Elon Is Wrong About Bitcoin. Crypto Miners Are Key to Renewables’ Success And just like that, Elon Musk has turned on Bitcoin. In a tweet on Wednesday, the self-proclaimed “Technoking of Tesla” said his company—which announced in February that it bought .5 billion in Bitcoin—would be suspending vehicle purchases using the cryptocurrency. Musk cited crypto miners’ “increasing” use of fossil fuels, particularly coal, “which has the worst emissions of any fuel.” The price of Bitcoin responded by dipping below ,000, ending the day down more than 12%, its worst trading session since January. I don’t question Elon Musk’s good intentions, but I respectfully disagree with the underlying insinuation that crypto miners in particular are a threat to the climate. It’s just not true, for
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Elon Is Wrong About Bitcoin. Crypto Miners Are Key to Renewables’ Success
And just like that, Elon Musk has turned on Bitcoin.
In a tweet on Wednesday, the self-proclaimed “Technoking of Tesla” said his company—which announced in February that it bought $1.5 billion in Bitcoin—would be suspending vehicle purchases using the cryptocurrency. Musk cited crypto miners’ “increasing” use of fossil fuels, particularly coal, “which has the worst emissions of any fuel.”
The price of Bitcoin responded by dipping below $50,000, ending the day down more than 12%, its worst trading session since January.
I don’t question Elon Musk’s good intentions, but I respectfully disagree with the underlying insinuation that crypto miners in particular are a threat to the climate. It’s just not true, for reasons I explain below.
Don’t get me wrong: The computer processing power needed to mine Bitcoin, Ether and other digital tokens is not insignificant. The University of Cambridge’s Bitcoin Electricity Consumption Index (CBEI) estimates that the global Bitcoin network, running at full capacity, uses about 147.8 terawatt hours (TWh) on an annualized basis, or almost as much as Sweden consumes every year.
That’s a big number, but it doesn’t take into account the percentage of Bitcoin mining that uses renewable energy. In a December 2019 report, CoinShares believed it to be 73%. Last month, ARK Invest’s Yassine Elmandjra said it was closer to 76%.
I wish Musk had included these figures in his very one-sided comment. He also failed to point out that a vast majority of the world’s Bitcoin mining is done in China. North American Bitcoin enthusiasts shouldn’t be penalized for how cryptos are generated in other countries.
Because Bitcoin is on the blockchain, you can see where each unique token originated. If Musk is truly serious about promoting green energy, he could easily change the policy to say that only Bitcoin that was mined using renewables can be used to purchase a Tesla.
Similarly, maybe he should only sell his electric vehicles (EVs) in states where renewables represent the greatest share of electricity generation (Vermont, Maine, Idaho, Washington) and restrict sales in states that still heavily rely on coal (West Virginia, Wyoming, Missouri, Kentucky).
Musk’s influence on capital markets and asset prices rivals that of even Warren Buffett. He’s worth tens of billions of dollars more than Buffett, in fact, and he commands a Twitter audience of 55 million. As the saying goes, with great power comes great responsibility.
Square: Crypto Is Key to a Clean Energy Future
I expect the crypto mining network to convert entirely to renewable energy much more rapidly than other industries precisely because it uses so much energy. Solar and onshore wind are now cheaper than coal and even gas, so it only makes sense from a cost perspective.
Take HIVE Blockchain Technologies. We use nothing but cheap renewable energy in Sweden, Iceland and elsewhere to mine Bitcoin and Ethereum. This is one of the reasons why HIVE is among the most profitable crypto miners right now.
Crypto mining may even help accelerate the deployment of renewable energy, which should please Musk. That’s according to a special report published last month by Square and ARK Invest. The digital payments company says that, because crypto miners are “unique” energy buyers, they’re an ideal complement to wind and solar as well as better storage technology. Returns on investment could be improved, for one thing, which would incentivize the deployment of new renewable and storage projects.
