Bitcoin erases all gains since Musk’s initial big embrace

What Elon Musk giveth, he also taketh away.

Bitcoin has erased all the gains it notched following Tesla Inc.’s February 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% from its record of almost $65,000 and was trading around $39,360 as of 6:36 am in London, a level last seen before the EV-maker disclosed its investment.

Also read: Elon Musk is not the world's second-richest man anymore as Tesla dips

Fueling the volatility is Tesla CEO Musk himself, who surprised crypto advocates last week with an announcement that the company would no longer accept Bitcoin as payment. The mood music grew darker over the weekend, with Bitcoin dropping about 15% as Musk doubled-down on his criticism of the cryptocurrency’s environmental load.

Then on Tuesday, the People’s Bank of China conveyed a statement reiterating that digital tokens can’t be used as a form of payment, highlighting the regulatory risk hanging over cryptocurrencies. That helped to send Bitcoin back to pre-February 8 levels.

“These huge swings we have seen in crypto really highlight the speculative nature of crypto as an asset,” said 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.”

Musk, with his often cryptic Twitter posts that can move billions, has become a Svengali-like character in the world of crypto. Bitcoin embarked on a multi-month rally following Tesla’s February announcement and hit its $64,870 peak in large part due to the company’s embrace of the coin.

Wiped out

At the time, 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’s been wiped out after Musk sent investors into a tizzy following a mass of head-spinning tweets that started last week when he criticized Bitcoin’s energy use.

He announced that Tesla would suspend car purchases using the token and called recent energy consumption trends “insane.” Over the weekend, after insinuating his EV company might have sold its Bitcoin holdings, he sent out tweets clarifying that it hadn’t. All of it sent traders scrambling.

Also read: Why does bitcoin consume 'insane' energy?

“I don’t think his comments are contributing to making it a more serious asset class. People look at it and think to themselves, this is just too much of a fad, it has too much popular culture attention,” said 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.”