Bitcoin trimmed gains Tuesday after Elon Musk's effort to bolster the token's green credentials stoked a rally, extending a bout of marked volatility in the wake of last week's crypto rout. The largest digital currency fell as much as 3 per cent to dip briefly below $38,000 in Asian trading, following a 16 per cent overnight jump.
The wider Bloomberg Galaxy Crypto Index fell 2 per cent as tokens including Ether slipped back too. Musk took to Twitter to signal support for an apparent effort by Bitcoin miners to make their operations more environmentally-friendly. The billionaire has roiled the token's price this month, triggering a sell-off by criticizing its energy profile and suspending Bitcoin payments to Tesla Inc.
Heightened regulatory rhetoric on cryptocurrencies from China also pressured the sector.
"If the market continues to see wild swings based on Elon Musk tweets, it's going to be a big set back for this asset class," said Matt Maley, chief market strategist for Miller Tabak + Co. "The fact that it sees such wild swings to the tweets from one person takes away the legitimacy of the asset class."
Let's take to green
Pledges to make the industry more green have picked up since Musk's criticisms. Several miners joined the Crypto Climate Accord, a private-sector initiative to decarbonize the crypto industry by 2030.
Musk and Michael Saylor, another long-time Bitcoin booster, tweeted Monday that they had held a call with major North American miners, including Michael Novogratz's Galaxy Digital and publicly traded Hut 8 Mining Corp., to discuss "energy usage transparency".
Saylor said the group agreed to form the Bitcoin Mining Council "to standardize energy reporting". Musk and Saylor's initiative to make Bitcoin "'greener' bodes well for ESG narrative and institutional adoption," David Grider, strategist at Fundstrat Global Advisors LLC, wrote in a note.
At the same time, it will take years for many of the largest miners to recalibrate where they source their energy. Bitcoin's heavy use of power fired by polluting fossil fuels is a long-standing problem. Miners use hundreds of computers that run around the clock to verify Bitcoin transactions in exchange for new coins.
Despite that, Musk in February plowed $1.5 billion of Tesla's corporate cash into the token and said the electric-vehicle maker would accept it as payment for vehicles, before rescinding the latter decision earlier in May.
While the billionaire has since said he strongly believes in cryptocurrencies as long as they don't drive a massive increase in fossil fuel use, digital tokens are still nursing losses from his spate of comments. The market value of more than 7,000 coins tracked by CoinGecko is down more than $800 billion from a May peak of some $2.6 trillion. Bitcoin is about $25,000 off its mid-April record.
A measure of implied volatility on Bitcoin comparable to the US equity market's VIX indicator sits at 129, higher than the stock version has ever reached in 30 years. Federal Reserve Governor Lael Brainard noted at the Consensus conference, one of the crypto industry's biggest gatherings, that a big issue for central banks with regard to a digital currency is the impact on the financial system.
The conference runs for most of this week and features some well-known crypto bulls, who are expected to hype the industry, potentially causing more turbulence in prices.