/Cathie Wood and Ark analysts explain bull case for BTC and ETH

Cathie Wood and Ark analysts explain bull case for BTC and ETH

  • Bitcoin’s energy usage has become a lightning rod amid the rising popularity of ESG investing.
  • Cathie Wood’s Ark Invest explains why they think this will lead to more renewable and solar mining.
  • Ark analysts also break down why they remain highly convicted in bitcoin and ethereum. 
  • See more stories on Insider’s business page.

It is hardly unexpected for bitcoin — one of the best-performing assets in the past year — to clash with the increasingly popular trend of environmental, social, and governance investing. 

Since Tesla chief executive Elon Musk backed out of accepting the cryptocurrency as payment on concerns over the massive amount of energy required for mining bitcoin, the digital token’s energy consumption has become a lightning rod for controversy.

The latest calculation from Cambridge University’s Bitcoin Electricity Consumption index suggests that bitcoin consumes 111.51 terawatt-hours per year, which is more than the annual energy consumed by countries such as the Philippines and the Netherlands.

That staggering figure has certainly raised some eyebrows, but it also begs the question of whether bitcoin deserves to consume so much energy.

“If you believe, like many mainstream establishments do, that bitcoin offers no utility beyond serving as a Ponzi scheme or a device for money laundering, then it makes sense why you’d conclude that consuming any amount of energy is wasteful,” Yassine Elmandjra, crypto asset and blockchain analyst at Ark Invest, said in a Tuesday webinar.

Elmandjra, who is obviously in the camp of viewing bitcoin as “a tool to enable sovereignty or escape monetary repression and capital controls,” took it one step further. He believes that bitcoin mining could not only yield more renewable energy but also provide more reliable power to the grid.

How bitcoin mining could increase the use of renewable energy 

To see how bitcoin mining can increase the adoption of renewable and solar energy, Elmandjra said it’s important to understand how bitcoin consumes energy.

He explained that while critics have focused on bitcoin’s high per-transaction energy cost, this metric can be highly misleading because the vast majority of bitcoin’s energy consumption happens during the mining process, which is actually used to secure the network and protect it against nefarious activities.

“Because bitcoin’s energy footprint has grown so rapidly, people sometimes assume that it’s going to eventually take over the entire energy grid,” he said. “But once coins have been issued, the energy required to actually validate these transactions is minimal, so simply looking at bitcoin’s total energy and then dividing that by the number of transactions doesn’t make sense.”

Meanwhile, it is also critical to distinguish between how much energy a system consumes and how much carbon it actually emits, Elmandjra notes. He points to estimates saying that about 40% of bitcoin’s energy outlay is derived from renewables and 76% of miners are using renewables in some capacity.

“We believe that as renewable options like solar continue to become more efficient, bitcoin could actually end up serving as an incentive for miners to build out these technologies,” he said. “With bitcoin mining integrated into a solar battery system, energy providers can basically play the arbitrage between electricity prices and bitcoin prices and then sell surplus solar, and supply almost all grid power demands without actually lowering the profitability of the system.”

He mapped out in a graph (shown below) how as bitcoin miners’ solar battery system expands, there could be rising renewable energy consumption for the grid.

Figure_1



Ark Investment Management LLC


“So in the absence of bitcoin mining, you can see that renewables can satisfy only 40% of the grid’s needs,” he said, “By including bitcoin mining, solar and batteries can satisfy 99% of the grid’s demand.”

Elmandjra said there has already been momentum around these renewable-based energy operations, with the most notable example being the announced partnership between Square and Blockstream to launch a 100% solar-powered bitcoin mine in the US.

Cathie Wood, chief executive of  Ark Invest, chimed in: “Half of the solution is understanding the ‘problem’ … I think that we are probably going to see the scaling out of solar much faster now than otherwise would have been the case without this controversy.”

Wood’s prediction has been partly answered by El Salvador’s president Nayim Bukele, who announced on Wednesday that his country is exploring using volcanic energy to mine bitcoin. The Latin American nation also passed a law to make bitcoin legal tender on the same day.

High conviction in bitcoin and ethereum 

Despite the recent pullback that has cut bitcoin in half from its peak of $64,000, Elmandjra said the Ark team has never had a higher conviction in crypto than today from a fundamental basis. 

“If you think about this five years out, I think these healthy corrections are a natural part of this asset class,” he said. “When you look at the opportunity [of this asset class] being between $5 trillion to $10 trillion over the next five years, the recent price performance that we’ve seen is not against those longer-term prospects.”

Frank Downing, who joined Ark Invest in April to cover crypto and the cloud, also shared his outlook on ethereum.

Downing, an avid ether miner since the 2017 market cycle, said the increasing adoption of decentralized finance applications and non-fungible tokens, which are powered by the ethereum network, have propelled huge growth for the cryptocurrency. 

For example, he points to the on-chain metrics showing that the active users on ethereum and the total transaction fees paid out on the network to miners have both been notching all-time highs. “These are really strong signals for the value that ethereum is providing,” he said. 

Downing is also impressed by how well the ethereum ecosystem has held up during recent bouts of volatility and corrections.

“We saw many liquidations and accounts that may have been over-leveraged, but the decentralized finance ecosystem actually held up really well,” he said. “The automated market makers did exactly what they were supposed to do and stablecoins held their peg. This is something that was really a good test and something that we were impressed to see really withstand the test of this cycle.”

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