If you’re a Bitcoin fan, it’s been a rough week. There’s more than one reason that’s the case, but the most obvious is that the cryptocurrency’s biggest evangelist, Elon Musk, has apparently abandoned the faith.
Or, has he? It’s not entirely clear. Tesla revealed earlier this year that it had bought Bitcoin valued at $1.5 billion. That caused the currency to jump to what was a record at the time. Just a few weeks earlier, Bitcoin had jumped as much as 20 percent because Musk added #bitcoin to his Twitter profile.
Now, however, confusion around Musk and Bitcoin has caused its value to fall almost 40 percent in the past two weeks.
First, Musk tweeted last week that Tesla would no longer accept Bitcoin as payment for new cars because of the massive energy consumption involved with mining the cryptocurrency. That caused the price of Bitcoin to drop 16 percent, even though Musk’s tweet said that Tesla won’t be selling its current Bitcoin.
Then, over the weekend, Musk sparked uncertainty when he tweeted in response to a suggestion that Tesla may have, in fact, sold off its stake and that no one could blame Musk after the criticism he had faced. Musk’s response was one word: “Indeed.”
Whatever you think of Tesla, or Musk, or Bitcoin, I think we can all agree there’s a very real problem when the value of a currency can fluctuate so dramatically just because of one person’s tweets. In this case, the tweet wasn’t even clear. Had Tesla already sold its position? Was Musk agreeing that he would be justified in having Tesla do that?
Tesla later clarified that it had not sold its stake, but it hasn’t seemed to help stop Bitcoin’s free fall. A single Bitcoin is currently valued at just under $40,000 after being as high as $63,000 earlier this month.
Look, Musk is one of the wealthiest men on the planet. The value of Bitcoin is virtually meaningless to a person worth roughly $150 billion. It almost seems like it’s a game for him.
Except right now, the price of Bitcoin isn’t rational, and it isn’t based on any sort of intrinsic value. It’s not even functioning as a currency. For a currency to be useful, it has to be relatively stable and reliable. The value of Bitcoin is so volatile that it isn’t useful at all of transactions.
No one in their right mind would use Bitcoin to pay for anything unless you think the value is going to continue to plummet. But, if that’s the case, no one is going to accept it. For Bitcoin to function as a currency, both parties have to think it will remain stable and reliable.
Right now, Bitcoin is neither of those things, and that’s in large part because of Musk’s tweets.
That’s a problem for the millions of people who follow him on Twitter, almost none of whom are billionaires, or even millionaires. And, for those who have invested in Bitcoin, Musk’s tweets have no doubt caused more than a few headaches.
Essentially, people who are buying Bitcoin aren’t buying a currency–they’re buying the hype. The problem is, when the hype is based on one person–even if you think he’s the smartest person on earth–it’s a really bad idea.
To be fair, that’s not really a problem with Elon Musk–it’s a problem with Bitcoin. Musk just happened to highlight the problem, and it took only one word.