Bitcoin, the world's biggest digital currency, fell more than seven per cent after Musk's Twitter post on Wednesday, and was trading at $US52,669.
Tesla revealed in February it had bought $US1.5 billion of Bitcoin and would soon accept it as payment for cars, driving a roughly 20 per cent surge in the world's most widely held cryptocurrency.
Musk said Tesla would not sell any Bitcoin, and intended to use it for transactions as soon as mining transitions to more sustainable energy.
"We are also looking at other cryptocurrencies that use <1% of bitcoin's energy/transaction," Musk said.
Musk said in March that Tesla customers can buy its electric vehicles with Bitcoin.
The digital currency is created when high-powered computers compete against other machines to solve complex mathematical puzzles, an energy-intensive process that currently often relies on electricity generated with fossil fuels, particularly coal.
At current rates, such Bitcoin "mining" devours about the same amount of energy annually as the Netherlands did in 2019, the latest available data from the University of Cambridge and the International Energy Agency shows.
Musk himself is a strong believer in digital currencies, but also advocates for clean technology.
"Cryptocurrency is a good idea on many levels and we believe it has a promising future, but this cannot come at great cost to the environment," Musk said.
In theory, blockchain analysis firms say, it is possible to track the source of Bitcoin, raising the possibility that a premium could be charged for green Bitcoin.
Stronger climate change policies by governments around the world might also help.
Some Bitcoin proponents note that the existing financial system - with its millions of employees and computers in air-conditioned offices - uses large amounts of energy too.