Digital Assets Industry Has a Musk Problem

Musk suggesting that Tesla might sell bitcoin holdings, but confirming the company hasn’t yet, sent the price tumbling. This presents a massive problem.

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key takeaways

  • One word is all it took for bitcoin’s price to tumble, as Musk toyed with the idea of Tesla liquidating its bitcoin holdings
  • The price recovered during the Asia trading day as renewed Covid-19 fears in Singapore and Taiwan pushed traders into hedge assets

“Indeed.”

That’s all it took over the weekend for the price of bitcoin to tumble as bitcoin evangelist-turned-skeptic Elon Musk used Twitter to publicly speculate that Tesla might rid itself of its bitcoin holdings that it just recently acquired. 

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Industry stakeholders, which spent the end of last week denouncing the Technoking’s counterfactual claims about bitcoin’s environmental footprint were quick to point out that the market’s violent reaction to his musings presents a serious problem for the asset class itself. 

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“It really demonstrates the vast information asymmetry in this industry and the oversized role Musk has on influencing the price of bitcoin. These issues will consistently catch retail investors out,” Luke Sully, CEO of Ledgermatic, told Blockworks. “But with most Musk related musings there’s an angle that he has yet to reveal.”

Sully pointed out that should Tesla actually have begun liquidating its sizable bitcoin holdings, the sheer volume of transactions would have been noticed on the blockchain. 

“Given the current state of the industry it would be very difficult to conduct a block trade of the size of Tesla’s portfolio in bitcoin without it moving the market,” he continued. “So there would be signals that a sell off is imminent. That’s why a lot of CFO’s are wary of holding bitcoin on the balance sheet, because there’s very little privacy in the way block trades can be conducted.”

ARK takes a stand

ARK Investment Management, which has been a long time Tesla bull, continued to distance itself from Musk’s newfound position with a Monday morning statement.

“The concerns around bitcoin’s energy consumption are misguided. Contrary to consensus thinking, we believe the impact of bitcoin mining could become a net positive for the environment,” the statement read. “[We’ve demonstrated] how mining could impact the amount of renewable energy provisioned to the grid by transforming intermittent power resources into baseload generation by way of energy storage.” 

The Asia impact

During the Asia trading day bitcoin’s price posted a slight recovery as investors looked for hedge assets to guard against risk as multiple countries in the region dealt with another wave of Covid-19. 

Officials in Singapore announced late last week that the city-state would move toward lockdown mode once again as 38 cases of community transmission — 17 unlinked — spooked authorities. Health Minister Ong Ye Kung said the situation was being monitored and while tightened restrictions would be in place for a while, a decision on a full lockdown would come later. 

In Taiwan, which until recently hardly had any community transmission of Covid-19, the benchmark index known as the TAIEX closed the day down 3%, at one point dropping nearly 9% intraday, as officials announced a third day of a major spike in Covid cases coming in at 333.

As markets closed on Friday, the island had 30 domestic cases, and this was the first time traders were able to digest the news. 

Although the move towards hedge assets in Asia pushed bitcoin back over the $45,000 mark, as the US opened the world’s biggest digital asset by market cap was pushed down to $44,000 and struggled to break past the psychological barrier of $45,000. 

Urging Calm

Despite the carnage in the bitcoin market, many altcoins and DeFi protocols weren’t as badly affected with some only sliding by 1% or not at all. 

Edan Yago, Co-Founder at the Pomp-backed DeFi protocol Sovryn, said the industry should move-on from Musk. 

“Bitcoin is on a mission to replace the corruption of centrally planned money. That said, for Bitcoin to accomplish its mission, it should be hyper-inclusive,” he told Blockworks. “This goal is not achieved by attacking Elon Musk and his fans. If they are not deserving of our patience, they should best be ignored.” 

“I’m bored of hearing about Musk’s poorly informed hot takes on Blockchain development. They are a distraction from our mission,” he continued. 

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