The chart below illustrates the impact that Bitcoin mining could have on solar in particular. The size of each blue bubble is proportionate to the size of the Bitcoin network in the U.S. As the size of the network increases, the greater amount of solar power (y-axis) and battery storage (x-axis) is available to the energy grid. “Increasing Bitcoin mining capacity could allow the energy provider to ‘overbuild’ solar without wasting energy,” the report says.
I believe this model could be a win-win for not just crypto miners, which would get access to cheap energy, but also states that have aggressive decarbonization goals. Everyone’s needs would be met.
Mike Colyer, CEO of New York-based crypto services firm Foundry, agrees. Locating renewable energy projects near crypto mining operations “allows for a faster payback on those solar projects or wind projects,” he told Markets Insider in March. More renewables “can be built faster in regions where before it was not attractive because they would produce too much energy for the grid in that area.”
Total Crypto Ecosystem at $2 Trillion Market Cap, Ether at $500 Billion
Despite Musk’s flip-flop, demand for cryptos continues to boom, with trading on major crypto exchanges reaching an incredible $1.7 trillion in April. Early that month, the size of all cryptocurrencies surpassed $2 trillion for the first time, more than double where it was at the beginning of the year.
Early Wednesday, the market cap for Ether, the number two digital coin, briefly surpassed $500 billion as its price touched a new all-time high of over $4,300 before declining on Musk’s tweet. To put that in perspective, $500 billion is greater than the market cap for JPMorgan and Visa.
Ether Demand Is Reflective of Growing Awareness of DeFi’s Potential
Ether, of course, powers the Ethereum network, which is the basis for decentralized finance (DeFi). With Ethereum, anyone with an internet connection can have access to financial services—from banking to investing to borrowing and lending—that in the past have been opaque, tightly-controlled and inequitable. When there are no overhead costs associated with running a traditional bank or insurance firm, prices can come way, way down. And since everything is built on smart contracts, human error can be eliminated.
The growing demand for Ether tells me investors are becoming more and more aware of DeFi’s potential in making financial services cheaper, faster, more reliable and more equitable. It’s also a big reason why we made the decision to mine Ether at HIVE on top of Bitcoin. Bitcoin is clearly digital gold, which I believe will remain hugely in demand, but Ether is the fuel that powers the whole system.
In Recognition of Roy Terracina
On a final note, I’d like to brag on my friend if I may. Roy Terracina, serial entrepreneur and longtime vice chairman of U.S. Global, was awarded an honorary Doctorate of Humane Letters last weekend from Our Lady of the Lake University (OLLU) here in San Antonio in recognition of his many years on the school’s Board of Trustees.
When Roy joined the Board in 2006, he applied his remarkable business acumen to help make OLLU more competitive at a time when many private schools were struggling financially.
A first-generation college student, Roy set about making sure OLLU was attracting nontraditional and historically underserved students and helping them succeed, not just academically but also holistically. He was instrumental in bringing online education to the university as well as intercollegiate athletics.
One story in particular stands out as indicative of Roy’s generosity and selflessness. He got the sense one day that members of the basketball team weren’t fully satisfied, and when he asked them what could be improved, the players said they didn’t have matching shoes like the other teams.
“Go out and buy the shoes, then send me the bill,” he told them.
To my friend—tireless entrepreneur and mentor, talented boxer, beloved husband and father, and now doctoral degree recipient—congratulations! I couldn’t be prouder.
This week spot gold closed at $1,843.43, up $12.19 per ounce, or 0.67%. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week higher by 1.07%. However, the S&P/TSX Venture Index came in off 2.47%. The U.S. Trade-Weighted Dollar rose 0.10%.
