TESLA

Elon Musk explains why Tesla will accept payments in dogecoin instead of bitcoin

Elon Musk, the billionaire Tesla owner who helped dogecoin become a major cryptoactive this year, explained exactly why he supports memecoin (as meme-based crypts are called) over bitcoin, ethereum and other cryptocurrencies

Bitcoin has dropped dramatically in the last month, losing about 25% of its value and hitting the price of ethereum and most other cryptocurrencies – including dogecoin.

Musk, speaking to Time magazine after being named the 2021 Personality of the Year, said that he finds dogecoin more suitable for transactions than bitcoin and that memecoin has "much greater potential."

“Bitcoin is an interesting example and is the main driver of this,” Musk said in a video shared on Twitter by Time.

“Bitcoin transaction volume is low and cost per transaction is high. Bitcoin may be suitable as a store of value, but fundamentally bitcoin is not a good substitute for traditional currencies. Even though it was created as a silly joke, dogecoin is better suited to transacting,” said Musk.

"The total flow of transactions [per day] you can do with dogecoin is substantially higher [than bitcoin's] and has much greater potential."

Musk also told the magazine that he doesn't think that dogecoin, bitcoin, ethereum or any other cryptocurrency will fully replace fiat coins.

In a recent Twitter post, Musk announced that Tesla "will be making some merchandise that can be purchased with a doge, and we'll see how it goes." The biblionary follows in the footsteps of tech investor Mark Cuban, also a dogecoin enthusiast, who introduced cryptocurrency payments for the products of the NBA's Dallas Mavericks team in March.

Bitcoin prices have soared over the past 12 months as traders and investors turn to cryptocurrency as an inflation hedge. The rise in US prices is caused, in part, by the US government's monetary stimulus measures against the effects of the Covid-19 pandemic.

In May 2020, famed macro investor Paul Tudor Jones made headlines by revealing that he considered bitcoin the “fastest horse to beat inflation”. However, Musk says he believes the inflationary nature of dogecoin could help cryptocurrency dominate the crypto payments market.

"Dogecoin is slightly inflationary, but that inflation is a fixed number and not a percentage," Musk told Time this week. “This means that, over time, your percentage of inflation actually decreases. This is good because it encourages people to spend, rather than hoarding it as a store of value.”

Musk also said his experience in the payments industry means he understands how the financial system works better than most people.

“I could really talk about the nature of money for hours because I played a significant role in creating PayPal,” he said. “My understanding of the monetary system at a fundamental level, about how it really works, the detailed mechanics of it – there are few people who understand it better than I do.”

The huge rise in the price of bitcoin, which took the digital currency from less than $20 in 2020 to peaks of nearly $70,000 last month, has helped the broader cryptocurrency market reach a combined value of about $US 3 trillion.

However, Musk denied that his tweets contributed to the fluctuations in the price of bitcoin and cryptos in general, even after his publications boosted the price of dogecoin in recent years.

In addition, the price of bitcoin plummeted 15% after the CEO said in a tweet that Tesla would stop accepting bitcoin payments due to concerns about environmental impacts.

“Markets move all the time based on nothing, in my opinion,” Musk said. “So the claims I make are materially different from the random stock movements that can happen anyway? I do not think so."

Billy Bambrough