Downward fundamental pressures hammered the crypto markets this week, as Bitcoin lost about 20% of its value, with other major cryptocurrencies such as Ethereum and Dogecoin following suit. The global crypto market lost a reported $1 trillion in market cap since late last week, due in large part to a series of tweets by Elon Musk and a decision by the Chinese government to prohibit financial institutions under its jurisdiction from engaging in crypto activity.

On May 12, Musk tweeted that Tesla would no longer accept Bitcoin as payment for goods and services due in part to environmental concerns relating to the process of mining Bitcoin. Musk also intimated in certain tweets that Tesla would be selling its reported $1.5 billon cache of Bitcoin, though he since backtracked on that statement. But in crypto, perception and social media buzz means everything, and concerns raised regarding the environmental impact of mining cryptocurrency – Bitcoin in particular (whether or not significant in comparison to other activities such as manufacturing) – has resonated with the crypto community, which shares a generous segment of the global Ven diagram with the progressive and ESG movements.

Government agencies have seemingly been issuing advisory after advisory for years regarding the volatility of the crypto markets. But many market participants have failed to heed the warnings, with the historical price of Bitcoin on a seemingly endless upward trajectory. Last week, the SEC issued a staff statement on the risks of investment in Bitcoin futures by registered funds. The market then suffered yet another setback early this week when the Chinese government announced that its financial and payment institutions would be prohibited from engaging in cryptocurrency business. Under the ban, such institutions, including banks and online payments channels, are barred from offering clients services involving cryptocurrency, such as registration, trading, clearing, and settlement services.

Crypto traders may be tempted to look for currencies that at least purport to provide more energy-efficient mining. The cryptocurrency Cardano is described on Coinbase as a "blockchain platform built on a proof-of-stake consensus protocol that validates transactions without high energy costs." With a market cap of $56.5 billion as of midday Thursday, it ranked as the world's sixth largest cryptocurrency, tucked between XRP ($54 billion) and stablecoin Tether ($58 billion). Cardano has taken less of a hit than many of its counterparts recently, trading at $1.75 midday Thursday, down less than five percent for the week.

But a market that can be disrupted globally by tweets from one individual creates obvious concern for regulators, which are reportedly lining up – and banding together, as would be required for the CFTC and SEC under a bill recently passed by the US House of Representatives – to attempt to address consumer protection and a myriad of other issues created by cryptocurrency. At the same time, governments around the world continue to explore and develop central bank digital currencies (CBDCs), including a digital dollar and other types of digital instruments that can provide the speed, efficiency, and security of payments offered by blockchain without the volatility of unpegged cryptocurrency.

For more on cryptocurrency and other digital assets, see Practical Law's Blockchain Toolkit and Update Tracker.