Is a $40K Test Coming?
Bitcoin falls on Tesla tweet, Michael Saylor buys the dip, and what happens next.
The Musk Correction
Bitcoin drops on Tesla announcement.
Elon Musk made waves in the crypto market on Wednesday by announcing that Tesla has “suspended vehicle purchases using Bitcoin” due to concerns over fossil fuels used for Bitcoin mining and transactions. There’s A LOT to unpack here. It comes as no surprise that the announcement came via Twitter. Wednesday night, it was hands down the Tweet heard round the world.
Reactions to Musk were mixed. The market interpreted it as bearish as Bitcoin dropped below $50,000 and altcoins fell across the board. Environmental FUD and concerns around Bitcoin, however, is nothing new. Satoshi Nakamoto, the creator of Bitcoin, had open discussions on the matter in early Bitcoin forums. It’s important to remember that Musk doesn’t “work in Bitcoin” or Bitcoin mining and that he and Tesla are investors like many others. Musk is, however, one of the most high profile investors out there, but he’s an investor nonetheless.
It wasn’t all negative.
The second portion of the announcement reads “Cryptocurrency is a good idea on many levels and we believe it has a promising future, but this cannot come at great cost to the environment.” Many may still take this as bearish but he does acknowledge the promising future of crypto and you’d be hard pressed to find anyone in the Bitcoin or environmental space who would disagree with the latter portion of the comment. No one wants Bitcoin to destroy the environment. You’ll find that the pushback on this piece is largely nuanced.
“Tesla will not be selling any Bitcoin…” I’m not surprised they’re not selling Bitcoin. Bitcoin helped lift Tesla to its most profitable quarter in the company’s history. They did sell around a 10% stake to “test market liquidity” in recent weeks and they determined that it passed the test.
In the announcement, Musk also added that they intend to use Bitcoin for transactions once mining transitions to more sustainable solutions and they’re looking into using other cryptocurrencies. Before we unpack the bulk of the reactions, I’ll mention one from the Cardano community. Cardano and their native cryptocurrency, ADA, are considered the first large-scale proof-of-stake (not mining) network. They cheekily Tweeted to Musk saying that they should talk.
The overall positive takeaway I see from this is that we may finally have real dialogue on Bitcoin and the environment. Historically, there’s been a lot of one-sided discussions and little engagement or deep dives into how Bitcoin and the environment are truly interacting. I’m not in the energy industry. I’m just a Bitcoiner turned hobbyist and investor. If Bitcoin continues to go mainstream, we need Bitcoin miners, industry experts, and their energy providers and governments to all come to the table and address the issue in a palatable way.
Clarity is key moving forward. If there’s a major difference between this market cycle and the prior one, it’s that information travels faster and in smaller bites nowadays. The media landscape has changed. It’s critical to sift through the noise with an objective eye and determine what conversations need to be had. All of this is further complicated by the growing intensity of interest around crypto as markets climb to unprecedented price levels.
Some background on Musk and Bitcoin.
Musk’s foray into Bitcoin has been a rollercoaster ride. Three weeks ago, you saw the Tesla CEO agreeing with Twitter and Square CEO Jack Dorsey and Cathie Wood’s Ark Investment Management that Bitcoin incentivizes renewable energy. As mentioned above, we also saw Tesla post a record quarter after purchasing $1.5 billion BTC that was even valued at close to $2.5 billion during quarterly reporting. Tesla sold about 10% of their Bitcoin position for $272 million in proceeds and announced they’d accept payment in BTC. Musk and others were even referring to their CFO as the “Master of Coin.”
It was all very bullish sentiment around Bitcoin until Wednesday’s announcement. But, Musk’s constant activity on social media, his meme-ing of Dogecoin, and his being the head of one of the most high profile publicly traded companies in the world makes the announcement much less shocking than it appears. In a way, it’s a convenient narrative to have entered a Bitcoin position, posted record earnings, sold some, then dial back sentiment due to public pressure.
I like Musk. I want us to get to Mars and become an interplanetary species. But, his position comes with a lot of scrutiny. Just last week, we saw Charlie Munger and Warren Buffett dismissing Bitcoin yet again. Similarly, it’s not surprising to see someone like Musk waffle (perhaps even rightfully so given his roles and responsibilities) on Bitcoin. One silver lining before we dive into reactions—maybe this will mean fewer crypto-related Tweets from Musk for the time being.
We could use a breather.
Reactions were mixed.
Plenty of reactions from the likes of CZ, founder and CEO of Binance (the world’s largest cryptocurrency exchange), were trollish to say the least. CZ said that “Elon probably did not research how much energy is required to run other (non crypto) currencies that Tesla accepts.” Other big names in Bitcoin like Pomp haven’t stopped pushing back since the announcement dropped. It’s hard to keep up. Pomp even went on CNBC to recommend “dropping dollars, not Bitcoin.”
