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Bitcoin, Dogecoin sink after Elon Musk walks back Tesla's support for crypto transactions

Elon Musk sent Bitcoin (BTC) reeling on Wednesday, after he announced that Tesla (TSLA) would stop accepting it for car purchases — even though the company continues to hold the digital coin on its books.

In a Twitter post, Musk cited the environmental impact of Bitcoin mining, which has been cited by critics for being energy intensive and a detriment to the climate.

The move took cryptocurrency enthusiasts by surprise, and drove down the price of Bitcoin after hours, with the volatile digital currency shedding over 13%. Other major crypto units followed suit, as investors moved to discount how the loss of a prominent backer's support would impact the asset class's development.

Musk said in his post that Tesla was "concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel."

"Cryptocurrency is a good idea on many levels and we believe it has a promising future, but this cannot come at a great cost to the environment," Musk wrote.

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The development came as a shock to Tesla observers, given that the car company only recently disclosed it had put $1.5 billion worth of Bitcoin on its books, and would begin accepting it for payment. That purchase, disclosed in a regulatory filing in February, has already yielded a "positive impact" of at least $100 million for Tesla, the company said last month.

The move also sparked an immediate furor among Bitcoin investors — many of whom have applauded Musk's embrace of Dogecoin (DOGE). The latter plummeted by 20% after hours, alongside Litecoin (LITE) and Ethereum (ETH), both of which also dived after Musk's announcement.

In recent weeks, the meme currency has skyrocketed as the billionaire publicly championed its rise — which came back to earth over the weekend after Musk's controversial appearance on "Saturday Night Live," when he referred to the unit as a "hustle."

Still, major investors have been slowly warmed to the crypto sector as its profile has risen in markets. Although legendary investors like Warren Buffett and Charlie Munger are still not fans, major investment banks have begun dipping their toes into cryptocurrency as an investment option.

In fact, Shark Tank investor Kevin O’Leary has given up his jaundiced view of Bitcoin. The chairman of O’Shares ETF told Yahoo Finance Live recently that he’s allocated 3% of his portfolio to the world’s largest cryptocurrency after Canada, and a handful of other countries eased restrictions on institutional buying of the asset.

O’Leary said he now views bitcoin as digital gold and a hedge against inflation that will appreciate over time, but he warns “there’s a big problem brewing” in the crypto space around how and where the coins are mined.

“I don't own random ETFs with blood coin in them,” O’Leary told Yahoo Finance. “The industry has done a poor job in lobbying its case around sustainability.”

Javier David is an editor for Yahoo Finance. Follow Javier on Twitter: @TeflonGeek

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