Bitcoin’s price crashed by more than 10 per cent on Wednesday night, after Elon Musk tweeted that Tesla is suspending vehicle purchases using the cryptocurrency.
The dip also affected other major cryptocurrencies, with Ethereum and Dogecoin both falling.
Bitcoin was at around $55,000 (£39,000) before Musk’s tweet, when it quickly nosedived to $48,000 (£34,000).
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It has since recovered slightly, and is currently sat around $50,000 (£36,000).
Ethereum, the world’s second largest cryptocurrency, fell from $4,300 (£3,000) to $3,600 (£2,500), before climbing back to around $3,900 (£2,700).
Dogecoin, which has experienced a meteoric rise in 2021, dropped from $0.50 to $0.38, but has now recovered back above $0.50. Other major coins, such as Litecoin, suffered similar drops.
What did Elon Musk say?
Announcing that Tesla will no longer support vehicle purchases in Bitcoin, Musk said: “We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel.
“Cryptocurrency is a good idea on many levels and we believe it has a promising future,” he added. “But this cannot come at great cost to the environment.”
Musk said Tesla will not be selling any of the Bitcoin it has purchased, and that the company intends to use it for transactions “as soon as mining transitions to more sustainable energy”.
He said Tesla is also looking at other cryptocurrencies that use less than one per cent of Bitcoin’s energy.
Tesla purchased $1.5 billion of Bitcoin in February – a move which boosted the cryptocurrency market.
Musk is cryptocurrency’s most high profile supporter, and has shown an ability to influence markets merely by posting memes.
Market analyst Julia Lee, from Burman Invest, told the BBC: “Environmental, Social and Corporate Governance (ESG) issues are now a major motivation for many investors. Tesla, being a clean energy-focussed company, might want to work better in the environmental area of ESG.
“But a cynic might suggest that this is just another move by Elon Musk to influence the cryptocurrency market, as he has done on so many other occasions.”
What are the environmental concerns around Bitcoin?
Mining Bitcoin is a very energy-intensive process, due to it requiring high-powered computers operating 24/7.
The electricity these computers use often come from non-renewable fossil fuels.
Around 70 per cent of the world’s Bitcoin mining is carried out in China, according to data from the University of Cambridge’s Centre for Alternative Finance.
Miners tend to use renewable hydropower energy during the summer rainy season, but fossil fuels for the rest of the year.
Bitcoin has a carbon footprint the size of one of China’s 10 largest cities, a fact that has long been one of the biggest concerns about its viability as a currency of the future.