Crypto Stocks Bounce After $6 Billion Drop as Bitcoin Churns
Bloomberg
(Bloomberg) – At their highs, five electric-vehicle startups that went public through mergers with special purpose acquisition companies were worth $60 billion. The corrections that followed have been brutal.Three of the companies plumbed new lows this week as short-seller attacks, management turmoil and execution issues lead investors to reconsider their prospects. They’ve lost more than $40 billion of market capitalization combined from their respective peaks.The sliding valuations of Nikola Corp., Fisker Inc., Lordstown Motors Corp., Canoo Inc. and Arrival Ltd. underscore the risks surrounding the blank-check boom. Unlike in a traditional initial public offering, going public via SPAC allows companies to make forward projections to investors during their listings. This was key to ginning up interest in EV companies – all five are still working on delivering their first vehicles to customers.Here’s a breakdown of what’s happened at each company:NikolaFounder Trevor Milton burst onto the scene last year boasting that he could “out-Elon” Tesla Inc.’s Elon Musk. Days after his battery-electric and hydrogen-powered truck maker debuted on the Nasdaq in June, it was worth almost $29 billion, rivaling Ford Motor Co. at the time.When Bloomberg News reported that Milton had exaggerated the capability of his first truck years before the company went public, it got the attention of Hindenburg Research. The small short-selling firm produced a lengthy report accusing the company of deceiving investors. The U.S. Securities and Exchange Commission opened an investigation, and Milton resigned soon after.Early this year, the company cut its projection for semi-truck production this year to 100 units, one-sixth of its earlier plan. The shares have recovered somewhat since dipping below $10 in April.FiskerThe second EV venture founded by longtime auto designer Henrik Fisker announced its reverse merger a month after Nikola’s listing. While the company was more than two years from starting production, its plan to market an under-$40,000 sport utility vehicle and outsource the manufacturing work to others turned heads. Its market value peaked at almost $8 billion in February.The catalysts for Fisker’s decline to below $3 billion this week have been less clear than some of its peers. The company appeared to lose out as investors grew more bullish about incumbent automakers’ EV prospects. Its shares are surging in early trading after an announcement late Thursday of plans to develop an EV with Foxconn Technology Group and build it in the U.S.Lordstown MotorsThen-Vice President Mike Pence attended Lordstown’s unveiling of its Endurance work truck in June at the factory the company took over from General Motors Co. While it was a risky move championing a company with just 70 full-time employees, the Trump administration was eager to embrace a startup trying to revive an Ohio plant that once employed 10,000 people.Less than six weeks later, Lordstown found a SPAC suitor. Boasts about non-binding orders gave way to another attack by Hindenburg Research, which leveled accusations similar to the ones aimed at Nikola – that Lordstown had misled investors. The SEC has been looking into the claims. Lordstown is now valued at $1.2 billion, less than a quarter what it was worth in mid February.CanooThe startup founded by a pair of former BMW AG executives unveiled a seven-seat prototype in late 2019, struck a deal early last year to help Hyundai Motor Group develop EVs, then another agreement in August to go public. In January, the Verge reported it had met with Apple Inc. about its car ambitions.That momentum is now long gone. The company announced a hard pivot in its business plans in March, deciding to de-emphasize engineering services for other companies and the subscription business model that was part of its original pitch to investors. It has replaced top executives, including its chief financial officer, and said it hasn’t addressed material weaknesses in its financial controls identified more than a year ago. Last month, one of its co-founders resigned the CEO position.ArrivalThe company pledging to build electric vans and buses as well as so-called microfactories to manufacture them had assembled big-name backers before its SPAC deal, including BlackRock Inc., Hyundai and United Parcel Service Inc.Last week, the London-based company founded by Denis Sverdlov, a former Russian deputy minister, said it will partner with Uber Technologies Inc. to develop an EV that’s purpose-built for ride-hailing. While Arrival shares haven’t sustained the immediate gain following that announcement, the company’s valuation is the highest among the five at $10.5 billion.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
What crypto insiders think about Elon Musk’s Bitcoin U-Turn
Cyptocurrency enthusiasts got a nasty shock Wednesday when Elon Musk, founder of Tesla Inc. and the second-richest person on the planet, announced on Twitter that his automaker wouldn’t accept payment in Bitcoin any more due to environmental concerns.
After all, this is the same man who just a few months earlier said Tesla bought into Bitcoin, to the tune of $1.5 billion. He tweeted “True" in response to a thread citing research that mining the token might actually spur the uptake of renewable energy, from Ark Investment Management LLC. Bitcoin mining is known to be energy-intensive, with the industry prizing cheap and plentiful power supplies.
Bitcoin slid as much as 15% to nearly $46,000 before recovering. It was down 6.4% at $51,039 as of 2:45 p.m. in Hong Kong.
Here’s what some people in the crypto industry have to say about the development:
New Highs Await?
“This may be the selloff that sets Bitcoin up for new all-time highs," said David Grider of Fundstrat Global Advisors LLC. “We think the news is overblown and wouldn’t be surprised if Tesla is signaling plans to make crypto ‘greener.’" In a note Wednesday, Grider said Bitcoin has been consolidating for months as its market dominance has waned, but he’s still bullish, with a target of $100,000.
Seeking an Explanation
“The most logical answer is that he’s feeling pressure" from people who think “that one can’t be green and own crypto," said investor Michael Terpin, calling that position “uninformed."
