Bitcoin drops after report Binance under US probe, Tesla fallout

NEW YORK: Bitcoin fell to a more than two-month low on Thursday (May 13) in the wake of Tesla chief Elon Musk reversing his stance on accepting the digital currency, selling off for a second straight session on news of a US probe into Binance, one of the world's biggest crytocurrency exchanges.

Thursday's sell-off followed a 17 per cent drop in the price of the world's largest cryptocurrency on Wednesday following Musk's remarks that Tesla would stop accepting the digital token as payment for its electric cars.

Bloomberg reported on Thursday that as part of the Binance inquiry, the US Justice Department and the Internal Revenue Service have sought information from individuals with insight into its business.

"Bitcoin's critics will once again pounce on the many colorful personalities that seek to connect themselves with the space," said Paolo Ardoino, chief technology officer at crypto exchange Bitfinex.

"However, it is important to remember that bitcoin is much bigger than the celebrities of today or indeed the makers and shakers in the space."

Bitcoin dropped to US$45,700, the lowest since Mar 1, and was last down 1.6 per cent at US$48,595.

Ethereum, the second-largest cryptocurrency, dropped to a session low of US$3,543.62 and last changed hands at US$3,633, down 4.6 per cent. On Wednesday, ethereum hit another all-time high of US$4,380.64.

Tesla's announcement on Feb 8 that it had bought US$1.5 billion of bitcoin and would accept it as payment for its electric vehicles has been one factor behind the digital currency's surge this year.

Musk has faced pressure over bitcoin's environmental impact. The cryptocurrency relies on computers competing to solve elaborate maths problems, which uses huge amounts of electricity.

"We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel," Musk tweeted.

Musk's comments roiled markets even though he said Tesla would not sell any bitcoin and would resume accepting it as soon as "mining" for it transitioned to more sustainable energy.

In a second tweet on Thursday, Musk denounced the "insane" amount of energy used to produce bitcoin, which pushed bitcoin lower.

The digital currency is still trading about 30 per cent higher than before Tesla's announcement in February.

Jeffrey Wang, Vancouver-based head of Americas at Amber Group, a cryptocurrency service provider, said broader selling of risk assets in traditional markets was another factor behind Wednesday's bitcoin plunge.

"I don't think everything is selling off just because of this news. This was kind of the straw that broke the camel's back in terms of adding to the risk sell-off," Wang said.

Bitcoin has struggled since hitting a record US$64,895.22 in mid-April, dropping to the cusp of US$47,000 just 11 days later before hovering around US$58,000 since the start of May.

ENVIRONMENTAL CONCERNS

At current rates, bitcoin mining devours about the same amount of energy annually as the Netherlands did in 2019, data from the University of Cambridge and the International Energy Agency showed.

"Environmental matters are an incredibly sensitive subject right now, and Tesla's move might serve as a wake-up call to businesses and consumers using Bitcoin, who hadn't hitherto considered its carbon footprint," Laith Khalaf, an analyst at AJ Bell, said.

Tesla shares were down 2.4 per cent, while the biggest US cryptocurrency exchange, Coinbase, tumbled nearly 9 per cent. Smaller cryptocurrencies were less affected by the news.

"Interestingly enough, altcoins are performing well," said Justin d'Anethan, sales manager at Hong Kong-based head of exchange sales at Diginex, a digital asset company.

"The reason given in the tweet is fossil fuel use for the mining of BTC, but most cryptocurrencies have already found more efficient ways to do that and therefore outperformed."

Bitcoin's share of the total market capitalization of all cryptocurrencies dropped to 42 per cent, its lowest since June 2018.

Cryptocurrency dogecoin lost more than a third of its price on Sunday after Musk, whose tweets had stoked demand for the token earlier this year, called it a "hustle" on the "Saturday Night Live" comedy show.

By Tuesday, however, he was asking his followers on Twitter if they wanted Tesla to accept dogecoin.

Dogecoin dropped 12 per cent to 39 cents on Thursday, according to data tracker CoinGecko.com.