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Elon Musk's U-turn on bitcoin hits Tesla and other crypto-linked stocks as hundreds of billions get wiped off the digital-asset market

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Elon Musk looking at his iPhone .JPG
Tesla CEO, Elon Musk. Joe Skipper/Reuters

Stocks linked to cryptocurrencies slumped on Thursday after Elon Musk's sudden change of mind on bitcoin sent the popular digital asset 15% lower.

Tesla suspended vehicle purchases through bitcoin and will instead explore other digital currencies that are less energy-intensive, Musk announced Wednesday.

The entire cryptocurrency market shed around $365 billion to about $2.06 trillion as bitcoin, Ethereum's ether and Ripple's XRP fell sharply. The market recovered some losses later in the day as the value of combined digital assets rose to about $2.24 trillion.

Tesla's realization that bitcoin could be increasingly environmentally-damaging sent its shares 2.7% lower in Thursday's pre-market trading.

Screenshot 2021 05 13 at 11.04.16

Major cryptocurrency exchange Coinbase, which just went public last month, fell 5%. MicroStrategy, which holds around 90,000 bitcoins, plunged 10%, while Jack Dorsey's payments firm Square fell 2%.

Crypto-mining stocks were badly hurt too. Riot Blockchain and Marathon Digital Holdings fell 13%, while BitDigital fell 6%.

Bitcoin mining is hugely energy intensive, requiring vast amounts of computing power. Alessandro Bianchi/Reuters

"All of a sudden, he's not so keen due to environmental concerns," Nigel Green, chief executive of investment firm deVere Group, said, and questioned why Musk didn't do more homework before Tesla invested $1.5 billion in bitcoin.

Read more: A 29-year-old crypto billionaire who's perfected digital-currency arbitrage shares 2 tips for investors looking to get started in trading - and explains why ether is unlikely to surpass bitcoin

"Musk likes being known as a contrarian. He likes to go against the crowd in a high-profile way. Is his waning interest in bitcoin at a time when huge amounts of institutional investment from major Wall Street banks is pouring in, part of this?" Green said.

Musk's move to accept bitcoin payments for Tesla was one of the most legitimate catalysts for the cryptocurrency's rally this year. He recently tweeted a poll asking followers whether his EV-maker should accept payment in dogecoin. Although he has been a vocal advocate of cryptocurrencies, he has warned investors to be cautious.

"In any event, the more Musk and others mainstream Doge and other crypto, the more it will appreciate and the less crypto traders will want to use it as a means of payment, as opposed to a store of value," Eric Berman, senior legal editor of US Finance at Thomson Reuters Practical Law, said. "Financially, it would be like paying for goods and services with gold or oil - though slightly less cumbersome."

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