Bitcoin is down 26% this week as Elon Musk went to war with the bitcoin crowd over his disapproval of the cryptocurrency’s energy consumption, and decided to reverse his earlier decision to allow purchases of Tesla cars in bitcoin.
Musk became an object of derision among bitcoin fans, as well as Dogecoin founder Jackson Palmer, who tweeted: “Reminder: Elon Musk is and always will be a self-absorbed grifter.”
Palmer founded Dogecoin in 2013 as more of a joke than a serious cryptocurrency, though Musk has been talking it up as a potential replacement to bitcoin for its supposed potential to transact faster and use less energy.
Read: Elon Musk ignites climate debate over bitcoin (May 14)
Musk clarified on Monday that his company Tesla had not sold any bitcoin that had been acquired earlier in the year, putting paid to speculation over the weekend that the company had dumped its recently acquired bitcoin.
“Elon’s tweets range from claims of negative externalities from energy consumption, to claims that 10x faster and larger blocks on Dogecoin are a viable alternative. Unfortunately, this has led to widespread confusion in markets, although for many Bitcoin HODLers (long-term holders), this is just another day in the office,” says blockchain intelligence group Glassnode, adding that newer market entrants are panic-selling, while “long term hodlers appear relatively unphased by the news”.
While the current sell-off bears some resemblance to the previous macro peak of 2017, this time there are some unique differences that will challenge the conviction of both bulls and bears.
Long-term prospects vs short-term whims
Farzam Ehsani, CEO of crypto exchange VALR, says he’s not worried about the long-term prospects of bitcoin based on the short-term whims of Musk or any particular individual, no matter how much influence that individual may have.
“Bitcoin is the securest crypto asset in existence today and the fundamental value it offers of transferring value without any central intermediary in a censorship-resistant manner transcends the noise that we see on a day-to-day basis.
“We’ve seen such headwinds time and again,” says Ehsani.
“It’s nothing new. And of course bitcoin consumes energy – everything from our current banking system to gold mining to the use of washing machines by countless households across the world consumes energy – but few realise how bitcoin has the potential to convert the lowest-cost energy sources across the world into value for humanity. Bitcoin incentivises the adoption of low-cost renewable energy. Much of the media coverage on this topic is ill-informed.”
Adds Richard de Sousa, CEO of crypto exchange AltCoinTrader: “Whenever we see a bull run in full force, we see new, ignorant influencers trying to put their spin and claim their space in the digital universe.
“We’ve seen this happen many times. Bitcoin is established, and it is coming to take its significant part of the financial space.
“Resistance is futile and nothing can stop this,” he says.
“I think retail investors will start adopting more altcoins. Is it possible that bitcoin is going to lose dominance and find its true place in the crypto space? Of course.
“Bitcoin with its first-mover advantage cannot always be the only coin talked about. We are going into an era where bitcoin and cryptocurrencies are not synonymous.
“Bitcoin may lose its dominance, but it does have first-mover advantage, and it will be triumphant at the end of this.”
BitFund co-founder Dean Joffe says bitcoin has proven itself to be resistant, through the “forks” (when cryptocurrencies split into two or more coins with different rules), interference from governments and other potentially disturbing events.
“The ‘twar’ between Musk and Bitcoiners is a setback, as support from one of the most powerful individuals in the world is important for crypto [and Bitcoin’s] continued growth. However, it is not the end and Musk is one of many prominent players investing – at least we hope – in bitcoin,” says Joffe.
Musk tweeted that he is “working with Doge devs [developers] to improve system transaction efficiency. Potentially promising”, indicating that he does believe in crypto.
“Arguably, Musk supports crypto but the question of whether Tesla and Musk will continue to support Bitcoin remains to be seen,” adds Joffe.
“In our view, if Musk or Tesla sell their bitcoin or trade their bitcoin for an alternative crypto asset, this will cause a sharp decrease in price and be a major setback to the momentum bitcoin and other cryptos have had in recent months.
“This setback will not only be within the broader bitcoin community, but also within institutional arenas, where institutions are starting to take bitcoin seriously.
“We do believe that this drop in price is healthy, although accelerated by Musk, and in our view bitcoin should have another leg up, though this is not investment advice.”
Correction ‘consistent’ with past experience
Glassnode points out that the current correction in bitcoin is now over 28% below the $63 600 all-time high on April 13. “This is the deepest correction of the current bull market, however is consistent with five major pull-backs during the 2017 bull.”
However, the current bull has run for about 200 days, which is relatively short to the year-long bull run in 2017.
The number of entities that are currently in profit provides insight into the cross section of the market that is under water. This latest correction has led to over 23% of on-chain entities (unique, separate wallets) being at a loss, which is relatively low compared to previous periods.
Newer market entrants have panic sold and realised significant loses on their coins, says Glassnode.
“Given Bitcoin trades at much larger market valuation this may be a reflection of the larger capital inflows that are required to gain ground in market cap size. It may also provide an indication that this may be a larger time-frame pullback in a bull cycle, as weak hands capitulate, and stronger hands recommence their accumulation of cheaper coins,” says Glassnode.