Bitcoin, the world’s biggest and best-known cryptocurrency, took the spotlight in the current news frenzy. The price of Bitcoin fell below $34,000 for the first time in three months on Wednesday. It is now down 40% from the year’s high of $64,895.22 on April 14.
Meanwhile, other digital currencies such as Ether, which is the cryptocurrency of Ethereum blockchain network, and Dogecoin – a token created as a joke, also known as the meme coin – lost as much as 22% and 24% respectively.
To make things worse, the incident coincided with disruptions at some of the largest crypto platforms, such as Binance, Coinbase and Kraken, making it troublesome for asset-holders to liquidize their cryptocurrency.
What happened?
The drop in the value came after some tension that has been brewing for some time now. China and Tesla are the two major influencers of the current dive taken by Bitcoin.
China warns against Bitcoin trading:
China banned banks and payment firms from providing services related to crypto-currency transactions on Tuesday. Three state-backed organizations issued an announcement on social media, warning investors against crypto trading. They said consumers would have no protection if they were to incur any losses from crypto-currency investment transactions.
China has for some time been putting pressure on the crypto space, but this marks an escalation on the matter. Until now, Western regulators have been pretty relaxed about Bitcoin, but this might change soon and other countries might follow China.
Tesla says Bitcoin is bad for the environment:
Tesla had been advocating for Bitcoin since February earlier this year, with CEO Elon Musk’s $1.5 billion investment in the digital currency. In March they announced that they are accepting Bitcoin as payment for vehicles purchased from Tesla.
This contributed to the run-up in Bitcoin’s price. Musk also promoted the digital currency Dogecoin, which also spiked in value.
But he renounced his position via a tweet last week, saying that Tesla would stop accepting Bitcoin because of the potential environmental damage that can result from Bitcoin mining.
Bitcoin fell by more than 10% after the tweet, while Tesla shares also dipped. The tweet was followed by other tweets that caused confusion over whether the carmaker had shed its holdings of the currency.
So, good or bad?
Musk’s new position on Bitcoin is met with mixed criticism while environmentalists support it and where some oppose. Fellow billionaire Mark Cuban said that gold mining is much more damaging to the environment than the mining of Bitcoin.
Mining Bitcoin needs enormous computing power, which gives way to the current criticism on Bitcoin’s impact on the environment. But, it’s unclear exactly how much energy is used to mine it.
However, 75% of processing of Bitcoin is done in China, and two thirds of China’s electricity comes from coal, meaning that most of the energy used for Bitcoin comes from the most polluting source of energy.
While these allegations are yet to be proven, the market price of Bitcoin remains volatile as ever. Many institutions, experts and traders are still skeptical about it and other cryptocurrencies in general, as these digital currencies were seen as replacements for paper money, but that hasn’t happened so far.