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Florian Ginez, WisdomTree

Bitcoin mining could become a net positive to the environment, says contrarian ARK


Always the contrarians, ARK’s cryptocurrency analyst, Yassine Elmandjra, has commented on Elon Musk’s announcement last week that, henceforth, Tesla would not be accepting bitcoin for the purchase of its vehicles, this, roughly three months after its USD1.5 billion investment in the currency, and just one month after announcing that it would take bitcoin in payment for its cars. 

Always the contrarians, ARK’s cryptocurrency analyst, Yassine Elmandjra, has commented on Elon Musk’s announcement last week that, henceforth, Tesla would not be accepting bitcoin for the purchase of its vehicles, this, roughly three months after its USD1.5 billion investment in the currency, and just one month after announcing that it would take bitcoin in payment for its cars. 

Musk cited concerns about bitcoin miners’ reliance on fossil fuels. Tesla is not – after quite a bit of Twitter market teasing — selling any of the bitcoin on its balance sheet, but the decision caused a hefty crash in the price of the cryptocurrency. 

Elmandjra says: “Tesla’s decision seems to have been triggered by private equity firm Greenidge’s plans to revive a coal power plant to mine bitcoin. Elon Musk referenced the announcement in a tweet. Subsequently, Greenidge clarified not only that its plant is powered by natural gas and feeds the grid, but also that it bought carbon credits to offset the emissions.” 

ARK’s view is that the concerns around bitcoin’s energy consumption are ‘misguided’.  

“Contrary to consensus thinking, we believe the impact of bitcoin mining could become a net positive to the environment,” Elmandjra writes. “With real-world data, we demonstrate how mining could impact the amount of renewable energy provisioned to the grid by transforming intermittent power resources into baseload generation by way of energy storage. We illustrate that renewables would be able to satisfy only 40 per cent of the grid’s needs in the absence of bitcoin mining but 99 per cent with the commercial ‘subsidies’ associated with bitcoin mining.” 

Cathie Wood’s flagship USD21 billion fund, ARK, has had a difficult year so far, its price dropping to its lowest level since November, down 16 per cent year to date, on the back of the tech heavy investments that made it such a star achiever last year.  

Henson Orser, President and Acting CEO of institutional digital asset custody specialist, Komainu, comments that, while he may not entirely agree with the ARK prediction that bitcoin will become a net positive for the environment: “I would say that miners oftentimes co-locate where there is abundant excess electricity capacity given they can be anywhere and because the marginal cheapness makes such an enormous difference, so I don’t think they drive up cost or utilisation anywhere near what recent narratives would suggest.”  

On the recent fall in bitcoin, Orser adds: “It’s a volatile asset, so a 35 per cent pullback from its recent high is not altogether unexpected. To put into context, post 2013 and 2017 bubbles, BTC retraced approximately 60 per cent and consolidated for a few years before resuming its next bull run. We are still only 12 months past its most recent halving, so I still feel there is room for further all-time highs in the second half of this year.” 

Over at WisdomTree, Florian Ginez (pictured), Associate Director, Quantitative Research, WisdomTree has also commented, on 17 May, on the recent volatility in cryptocurrencies, saying: “Crypto assets have had a wild weekend with bitcoin trading as low as USD42,000 this morning. The official reason underpinning Tesla’s decision to stop accepting payments in bitcoin are concerns around the environmental impact of cryptocurrency. Given these concerns should be the same now as they were when the company announced its positive stance on bitcoin a few months ago, investors are now wondering what the real motive behind this change is. 

“As a new asset class, any development that may affect the outlook for adoption can have a sharp impact on price. These events represent potential entry points for new investors and help to remind us that any investment needs to be done in a risk adjusted way. The future looks bright for cryptocurrencies but deciphering the exact path of adoption is almost impossible. For this reason, digital assets currently represent a niche, but growing, part of a portfolio with allocations spread across high conviction crypto assets”. 

The UK’s wealth manager and financial adviser community is still unable to put their clients’ funds into cryptocurrency ETPs, with the FCA upholding a ban on any retail investment in cryptocurrencies. 

Laith Khalaf, financial analyst, AJ Bell comments: “Tesla and bitcoin were always odd bedfellows, given the environmental credentials of the electric car maker, and the colossal amount of energy consumed by the cryptocurrency. Musk hasn’t closed the door on bitcoin entirely, and Tesla says it will return to using the cryptocurrency once it transitions to using more sustainable energy. Even if that happens, one could question whether that energy couldn’t be used more productively in the global economy, rather than solving a payments problem that for most people, simply doesn’t exist. 

“Bitcoin backers will be wondering where this leaves the future of the cryptocurrency. Environmental matters are an incredibly sensitive subject right now, and Tesla’s move might serve as a wake-up call to businesses and consumers using bitcoin, who hadn’t hitherto considered its carbon footprint. Tesla’s decision certainly puts pressure on other big companies who accept bitcoin to review their practices, because boardrooms will now be wary about getting it in the ear from ESG investors on the shareholder register. This highlights that the long-term adoption of cryptocurrencies by businesses, consumers and investors is still highly uncertain, as Tesla itself has pointed out.” 

Khalaf also comments on Tesla itself. “Musk says Tesla won’t be selling any of its bitcoin, leaving the car maker with USD1.3 billion of inert cryptocurrency on its balance sheet, which is subject to bitcoin’s sporadic price movements, both positive and negative. The decision to suspend bitcoin activity won’t materially affect Tesla’s main operations, after all, consumers can still pay for its cars in dollars, euros, pounds and yuan. However, it does raise question marks over its purchase of so much of the cryptocurrency less than six months ago. Tesla might have made USD101 million from selling bitcoin in the first three months of the year, but now investors will legitimately be asking whether that money could have been better spent elsewhere.” 

Finally, Kevin Brown, savings and investment specialist at Scottish Friendly has also commented on the bitcoin price crash, writing: “The impact of Elon Musk’s comments on the price of bitcoin is further evidence that for most people investing in cryptocurrency is a risk not worth taking.   

“The level of volatility means that savers who choose to invest into cryptocurrencies must be prepared to lose all their money. The FCA has already urged extreme caution and it’s important that people take heed of this warning. 

“This latest crash will be used by some as an argument to suggest it is a good time to buy but investing in bitcoin or other forms of cryptocurrency is pure speculation. It’s not even betting, investing in nothing is a zero-sum game.  

“At least when you are at the bookies you have a real chance of understanding the outcome and probabilities if you know the horses or football. 

“If you do decide to invest in crypto, then only do so with money you can afford to lose. For everyone else, investing should begin with the stock market and the creation of a diversified portfolio with exposure to different assets. This helps to balance out the risks and maximise your potential returns.” 

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