tesla's original Bitcoin purchase has seen a significant unrealized gain.

Elon Musk has also hinted that Tesla may start accepting cryptocurrency payments again in the future, but only if mining becomes more sustainable. "I think cryptocurrency is fundamentally good & ultimately will help advance a more sustainable energy future," Musk tweeted in December 2022.

"Once mining transitions to ~50% clean energy use, & total energy use is verified independently, Tesla will likely resume accepting Bitcoin."

Financially, it's hard to argue with the results of Tesla's Bitcoin venture. The company's total realized gain from its Bitcoin sales now stands at $1.03 billion, which has contributed significantly to its overall bottom line.

Moreover, Tesla's stock performance has been stellar throughout 2-23. Just last week, the stock hit an all-time high of $424.77, driven by continued optimism from Wall Street, Musk's political connections, and the global bull run.

Speaking of politics, Elon Musk's growing influence in Washington could completely rewrite the narrative around Tesla and crypto. After spending $277 million to support Donald Trump's presidential campaign, the eccentric billionaire is now close friends with the president and is set to lead the Department of Government Efficiency under the incoming administration.

This role gives Musk significant sway over federal regulations, including those related to cryptocurrency and autonomous vehicles. A pro-crypto administration would likely mean looser regulations and more mainstream adoption, which would stand to benefit both Tesla and its Bitcoin holdings.

Analysts see Musk's political maneuvering as a strategic play to position Tesla for future gains, both through crypto-friendly policies and faster approval processes for Tesla's EV tech. Either way, this presents a great opportunity for the company to jump back in.

Trump himself has promised to not do anything that could crash Bitcoin, and Tesla is