LONDON • Bitcoin has erased all the gains it notched following Tesla's Feb 8 announcement that it would use corporate cash to buy the digital asset and accept it as a form of payment for its vehicles.
The world's largest cryptocurrency has dropped roughly 40 per cent from its record of almost US$65,000 and was trading at US$39,360 as at 6.36am in London yesterday, a level last seen before the electric carmaker disclosed its investment.
Fuelling the volatility is Tesla chief executive Elon Musk, who surprised crypto advocates last week with an announcement that the company would no longer accept bitcoin as payment. The mood grew darker over the weekend as bitcoin fell about 15 per cent as Mr Musk doubled down on his criticism of the cryptocurrency's environmental load.
Then on Tuesday, the People's Bank of China reiterated that digital tokens cannot be used as a form of payment, highlighting the regulatory risk hanging over cryptocurrencies. That helped to send bitcoin back to pre-Feb 8 levels.
"These huge swings we have seen in crypto really highlight the speculative nature of crypto as an asset," said Ms Fiona Cincotta, senior financial markets analyst at City Index. "We've got Elon Musk driving trades in the crypto world and stirring trouble, not for the first time, and I can't imagine it will be the last time either."
Mr Musk has become a Svengali-like character in the crypto world. Bitcoin embarked on a multi-month rally following Tesla's February announcement and hit its US$64,870 peak in large part owing to the company's embrace of the coin.
Tesla's acceptance was dubbed a watershed moment by many in the crypto sector, who saw it as yet another step in the asset's evolution.
All that has been wiped out after Mr Musk sent investors into a tizzy following a mass of tweets.
He said Tesla would suspend car purchases using the token and called recent energy consumption trends "insane". Over the weekend, after implying his company might have sold its bitcoin holdings, he posted tweets clarifying it had not. All of it sent traders scrambling.
"I don't think his comments are contributing to making it a more serious asset class," said Mr David Bianco, chief investment officer of the Americas at DWS Group.
"Professional investors don't want to hear about investments being talked about on Saturday Night Live."