Written by: Yves, Head of Trading at Wirex
The Bitcoin price lost nearly 24% from its all-time-high (ATH), and it lost close to 14% this week after Elon Musk announced that Tesla would not stop accepting Bitcoin as payment. The downward move worsened on the news that Binance is under investigation by the Justice Department and the Internal Revenue services (IRS).
Elon Musk mentioned in his tweets that ‘Tesla will not be selling any Bitcoin and (…) intends to use it for transactions as soon as mining transitions to more sustainable energy’, adding that they are ‘looking at other cryptocurrencies that us <1% of Bitcoin’s energy/transaction’.
Elon Musk’s 180-degree turn followed the sale by Tesla of 10% of its Bitcoin holdings two weeks ago, although the sale was presumably unrelated. The sale generated proceeds that are close to $100m and ss reported by Bloomberg, it was presumably meant ‘to prove liquidity of Bitcoin as an alternative to holding cash on balance sheet’.
The Bitcoin critics won a battle this week. The tremendous outcry over Bitcoin or the NFTs’ environmental issues is weighing on the cryptocurrency market. The BTC’s all-exchanges netflow jumped to a level that is comparable to March 14th: 26.2 thousand bitcoins were deposited on digital exchanges and many sold, precipitating the severe price correction. Although the amplitude of the correction is still comparable to the corrections observed in the past six months, Bitcoin’s failure to hold above the current levels could again precipitate a severe correction back to the $40k levels. On the bright side if any, this might be perceived in many ways as an environmental-friendly correction. After all, a lower price would normally weigh on the miners’ revenues and in the best case scenario decrease the miners’ activity.
Also, energy prices have been rising since October and the slow easing of the lockdown rules would certainly accelerate this increase. However, the resulting decrease on the miners’ benefits, from both the BTC price correction and the increase energy prices, would not be enough to slow down their production… In fact, the Bitcoin price is still largely above the miners’ breakeven levels that Marathon, one of the largest miners, estimates at $4,541 per BTC (cf. p3 of their latest presentation). At the current rates, the total miners’ revenues remain very high, above $50m per day: a level that was reached for the first time only in February this year.
Bitcoin’s annualised electricity consumption stands between 47 and 520 terawatts per hour (TWh). The consumption is estimated at 151.96 TWh by the ‘Cambridge Bitcoin Electricity Consumption Index’: it is the consumption of a country like Poland or Malaysia (based on 2019 estimates). Also, the upper bound estimate by Cambridge makes its consumption comparable to France or Germany.
Of course, the sustainable environmentally friendly solution cannot rely on the fall of the Bitcoin price. Could the solution reside in the change of its Proof-of-Work (PoW) protocol?
Ethereum is already shifting its protocol from the Proof-of-Work (PoW) to the more environmentally friendly Proof-of-Stake protocol (PoS). Other cryptocurrencies also use PoS-derived protocols, like Cardano (ADA), and could theoretically compete with the first cryptocurrency. At least the market seems to think of it as a possibility, as the ADA/USD price is up by 12% this week.
There is no blockchain today that is more decentralised or popular than the Bitcoin blockchain. Bitcoin managed to remain operational through the creation of wrappers on various smart contract blockchains, including Ethereum with the Wrapped Bitcoin (WBTC: 8.9 billion market cap) or the Binance PoS smartchain with the BEP20 Bitcoin (BTCB: 2.7 billion market cap). WBTC and BTCB are backed one-to-one by Bitcoins, and these Bitcoins are pooled (or stored) as collateral. This coincidentally comforts the idea that Bitcoin would slowly turn into a store of value, a digital Gold.
Bitcoin does not have to be traded systematically ‘on-chain’; it can be traded on advanced auxiliary chains that could be more environmentally friendly like the Binance smartchain. BTC is more than a cryptocurrency: it is an internationally exported symbol and a reference in the crypto economy that still holds a large influence on the direction of the crypto market today.