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Ark Invest considers Bitcoin in the face of environmental pushback

Ark Investment Management continues to make headlines since breaking into the top ten issuers of exchange-traded funds (ETFs) in January. However, after reaching an intraday high of $156.60 on 12 February, the firm’s flagship fund, the ARK Innovation ETF [ARKK], has seen its price falling 19.93% so that it rests just 0.55% up for the YTD, as of close on 28 April.

That said, the innovation fund has gained 121.40% over the past 12 months (through 28 April), justifying the hype. Meanwhile, the ARK Next Generation Internet ETF [ARKW] increased 5.78% in the year to date and has gained 132.56.9% over the past year (as of 28 April’s close).

The ARK Next Generation Internet ETF was notable because of its second largest holding, Grayscale Bitcoin Trust BTC [GBTC], which accounted for 5.1% of the fund’s value as of 28 April.

The Grayscale Bitcoin Trust BTC effectively functions as a vehicle for institutional investors to gain exposure to Bitcoin. This volatile trust has soared more than 381.25% against the dollar over the last 12 months (through 28 April).

 

Redefining mining

Bitcoin is mined using energy-intensive supercomputers. Critics have, therefore, panned Bitcoin and other cryptocurrencies, arguing that its environmental impact is one of the most likely factors to scupper its long-term price growth.

However, as a Bitcoin holder, Ark Invest, which recently invested in crypto trading platform Coinbase [COIN], teamed up with long-term Bitcoin purchaser Square [SQ] to defend Bitcoin’s green credentials.

“Bitcoin mining… is especially well suited to accelerate the energy transition,” asserted a research memo published by Square and Ark Invest. The memo argued that Bitcoin miners constituted “an energy buyer of last resort that can be turned on or off at a moment’s notice anywhere in the world”.

"Bitcoin mining… is especially well suited to accelerate the energy transition" - Research memo from Square and Ark

As solar and wind become prevalent, many have found that the intermittent power supply doesn’t always correlate with demand. The firms have suggested that the frequent demand from Bitcoin mining is “an ideal complementary technology for renewables and storage”.

It argued that combining Bitcoin mining with renewables and storage projects would increase returns for project investors and developers, permit solar and wind project construction ahead of lengthy grid interconnection studies, and encourage readily available “excess” energy in the event of unexpected demand spikes.

This would lead to increased solar and wind power deployment in global grids, further reducing its costs, which could see “a sizable transformation and greening of the Bitcoin mining industry”.

 

Coaling down?

According to a Citigroup report seen by Bloomberg, the amount of energy consumed by Bitcoin had multiplied 66 times since 2015. In fact, research from the University of Cambridge suggested that Bitcoin mining consumed more electricity than the whole of Argentina.

While advocates such as Ark Invest argued that mining the cryptocurrency ought to take advantage of cheap renewable energy, the amount of clean energy powering mining operations has long been unclear.

Yassine Elmandjra, an analyst at Ark Invest, told CNBC that 76% of Bitcoin miners use renewable energy, although other estimates do vary.

However, an indication of the cryptocurrency’s reliance on coal was provided when a recent coal mine flood in Xinjiang, China, caused a local blackout that halted a third of Bitcoin’s global computing power. According to Fortune, Bitcoin is “a creature of fossil fuels” that propped up a natural gas industry, which was otherwise in steep decline.

Because of this association, David Gerard, author of Attack of the 50 Foot Blockchain, argued that electric vehicle manufacturer and Ark Invest darling Tesla [TSLA] should question its own Bitcoin investments.

“Tesla got $1.5bn in environmental subsidies in 2020, funded by the taxpayer,” he told the BBC in February. “It turned around and spent $1.5bn on Bitcoin, which is mostly mined with electricity from coal. Their subsidy needs to be examined.”

"[Tesla's] subsidy needs to be examined." - David Gerard

In early March, Bloomberg reported that these environmental concerns would ultimately drive the price of Bitcoin down. “Many companies have cosied up to Bitcoin,” Peter Berezin, chief global strategist and research director at BCA Research, told the publication. “As ESG funds start to flee Bitcoin, its price will begin a downward spiral.”

While Ark’s Bitcoin thesis is publicly available for scrutiny, it is still unclear whether Bitcoin miners will gravitate significantly towards renewable energy because it tends to be cheaper.

Ark’s Elmandjra hopes to “stir conversation and debate” around Bitcoin, as the cryptocurrency network matures.

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