Bitcoin drops after US probes crypto exchange Binance

Elon Musk’s reversal of course on Tesla accepting the digital currency adds to the pressure

Bitcoin remains about 70 per cent higher for the year and is more than 1,000 per cent higher than its 2020 low of $3,850.. Photo: AFP

Bitcoin slid to a two-and-a-half month low on Thursday after a regulatory probe into crypto exchange Binance added to pressure from Tesla chief Elon Musk’s reversing his stance on accepting the digital currency.

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 dropped to $45,700, the lowest since March 1, then steadied at $49,312 in Asia morning trade on Friday.

The world’s largest cryptocurrency fell 17 per cent on Wednesday following Mr Musk’s remarks that Tesla would stop accepting the digital token as payment for its electric cars for environmental reasons.

“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.

Bitcoin remains about 70 per cent higher for the year and is more than 1,000 per cent higher than its 2020 low of $3,850.

A Binance spokeswoman told Bloomberg that the company doesn’t comment on specific inquiries but takes its legal obligations seriously and engages with regulators in a collaborative fashion.

Ethereum, the second-largest cryptocurrency, dropped to a session low of $3,543.62 and last changed hands at $3,656, down about 4 per cent. On Wednesday, Ethereum hit a record high of $4,380.64.

Tesla’s announcement on February 8 that it had bought $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.

Mr Musk has faced pressure over Bitcoin’s environmental impact. The cryptocurrency relies on computers competing to solve elaborate math problems, which use 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,” Mr Musk tweeted.

Mr 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, Mr Musk denounced the “insane” amount of energy used to produce Bitcoin, which pushed the cryptocurrency lower.

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,” Mr Wang said.

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

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.

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.

“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.”

Cryptocurrency dogecoin lost more than a third of its price on Sunday after Mr 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 and it jumped on Friday in Asia after Mr Musk tweeted about it again and said he was working on improvements to its transaction systems.

Dogecoin rose 20 per cent to 52 cents on Friday according to Binance and last traded at $0.4825.