“First, there’s virtually no energy expending in SENDING Bitcoin; and the mining of new coins to keep the network secure is still a far lower amount of energy (and 70% of it from renewable sources) than the amount of energy expended to mine the world’s gold or power the global banking systems."
Watching Other Cryptocurrencies
It wasn’t lost on some pundits that Musk might have his sights set on boosting a rival coin with a greener, perhaps even fluffier, profile. One of the most-liked replies on Twitter to Musk’s original statement was from Billy Markus, the co-creator of Dogecoin – the Shiba Inu-themed cryptocurrency that started as a joke in 2013. That token has become a favorite of Musk’s, and a darling among the retail set of investors and enthusiasts.
“If only there was a merge-mined cryptocurrency that had a much smaller carbon footprint than Bitcoin, and also had a dog on it," Markus said.
Doesn’t Add Up
“Broadly it’s a bit surprising given Tesla bought Bitcoin for their treasury in January and the argument is the same whether you’re using Bitcoin as a store of value or for transactional purposes," said Vijay Ayyar, head of Asia-Pacific at Luno Pte., in an email. “So it doesn’t add up. Usually in such cases there are unknown motives at play."
It Can’t Be
For some, the reaction bordered on disbelief.
“Tell me your account got hacked without telling me your account got hacked," said Yassine Elmandjra, crypto analyst at Ark, in a reply to Musk’s tweet.
Chance to Buy
“In retrospect, it was a great buying opportunity," quipped longtime crypto enthusiast and co-founder of Gemini Trust Co. LLC, Cameron Winklevoss, on Twitter.
This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.
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Bitcoin bulls on social media reject Musk’s reasoning for halting crypto-based car sales
Staunch supporters of bitcoin on Wednesday night were questioning Elon Musk’s crypto bona fides after the CEO of Tesla Inc. said that the company would halt its experiment of selling its electric vehicles using bitcoin due to “rapidly increasing use of fossil fuels” mining the digital asset.
Musk’s announcement rippled through the crypto markets, sending bitcoin BTCUSD, -3.20% prices down severely a little after 6 p.m. Eastern, when Musk issued the statement via Twitter.
Energy consumption related to digital mining of bitcoin has become a hot-button topic in digital-asset circles because of the environmental concerns it raises. Recent research has made the case that digitally extracting bitcoin consumes as much energy as small countries.
Read: Tesla stock and bitcoin drop after Elon Musk says car sales with crypto will be halted due to energy usage of mining
The energy consumption, however, isn’t at the crux of the argument, but rather the implied carbon footprint that bitcoin mining leaves behind.
Bitcoin is mined by solving complex computational problems, and uses a proof-of-work protocol. It is a system that requires tremendous amounts of energy to be expended to verify and support the bitcoin network, in which miners are rewarded by receiving the virtual asset.
Miners are verifiers of transactions, and the reward system incentivizes them to support the blockchain by confirming each transaction on the chain and creating a new immutable block, hence the term blockchain. Mining is arguably the backbone of bitcoin, allowing it to be secure and decentralized.
The energy expenditure tends to increase when the price of bitcoin rises. The rewards for mining will diminish until 2140, when the 21 millionth and final bitcoin is mined.
All that said, the issue of bitcoin and its level of environmental friendliness is a complicated one, but one that its supporters are willing to defend.
Morgan Creek Digital founder Anthony Pompliano tweeted that 75% of bitcoin mining is done using renewable energy:
Pompliano may be referring to a 2020 Global Cryptoasset Benchmarking Study by the University of Cambridge, which made the case that 76% of cryptocurrency miners use electricity from renewable energy sources as part of their energy mix. The report said that almost 62% of miners are reported to be using hydroelectricity.
Critics of bitcoin’s environmental impact often point out that 60% to 70% of bitcoin is currently mined in China, where two-thirds of the electricity is derived from environmentally unfriendly coal.
However, a 2019 report from the Paris-based International Energy Agency noted that bitcoin mining facilities tend to be “concentrated in remote areas of China with rich hydro or wind resources (cheap electricity).”
That same report also compares the worries about bitcoin’s energy consumption to the advent of the internet, citing a Forbes article from 1999 that made the case that “somewhere in America, a lump of coal is burned every time a book is ordered on-line,” referring to the growth of Amazon.com AMZN, +1.94% .
Last month, Musk agreed with a tweet from Twitter TWTR, +3.23% and Square SQ, +5.44% CEO Jack Dorsey arguing that bitcoin “incentivizes renewable energy.”
Michael Saylor, CEO of business-analytics pioneer MicroStrategy Inc., which has become one of the biggest corporate owners of bitcoin, suggested in a tweet that those worried about bitcoin’s energy consumption are looking at it the wrong way.
Saylor argued that “no incremental energy is used” transacting in bitcoin, outside of mining it.
There’s perhaps another irony to Musk’s stance, since Tesla’s TSLA, +3.16% lithium battery-powered vehicles are also starting to draw criticism for their environmental impact. A New York Times article last week made the case that the environmental toll of lithium mining is often overlooked in pursuit of an EV future in the U.S. and elsewhere in the world. Appetite for lithium is likely to increase ten-fold in the coming years.
“Our new clean-energy demands could be creating greater harm, even though its intention is to do good,” the Times quoted Aimee Boulanger, executive director for the Initiative for Responsible Mining Assurance, as saying.
A 2019 article on Medium also makes the case that gold mining and banking consume more energy than bitcoin mining.