What You Need to Know
- Musk says Tesla will no longer take Bitcoin as payment because of heavy fossil fuel use in mining the cryptocurrency.
- Wood insists Bitcoin uses lots of renewable energy and blames Musk, in part, for its recent price drop.
- Advisors whose clients invest in crypto and clients who buy assets based on ESG factors should understand the debate.
How should advisors view the debate between Cathie Wood and Elon Musk on the carbon intensity of Bitcoin, especially if they have clients interested in cryptocurrencies and clients who favor low-carbon assets — perhaps even the same clients?
Production of Bitcoin, the most actively traded cryptocurrency, uses lots of energy, which produces lots of pollution. Estimates range widely, from between 22 and 22.9 million metric tons of carbon dioxide emissions a year (near the levels produced by Jordan and Sri Lanka), according to the French scientific journal Joule, to over 130 million metric tons in China alone, according to a 2019 study published by Nature Communications.
Last month, Musk announced that Tesla would no longer take Bitcoin as payment for its electric vehicles, sparking a big selloff in the cryptocurrency from which it hasn’t yet recovered. “We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel,” Musk tweeted.
But a sizable portion of Bitcoin production is powered by renewable energy sources — estimates range from a low of 39%, according to the Cambridge Centre for Alternative Finance, to 73%, according to CoinShares Research.
What Your Peers Are Reading
Cathie Wood has repeatedly said that Bitcoin mining is heavily powered by renewable energy, and her firm released a report in April that asserted that “a world with Bitcoin is a world that, at equilibrium, generates more electricity from renewable carbon-free sources.”
Late last month, Wood, the founder of Ark Investment Management, blamed the recent drop in cryptocurrency prices — Bitcoin is near $37,000, about 43% below its record high near $65,000 in mid-April — on the “ESG movement” and Musk’s comments that fed “the notion … that there are some real environmental problems with the mining of Bitcoin.” Her firm’s flagship Ark Innovation ETF (ARKK), which still has large holdings in Tesla, Coinbase and Square, has lost all its gains from earlier this year and is now down 30% from its record high in February.
Bitcoin vs. Ethereum in Energy Usage
Matt Hougan, the chief investment officer of Bitwise Asset Management, which runs the first ever cryptocurrency index fund and other crypto funds, tells ThinkAdvisor that many who criticize Bitcoin on the basis of its energy consumption don’t think Bitcoin has any value.
He admits Bitcoin uses lots of energy — both from nonrenewable and renewable sources — but notes that use is what “makes the Bitcoin blockchain the most secure in the world.”
Bitcoin uses a “proof of work” mechanism, which requires all of its miners to solve a complex puzzle to put more Bitcoin into circulation. Those computations require massive amounts of electric power.