Is Bitcoin really bad for the environment and could Tesla be about to make it “greener”? Either way, this may be the sell-off that sets Bitcoin up for new all-time highs
- Crypto selling off on news Tesla will stop accepting Bitcoin for payments due to environmental concerns
- We think the news is overblown and wouldn’t be surprised if Tesla is signaling plans to make crypto “greener”
- Bitcoin has been consolidating for months as market dominance has been falling but this sell-off could be setting BTC up for a bullish run
- Market may need to get a little more bearish first, but if we get a build-up of short futures positions, it could set us up for a squeeze that becomes the catalyst for new all-time highs
- We maintain our buy on Bitcoin with a $100k price target
Bitcoin sold off sharply today and broke below $50k after news that Tesla would stop accepting it for payments.
Source: Fundstrat, Tradingview
The headline likely shocked many crypto investors looking for greater crypto adoption, especially coming from Tesla CEO Elon Musk who has been a vocal supporter of Bitcoin and cryptocurrencies like Dogecoin.
Source: Business Insider
The reason Elon Musk cited for the move on Twitter was a common criticism that Bitcoin mining is bad for the environment due to its use of fossil fuels. But Elon said that if miners started using more sustainable energy that Tesla would support it again.
Source: Twitter
Without going fully into our views on Bitcoin and the environment here for the sake of time– we don’t think Bitcoin is bad for the environment.
We think crypto mining gravitates towards excess energy that would otherwise get wasted. This was often the case from early at home mining days when power usage was like leaving your lights on a lot. Even to now when oil & gas E&P producers use excess energy they would otherwise flair to instead mine BTC. I’m seeing newer mining projects now going to offshore rigs to use the extra natural gas from oil extraction that they have to burn and getting it at $0.007 per Kwh ($0.007 kWh!!!). My point is, yes, BTC mining uses lots of energy, but it gravitates towards excess that otherwise gets wasted.
Telsa acquired SolarCity in 2016. Solar is a resource that gets generated all over the earth. Today, we capture as much of it as possible and try to transport it and use it to supplement other energy sources. What can’t get used gets stored in batteries. But batteries aren’t perfect and excess energy can be wasted. What happens when we have a bunch of self-driving cars on solar that are sitting idle around the city on a sunny day and batteries are full? This is why we wouldn’t be shocked if Tesla allowed consumers to put excess solar energy to work mining cryptocurrency like Bitcoin – but this is just speculation.
Ultimately, we don’t know what Elon or Tesla will do next. But either way, we think this may be the sell-off Bitcoin needed to set it up for a new all time high. Stepping back and looking at the recent price of Bitcoin in the context of its bigger market cycle on the weekly chart, the price has been consolidating around current levels since February.
Source: Tradingview
Bitcoin dominance, which is BTC’s share of the total crypto market, has been steadily falling during 2021 as capital flows within the crypto economy have been going to Ethereum and other “altcoins” which have been outperforming.
Source: Domination Finance
Following the sell-off Bitcoin had back in the middle of April, we saw massive amounts of futures positions get wiped as leveraged long traders got margin liquidated.
Source: Skew
Bitcoin futures basis, which is the premium of the futures contract over the spot price, has been trading extremely high ever since February this year when the rally stalled. It reached as high as ~50% before the April sell-off that liquidated many leveraged longs.
With this sell off we’re having right now, we’ve seen the futures basis contract drop sharply towards more normalized levels – and it could fall even further if more traders take advantage of the current correction and jump on shorting Bitcoin.
Source: Skew
Why is this important and why could it be what takes us higher?
Looking at the BTC futures liquidation chart, we haven’t seen a sizable short liquidation in a long time. If we get a build-up of shorts here as both spot falls and basis contracts, we could see the revers of what happened back in April where an otherwise weaker spot move higher could squeeze traders and be the catalyst that propels Bitcoin to new all-time highs.
Source: Coinalyze
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