Page 19 - Investment Advisor July/August 2021

ALTERNATIVE INVESTMENTS

By Bernice Napach

Cathie Wood vs. Elon Musk and the Great

Bitcoin Energy Debate

Here’s what advisors should know if their clients are interested in
cryptocurrencies, sustainable investments or both.

ow should advisors view the renewable sources — but notes that use
debate between Cathie Wood is what “makes the Bitcoin blockchain
H and Elon Musk on the carbon the most secure in the world.”
intensity of Bitcoin, especially if they Bitcoin uses a “proof of work” mecha-
have clients interested in cryptocurren- nism, which requires all of its miners
cies and clients who favor low-carbon to solve a complex puzzle to put more
assets — perhaps even the same clients? Bitcoin into circulation. Those com-
Production of Bitcoin, the most putations require massive amounts of
actively traded cryptocurrency, uses electric power. The Ethereum block-
lots of energy, which produces lots of chain is in the process of moving from
pollution. Estimates range widely, from a proof of work mechanism to a proof
between 22 and 22.9 million metric tons of stake, or ownership, which uses less
of carbon dioxide emissions a year (near energy. Miners can mine or validate
the levels produced by Jordan and Sri electricity from renewable carbon- block transactions based on the amount
Lanka), according to the French scien- free sources.” of coins they hold. That move will mean
tific journal Joule, to over 130 million Late last month, Wood, the found- that the “crypto market will compete
metric tons in China alone, according er of Ark Investment Management, on carbon intensity vs. carbon neutral,”
to a 2019 study published by Nature blamed the recent drop in cryptocur- said Hougan.
Communications. rency prices — Bitcoin is near $32,000, In the meantime, financial advi-
Last month, Musk announced that about 50% below its record high near sors like Jeff Gitterman, the co-found-
Tesla would no longer take Bitcoin as $65,000 in mid-April — on the “ESG ing partner of Gitterman Wealth
payment for its electric vehicles, spark- movement” and Musk’s comments that Management which specializes in sus-
ing a big selloff in the cryptocurrency fed “the notion … that there are some tainable impact investing along with
from which it hasn’t yet recovered as real environmental problems with the investments focused on ESG factors,
Wood: Alex Flynn/Bloomberg; Musk: Andrew Harrer/Bloomberg
of early June. “We are concerned about mining of Bitcoin.” Her firm’s flagship are avoiding Bitcoin because “it’s so
rapidly increasing use of fossil fuels for Ark Innovation ETF (ARKK), which still far from ESG.” But he’s watching the
Bitcoin mining and transactions, espe- has large holdings in Tesla, Coinbase development of Chia, a new crypto coin
cially coal, which has the worst emis- and Square, has lost all its gains from that uses available storage on computers
sions of any fuel,” Musk tweeted. earlier this year. to “farm” the currency combined with
But a sizable portion of Bitcoin pro- “time” to assign chunks of storage space,
duction is powered by renewable energy BITCOIN VS. ETHEREUM IN which is much more eco-friendly.
sources — estimates range from a low of ENERGY USAGE Doug Heske, CEO of Newday
39%, according to the Cambridge Centre Matt Hougan, the chief investment Financial Technologies, an impact
for Alternative Finance, to 73%, accord- officer of Bitwise Asset Management, investment platform, says Wood is right
ing to CoinShares Research. which runs the first ever cryptocurren- about the heavy use of renewable ener-
Cathie Wood has repeatedly said cy index fund and other crypto funds, gy sources in Bitcoin mining but that
that Bitcoin mining is heavily powered tells Investment Advisor that many who Musk made the right call.Musk’s rever-
by renewable energy, and her firm criticize Bitcoin on the basis of its ener- sal on Bitcoin “was the right thing to do
released a report in April that asserted gy consumption don’t think Bitcoin has because Tesla’s mission is to support
that “a world with Bitcoin is a world any value. He admits Bitcoin uses a lot of a zero-emission future” and “millions
that, at equilibrium, generates more energy — both from nonrenewable and look to Musk.”

JULY/AUGUST 2021 INVESTMENT ADVISOR 17