Tesla stops taking bitcoin. What Elon Musk is up to and why he’s likely to switch to Ethereum

Memes about the Portfolio Armor Art Department and Imgflip.

Elon Musk discovers that Bitcoin mining is burning coal

You know the news by now: Tesla (NASDAQ: TSLA) no longer accepts Bitcoin as a form of payment. According to Elon Musk’s tweet last night, it’s because of the fossil fuels used to generate electricity Bitcoin (CRYPTO: BTC) Mining, especially coal.

As we type this early Thursday, Bitcoin is down 11% in the past 24 hours, with ether (CRYPTO: ETH) down about 8%. Elon Musk’s Bitcoin announcement on Wednesday evening raises some questions.

• Didn’t Musk know that bitcoin mining was powered by fossil fuels when he added bitcoin to Tesla’s balance sheet earlier this year?

2. Is Musk aware that fossil fuels also generate most of the electricity that powers Tesla’s cars? For example, in the US, 80% of electricity is generated from fossil fuels, including coal.

We suspect the answer to both questions is “yes”. So what’s up? Let’s check.

Bitcoin did not increase Tesla’s share price

From the announcement in early February that Tesla had added Bitcoin to its balance sheet through Wednesday, Tesla shares were down nearly 32%.

Instead, as we speculated in the Post earlier this week (Shades Of 2000 and 2008), the crypto rally may have siphoned off some of the speculative fervor that previously fueled cult stocks like Tesla.

Bitcoin increased Tesla’s profits

As Car And Driver pointed out last month, Tesla’s earnings last quarter were due to Bitcoin sales and carbon credits, not car sales:

The company had revenues of $ 438 million, including $ 101 million “positive impact” from the sale of Bitcoin and $ 518 million from the sale of zero-emission regulatory loans to other automakers. That means Tesla continues to lose money by making and selling vehicles.

Correcting the cryptocurrency is in Tesla’s interest

If we had to guess why Elon Musk was suddenly concerned about the fossil fuels that are fueling Bitcoin mining, it is because a correction to the cryptocurrency is in Tesla’s best interests. First, it might take the crypto market to cool down to get speculators to watch Tesla calls again. Second, it gives Musk the option to buy crypto at a lower price.

Wait, what about the fossil fuel problem?

We suspect that Musk won’t buy Bitcoin next, but Ethereum. One reason is that, as our Twitter correspondent Anatoly Karlin reminded us, Ethereum is moving to a proof-of-stake approach that may require 99% less energy than the proof-of-work approach that Bitcoin uses to verify Transactions used. The other reason is that Roko Mijic is a huge Ethereum bull who believes he will top the price of Bitcoin.

Remember, as we mentioned in a post (rotation or simulation?) Last week, Roko Mijic is responsible for creating the happy family below, in an odd twist that suggests this could all be a simulation is.

Grimes, Elon Musk and their son X AE A-XII in Starbase, Texas (photo tweeted by Musk).

Mijic isn’t the only Ethereum maximalist, but Musk is familiar with him.

At the close of trading on Wednesday, Tesla was number 2 on our system’s daily rankings. We are curious to see how that develops. In the meantime, we encourage investors who own Tesla or other stocks to continue to consider hedging. Let’s finish with a quick update on this.

Protection costs increase

In our previous post, we recorded the following video that shows how to hedge market risk in a Nasdaq-heavy portfolio by buying optimal puts on QQQ as a proxy.

At around 3:47 a.m. of this video we show the optimal puts to hedge 1,600 QQQ shares against a decline of> 19% until next December. The costs amounted to 2.88% of the position value. When we scan for the same hedge at the close of trading on Wednesday, we find that the cost has increased up to 3.33% of the position value.

Screen capture using the Portfolio Armor iPhone app.

Not a huge spike in the cost of protection, but you’re probably better off adding protection sooner rather than later if current trends continue.