What happened

The price of popular cryptocurrency Bitcoin (BTC 1.25%) has gone back over $40,000 per coin following a comment made by Elon Musk on social media. Musk is the founder and CEO of electric vehicle company Tesla (TSLA 1.65%) and said his company will once again start accepting Bitcoin as a form of payment once certain renewable-energy criteria are met. Considering some blame Musk for the current Bitcoin bear market, it seems only fitting that it's getting a boost from him today.

Stocks tied to Bitcoin are also getting a boost today. As of 12:30 p.m. EDT, Riot Blockchain (RIOT -1.22%) stock is up 21%, Bit Digital (BTBT 1.81%) is up 25%, and Marathon Digital Holdings (MARA 1.27%) is up 18%. Finally, shares of cryptocurrency fund Grayscale Digital Large Cap Fund (GDLC 0.74%) are up 12%.

An investor looks at a chart on a computer while talking on a phone.

Image source: Getty Images.

So what

The price of Bitcoin crashed in May after Musk said Tesla would no longer accept Bitcoin as a form of payment, citing concerns over lack of sustainable energy used in the mining process. At its high in May, Bitcoin was around $58,000. Following Musk's comments, it plummeted to around $35,000. But in a social media post yesterday, Musk said that Tesla isn't banning Bitcoin payments forever. First, the company needs to confirm around half of Bitcoin's electricity comes from green sources. Second, the mining process needs to be trending greener in general.

It's unclear how Tesla will confirm Bitcoin's energy sources exactly. By some estimates, the blockchain network already far surpasses Musk's 50% benchmark. For example, according to a December 2019 study from CoinShares Research, 73% of Bitcoin's energy comes from renewable sources. However, the exact percentage is hotly debated. After all, not all miners disclose where they get their electricity.

This uncertainty has some calling for more transparency among Bitcoin miners. Therefore, some companies have voluntarily coalesced to form the Bitcoin Mining Council. These companies met for the first time on May 23. MicroStrategy is a founding member of the council, and its CEO Michael Saylor said on social media that the council will "standardize energy reporting."

Riot Blockchain, Bit Digital, and Marathon Digital are all companies that mine Bitcoin, and they know how important this renewable energy issue is becoming for Bitcoin. For example, on June 8, Bit Digital provided a transcript of CEO Bryan Bullett's presentation at the LD Micro Conference. There Bullett said, "As of April 2021, we estimated that we used a majority carbon-free energy, on an annualized weighted average basis, accounting for these seasonal migrations." By "seasonal migrations" Bullett is referring to Bit Digital's strategy of moving miners to places that may have cheaper, renewable energy at certain times of year.

A hand holds a golden coin displaying the Bitcoin symbol with a stock chart in the background.

Image source: Getty Images.

Now what

Today's news about Tesla and Bitcoin may send the price of Bitcoin higher only in the short term -- it doesn't seem fundamental to a cryptocurrency-investing thesis. Consider that during the short time Tesla was theoretically allowing Bitcoin as a method of payment, it doesn't seem like anyone actually did it. And in reality it's hard to see what the advantage would be for a consumer anyway. Bitcoin investors believe the value will continue to rise over time. Therefore, it behooves them to hold Bitcoin rather than spend it.

Comments today from billionaire Paul Tudor Jones are more fundamental to a long-term Bitcoin thesis. Jones appeared on CNBC today and said he wants 5% of his investments in Bitcoin. Jones cited concerns over inflation of the U.S. dollar and high stock valuations, but the implications are far reaching. If more people, companies, and even countries buy and hold Bitcoin as Jones and others suggest, that could create a surge in demand that drives the price higher in the long term.

A higher price for Bitcoin would obviously be good for companies like Marathon Digital, Riot Blockchain, and Bit Digital that directly operate in this space and even hold bitcoins on their balance sheets in some cases. But it would also be good for funds like Grayscale Digital Large Cap Fund -- a diversified cryptocurrency fund that's 69% invested in Bitcoin. 

If you decide to take Jones' advice regarding Bitcoin, be mentally prepared for volatility. Even though Bitcoin's market capitalization is roughly $750 billion, a simple social media post from a celebrity still amazingly has the power to send coins moving by 10% or more with ease. Expect many more headline-grabbing endorsers and detractors in the coming weeks and months, making for one choppy ride. That may be more than most investors can mentally handle with 5% of their portfolios.