The largest Bitcoin mining and hosting company in North America is Core Scientific. Headed by former Microsoft COO Kevin Turner, Core Scientific was quick to point out that they are already 100% net carbon-neutral. This news broke last month but didn’t receive much media run except via select crypto and business outlets.
Other miners like Great American Mining, who take excess or wasted energy from oil and gas companies and use it to mine Bitcoin, haven’t stopped emphasizing their business model or pointing out differences between Bitcoin mining and other efforts such as lithium mining.
Mark Cuban, who like Musk has been all over the place around Bitcoin and crypto, came out announcing that the Mavs “will continue to accept BTC/Eth/Doge because we know that replacing Gold as a store of value will help the environment.” While I still wonder how many people are spending crypto for things like this or Teslas… it’s interesting to see more comparisons drawn between Bitcoin and the existing industries it’s directly competing with.
Comparisons to the legacy financial system, the US dollar, gold mining, and so on are not often discussed when Bitcoin’s environmental footprint is mentioned. Again, potential silver lining—let’s go ahead and hash out the topic with industry experts and improve Bitcoin and the systems it enhances.
The reactions continue to roll in. Other, non-environmental reactions came in the form of essentially “buy the dip.” Most public-facing crypto investors were claiming to do just that. The Winklevii sounded the horn to buy the dip and Cameron added that Musk will eventually refresh his take on Bitcoin and it will moon. And of course… the man, the myth, the legend—Michael Saylor joined in with ultimate conviction, announcing yet another Bitcoin purchase.
Saylor Buys the Dip
Michael Saylor adds 271 BTC.
In a move that Bitcoiners could see from a mile away, Michael Saylor announced that “MicroStrategy has purchased an additional 271 bitcoins for $15.0 million in cash at an average price of ~$55,387 per bitcoin. As of 5/13/2021, we hodl ~91,850 bitcoins acquired for ~$2.241 billion at an average price of ~24,403 per bitcoin.”
Saylor didn’t even wait for the bottom. That’s the conviction we’ve come to know and love from Saylor and team. He’s been a heavy supporter of Bitcoin as an actual store of energy—an asset that takes energy and turns it into a more valuable asset that cannot be destroyed and that is instead stored, transferred, and used across generations. He likes to say it’s how future empires and institutions that stand the test of time will be built. If you haven’t listened to Saylor speak on the topic of Bitcoin versus the fiat system, you should. Start with his conversation with Saifedean Ammous.
Saylor and others were also sharing Alex Gladstein’s piece in Bitcoin Magazine entitled “Check Your Financial Privilege.” It’s worth reminding ourselves in the Western world, where economic stability is commonplace and energy is more accessible, that Bitcoin’s use case in emerging markets looks very different. Bitcoin is not just a simple diversification play or spec investment in emerging markets.
Elsewhere, in Bitcoin
Elon Musk aside, there’s more happening.
Musk made headlines but there’s so much more going on in Bitcoin and cryptocurrency right now than whether or not Tesla is accepting BTC payments. Some fun news first, Facebook CEO Mark Zuckerberg let us know that he has two goats—one named Max and the other named… Bitcoin.
Speaking of goats… the GOAT of football, Tom Brady, turned on laser eyes this week. For context, that means he’s buying or bullish on Bitcoin hitting $100,000 along with the rest of the laser-eyed meme-ing Bitcoiners on social media. Michael Saylor was quick to welcome Brady, saying that “Bitcoin now has a star quarterback.”
Taproot is coming! What’s taproot? It’s an upgrade to Bitcoin mining and the network that, according to Coindesk, “will pave the way for improvements to outstanding technologies like Lightning, multi-signature wallets and Bitcoin-based “smart contracts” like discrete log contracts (DLCs).” I’ll provide more context on this as the taproot upgrade progresses. There’s been some great commentary from industry insiders on improvements like DLCs that’s we’ll definitely want to discuss.
Is $40K Possible?
Bitcoin is again testing key levels.
I want to provide more analysis around the Bitcoin price for paid subscribers in the coming days (as activity around Musk settles). Upgrade today if you haven’t yet to get these upcoming insights and ensure you receive everything. In the meantime, Bitcoin is testing levels between $47,000-50,000. Despite the sharp drop to just below $50K following the Musk announcement, the level has held so far.
The next downward support level to consider is $40,000-42,000 and possibly even as low as $34,000 if things turn really bearish. Somewhat impressively, Ethereum has so far held up well during the crypto dip. It’s down about 10% over a 24 hour period but that’s essentially 10% off all time highs.
Ethereum, as we’ve noted, is transitioning away from mining and a proof-of-work consensus model in favor of proof-of-stake. Lots of updates are coming to the Ethereum network this year.
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Also! Enjoy this first ever TV show reference to Bitcoin in a 2012 episode of The Good Wife. I hope Jason Biggs and Julianna Margulies bought the dip : ) In the meantime, stay humble and stack Sats.