Crypto Crisis: Tesla Stops Accepting Bitcoin​

By Robyn Ma​

The Story

Elon Musk, CEO of electric carmaker Tesla, announced on Wednesday that the company would stop accepting Bitcoin for its corporate treasury (BBC). This announcement was unexpected, considering the company’s purchase of $1.5 billion worth of the digital currency in February (CNBC).

Musk tweeted that, “we are concerned about the rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel” (BBC). He added that rather than selling it, the company would hold onto its Bitcoin, using it for transactions once cryptocurrency ‘mining’ becomes more environmentally sustainable (BBC). Bitcoin dropped by around 14% in response (Financial Times).

How does cryptocurrency affect the environment? Cryptocurrency is ‘mined’ using computers competing against each other to solve mathematical equations (BBC). This is an energy-intensive process; it uses the same amount of energy annually as the Netherlands did in 2019. Bitcoin enthusiasts have insisted that mining uses renewable energy (Financial Times), however, other reports indicate that “the majority of Bitcoin is mined in China and is largely fuelled by cheap coal power” (The Independent), with the country making up 75% of Bitcoin mining globally (BBC).

What It Means For Businesses And Law Firms

One big criticism facing the cryptocurrency industry is the opaqueness and ambiguity of its regulation. The volatility of cryptocurrency, as evidenced by the impact of a single person’s tweet, calls for stricter regulation. While deliberation occurs on what the regulatory framework should look like, cryptocurrency companies are throwing money towards government lobbying in an attempt to influence how these regulations play out (Business Standard). However, agencies such as the Securities and Exchange Commission (SEC) appear reluctant to take a liberal view (New York Times). The SEC sued cryptocurrency company Ripple recently, accusing it of “selling unregistered securities when it sold the digital token XRP to investors” (New York Times). Central to this case was the question of whether the digital token sold by Ripple, XRP, was a security or a commodity. Should cryptocurrencies become more mainstream, this decision should help regulators and lawmakers to facilitate accountability and transparency. Another avenue that might provide the impetus to more cohesive regulation could be the “fight over green standards”, encouraging sustainable cryptocurrency mining (Financial Times).

The intersection between technology and sustainability, especially in relation to ESG principles, is also relevant. If Tesla’s mission is to promote sustainability and tackle climate change, surely its initial investments into bitcoin appear contradictory? Yet, the company is often found in ESG funds because investors are focused on its electric cars (Financial Times). Clearly, ESG risks are multidimensional. In recognition of this new business imperative, lawyers may need to work with companies to advise on more dynamic and elastic ESG frameworks. Recognition of these trade-offs is needed for lawyers to adequately advise companies. Indeed, firms such as Clifford Chance and Norton Rose Fulbright now offer an ESG service for companies.

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