At approximately 6:00 p.m. EST last night, May 12, CEO of Tesla Elon Musk posted a tweet in regards to Bitcoin and Tesla that appeared to have significant market impact.
The tweet included a statement that was misguided in its assessment of Bitcoin’s energy use. While Musk claimed that Tesla is “concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions,” the mining industry appears to be growing in its use of renewable energy sources instead. He also seemed to suggest that bitcoin transactions consume energy, but that is not true.
Bitcoin Energy Use Is Not Alarming
It is important to remember what is actually unfolding here with the adoption of the Bitcoin network. With bitcoin, all energy production and consumption now has a distinct economic cost. The problem that bitcoin is solving is the separation of money and state. The reintroduction of free market money will eliminate vast amounts of energy waste, malinvestment and destruction inherent in the incumbent petrodollar system.
Proof of work is crucial to bitcoin, or more broadly, a decentralized monetary network (which only Bitcoin can claim to be). Only the proof-of-work function in the form of the SHA-256 hashing algorithm can ensure that the most recent block was mined fairly, and not by nefarious actors looking to compromise the validity of the chain/network. This is (one of many) killer features of Bitcoin. If you wish to “attack” the network, you need to expend vast amounts of energy and computational resources to do so, and the economic incentives therefore align with simply supporting the network.
When a climate alarmist demands that you explain Bitcoin’s “alarmingly high energy usage,” ask them what the future looks like without Bitcoin. What does our world and climate look like without a distinct economic cost for energy inefficiency and waste, and how does one propose to solve for this otherwise?
Elon Musk’s Tweet And The Bitcoin Price
Anyway, back to the market’s reaction…
The bitcoin market was sent spiraling downwards as leveraged speculators and traders quickly exited their position, with the price of bitcoin falling to as low as $45,000 before catching a bid and rebounding quickly. Data from Coinalyze shows that nearly $1 billion worth of leveraged longs were liquidated directly after Musk’s tweet.
Does this event have any meaningful impact on the ultimate longevity or success of the Bitcoin network? Unequivocally, it does not. Bitcoin is the energy bidder of last resort across the entire planet, and the economic incentives provided by the network to reach peak energy efficiency cannot be understated, and are extremely misunderstood.
Regardless, the Bitcoin network keeps chugging along, and the weak hands and speculators who do not have an understanding of Bitcoin sold their BTC to convicted HODLers, who understand the sound money attributes of Bitcoin, and are not shaken out by a tweet throwing FUD (read: fear, uncertainty and doubt) from the CEO of a company that has only recently became profitable thanks to massive amounts of environmental credits and government subsidies…