Thursday's sell-off followed a 17 per cent drop in the price
of the world's largest cryptocurrency on Wednesday following Musk's remarks
that Tesla would stop accepting the digital token as payment for its electric
cars.
Bloomberg reported on Thursday that as part of the Binance
inquiry, the US Justice Department and the Internal Revenue Service have sought
information from individuals with insight into its business.
"Bitcoin's critics will once again pounce on the many
colorful personalities that seek to connect themselves with the space,"
said Paolo Ardoino, chief technology officer at crypto exchange Bitfinex.
"However, it is important to remember that bitcoin is
much bigger than the celebrities of today or indeed the makers and shakers in
the space."
Bitcoin dropped to US$45,700, the lowest since Mar 1, and
was last down 1.6 per cent at US$48,595.
Ethereum, the second-largest cryptocurrency, dropped to a
session low of US$3,543.62 and last changed hands at US$3,633, down 4.6 per
cent. On Wednesday, ethereum hit another all-time high of US$4,380.64.
Tesla's announcement on Feb 8 that it had bought US$1.5
billion of bitcoin and would accept it as payment for its electric vehicles has
been one factor behind the digital currency's surge this year.
Musk has faced pressure over bitcoin's environmental impact.
The cryptocurrency relies on computers competing to solve elaborate maths
problems, which uses huge amounts of electricity.
"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," Musk tweeted.
Musk's comments roiled markets even though he said Tesla
would not sell any bitcoin and would resume accepting it as soon as "mining"
for it transitioned to more sustainable energy.
In a second tweet on Thursday, Musk denounced the
"insane" amount of energy used to produce bitcoin, which pushed
bitcoin lower.
The digital currency is still trading about 30 per cent
higher than before Tesla's announcement in February.
Jeffrey Wang, Vancouver-based head of Americas at Amber
Group, a cryptocurrency service provider, said broader selling of risk assets
in traditional markets was another factor behind Wednesday's bitcoin plunge.
"I don't think everything is selling off just because
of this news. This was kind of the straw that broke the camel's back in terms
of adding to the risk sell-off," Wang said.
Bitcoin has struggled since hitting a record US$64,895.22 in
mid-April, dropping to the cusp of US$47,000 just 11 days later before hovering
around US$58,000 since the start of May.
ENVIRONMENTAL CONCERNS
At current rates, bitcoin mining devours about the same
amount of energy annually as the Netherlands did in 2019, data from the University
of Cambridge and the International Energy Agency showed.
"Environmental matters are an incredibly sensitive
subject right now, and Tesla's move might serve as a wake-up call to businesses
and consumers using Bitcoin, who hadn't hitherto considered its carbon
footprint," Laith Khalaf, an analyst at AJ Bell, said.
Tesla shares were down 2.4 per cent, while the biggest US
cryptocurrency exchange, Coinbase, tumbled nearly 9 per cent. Smaller
cryptocurrencies were less affected by the news.
"Interestingly enough, altcoins are performing
well," said Justin d'Anethan, sales manager at Hong Kong-based head of
exchange sales at Diginex, a digital asset company.
"The reason given in the tweet is fossil fuel use for
the mining of BTC, but most cryptocurrencies have already found more efficient
ways to do that and therefore outperformed."
Bitcoin's share of the total market capitalization of all
cryptocurrencies dropped to 42 per cent, its lowest since June 2018.
Cryptocurrency dogecoin lost more than a third of its price
on Sunday after Musk, whose tweets had stoked demand for the token earlier this
year, called it a "hustle" on the "Saturday Night Live"
comedy show.
By Tuesday, however, he was asking his followers on Twitter
if they wanted Tesla to accept dogecoin.
Dogecoin dropped 12 per cent to 39 cents on Thursday,
according to data tracker CoinGecko.com.
Source: Reuters
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