Setup: In Q1 February, Tesla bought 1.5 billion USD in Bitcoin, sold 10% of that for a profit, announced Tesla would accept Bitcoin for cars, then announced on May 12th on Twitter that Tesla will suspend its acceptance of Bitcoin for the negative environmental impact of its mining operations. This, while asking Tesla followers whether Tesla should accept Dogecoin for Teslas instead.
Question: Yet Tesla had to be aware of the climate costs of Bitcoin mining before all this. What else is up?
Analysis: China’s autocracy has used its regulatory power and influence over Chinese buyers as trade weapons to pressure U.S. companies doing business in China during the trade war. In March, China banned Teslas from sensitive defense and housing (prison?) sites on the allegation that Tesla camera systems could be used to spy on China.
And this week, April numbers showed that Tesla’s China sales dropped 27% from March to April. Tesla has also balked this week at acquiring more land for its Shanghai Tesla plant citing the 25% Trump tariffs after April’s numbers showed a drop in Chinese sales of 27% from March 2021.
Would it be cynical to suggest that that Tesla may have bought 1.5 billion in Bitcoin as a negotiating token with China to avoid the negative treatment some other foreign companies had received? This on the premise that China commands influence and tax power over the largest Chinese Bitcoin mining operations in the world no matter where they base themselves. Elon Musk’s influence over Bitcoin prices could therefore affect China’s bottom line. In fact, China has quickly announced crackdowns on Bitcoin mining after its dominance and climate impact became well-known, despite the deputy governor of The People’s Bank of China (PBoC) referring to it as an alternative investment as recently as mid-April 2021. Tesla appears to be hanging onto its Bitcoin despite suspending it for transactions, possibly signaling its intent to keep it as a bargaining chip and for future use. Neither by offshoring Bitcoin mining does China necessarily relinquish interests in the Bitcoin mined or influence over its holders.
When it appeared Beijing may have influenced Chinese consumers to slow down on buying Teslas on spying and other pretexts (Huawei retaliation?) did that prompt Musk to play hardball, stop accepting Bitcoin for Teslas, and freeze further investment in Chinese expansion? Was Musk’s emphasis in his Tweet on the environmental impact of Bitcoin mining a geopolitical leadership-PR counterpunch to China?
Some may recall Peter Thiel warning that China might be using Bitcoin as a weapon against the U.S. dollar. Although Thiel is a biased party, he makes a good point that China’s lead in Bitcoin mining is not only an economic tool of wealth absorption, but a possible weapon for use against the U.S. Dollar reserve currency, and a potential economic weapon via cryptocurrency price manipulation negatively impacting non-Chinese investors.
Musk may have used his rockstar influence to leverage China’s Bitcoin weight against Beijing, at one point reaching a 300 Billion USD swoon in cryptocurrency markets following his Tweet. With such high exposure to China, Musk’s cryptocurrency decisions may be a form of self-insurance against the unpredictable moods of an unresolved trade war.
To show his seriousness on the environmental pretext for suspending Bitcoin for Teslas, Tesla is reportedly entering the U.S. carbon credit market.