Why Did Elon Musk Ditch Bitcoin?

Tesla's Bitcoin, Renewable Energy, and Regulatory Maneuvers: A Complex Interplay

Why did Elon Musk ditch Bitcoin
cc: REUTERS/Mike Blake/File Photo

In February 2021, Tesla announced purchasing 1.5 billion $ worth bitcoin, while also accepting bitcoin as a mode of payment. But last week after selling 10% of companies bitcoins, Tesla announced concerns regarding the use of fossil fuels for Bitcoin mining. Mining is solving a mathematical problem to ensure accountability of cryptocurrency system, using sophisticated machinery and inordinate amounts of energy. This process is rewarded with Bitcoins, which is an easy shot at getting the bitcoin without purchasing it.

Not so surprisingly, the price of Bitcoin that roared in February crashed.

But ecological implications of the usage of bitcoin was known even when Musk announced the purchase of Bitcoin. Many see this move as market manipulation by Elon Musk. Among many theories, one theory is gaining traction.

Some states in the US have a zero-emission rule mandate. It requires auto producers to manufacture a certain number of clean energy vehicles, without which the state penalizes them. But this is a flexible mechanism.

If a conventional manufacturer cannot yet produce that number of electric vehicles, they can then purchase the Renewable Energy Certificates (REC) of other manufactures who have exceeded their renewable manufacturing requirements.

As you have guessed, Tesla is a company that produces electric vehicles and they earn a lot (428 million $ between April and June 2020) by selling their RECs to other traditional manufacturers like General Motors. Old companies will pay Tesla to purchase RECs to avoid harsh penalties from the government. This also becomes an added incentive for Tesla to produce more electric vehicles.

But unfortunately, now the traditional automakers are trying to catch up and beat the EV quota and may no longer need Tesla to sell them RECs.

In April 2021, the White House asked the Environmental Protection Agency whether EVs can generate Renewable Fuel Credits. This is different from RECs and is intended to reduce emissions.

Under the US renewable fuel standards a certain amount of biofuels were required to be blended with conventional fuels by oil refiners. If they couldn’t meet the quota, they were expected to purchase credits from those who did, to avoid penalty. These credits were called Renewable Identification Numbers or RINs. As of today, this market is dominated by ethanol producers who sell these credits to oil refiners across the US.

It is said that TESLA has a biofuel producing wing pending with approval and if it becomes a reality, Tesla could possibly go forward with this new market emission trading initiatives, or the RINs and make fortunes.

So, in a nutshell, they allege that Musk was trying to sway the regulators by avoiding Bitcoin and reinforcing his commitment to renewable energy, for the greater good of future business prospects.



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