|May-11||ZEW Survey Expectations||72.0||84.4||70.7|
|May-11||ZEW Survey Current Situation||-41.6||-40.1||-48.8|
|May-12||Germany CPI YoY||2.0%||2.0%||2.0%|
|May-13||Initial Jobless Claims||490k||473k||507k|
|May-13||PPI Final Demand YoY||5.8%||6.2%||4.2%|
|May-16||China Retail Sales YoY||25.0%||—||34.2%|
|May-19||Eurozone CPI Core YoY||0.8%||—||0.8%|
|May-20||Initial Jobless Claims||460k||—||473k|
- The best performing precious metal for the week was gold, up 0.67%. Gold is near its highest level in three months. Bond market expectations for the pace of inflation over the next five years surged on Monday to the highest since 2006. The recent consumer price index (CPI) data, which was much higher than expected, only bolstered this argument. Weaker-than-expected jobs data supports the case for dovish monetary policy. The U.S. dollar fell on the news, which also supported the gold price. April retail sales were reported on Friday and came in weaker than expectations, bolstering gold as yields and the dollar sank.
- Palladium continues to do well and should be undersupplied by about 1 million ounces per year, which is 9.5% of 2021 demand, according to UBS. 2021 supply has been reduced by 545,000 ounces due to some recent mine disruptions in Russia. UBS continues to see the metal going to $3,100 per ounce in the next few months. Additionally, comments by Sibaneye Stillwater CEO Neal Froneman indicates that mining companies have become more restrained on new project spending compared to 10 years ago, which may keep the market tight.
- Endeavor Mining reported a strong first quarter of $0.50 per share, above the $0.42 per share consensus. Production was 347,000 ounces of gold, compared to the 310,000-ounce consensus. Torex Gold also beat earnings forecasts by reporting earnings per share of $0.66 in the first quarter, above the $0.46 consensus. Cash costs were 10% below consensus, at $580 per ounce.
- The worst performing precious metal for the week was platinum, down 2.11% on light news, falling with financial markets in general. Harmony Gold reported a weak fiscal third quarter, with volumes down 12% quarter-to-quarter. The weak volumes are related to COVID-related production issues. Cash costs rose 11% quarter-to-quarter due to lower volumes. The company’s Hidden Valley mine also had lower grades being mined. The next quarter will include significant plant maintenance.
- For the second consecutive year, purchases of gold on Akshaya Tritiya, considered to bring luck and prosperity, have been shuttered with the current COVID-19 wave running nearly out of control. The chairman of the All-Indian Gem and Jewelry Domestic Council noted that about 80% of the country is on lockdown, and while some sales will take place online, they will again be impacted as in the prior year.
- Fortuna Silver missed on first-quarter results and finished the week off by close to 3% with its peers off less than 0.5%. Fortuna’s share price weakness also pulled Roxgold’s share price lower on its all-stock bid to acquire Roxgold. While the C$40 million break fee is high, it reduces the value accretion to the new buyer to a gain of 31% versus 37%.
- Coeur Mining has announced its intent to acquire 17.8% of the outstanding shares of Victoria Gold at a price of C$13.20 per share. Additionally, Orion will receive about 5% of the shares of Coeur Mining and achieve a liquidity even. Orion also agreed to vote in favor of Coeur Mining acquiring more than 50% of the shares of Victoria if that ever occurred. It’s significant that we have seen another transaction in the junior mining space where a more senior peer is finding value in production more accretive than exploration currently.
- Investment Bank Liberum wrote recently that the diamond market looks to be in better condition after a rocky few years. Major producers have reduced inventories significantly without lowering pricing, thus implying demand has been robust. There are a limited number of diamond producers to invest in. Diamond exploration is much riskier while the macro lift in diamond markets could most directly be played through the producers.
- Montage Gold reported initial results on its drilling program at the Kone Gold Project, which were the best to date. There was high gold quality grade, which could lead to higher production (about 200,000 ounces per year) during the first five to seven years of the mine life. The preliminary economic assessment is expected in two weeks.
- Barrons highlighted that the gasoline lines we saw this week have to remind you of the 70s inflationary period. But Barrons points out that during the decade of the 1970s, investors had money market funds with high yields to try to keep up with inflation. With such a historic descent in interest rates, there are few ways to protect your wealth through cash substitutes. Barrons notes that TIPs and gold could play a role in investors’ portfolios today.
- The Western Electricity Coordinating Council (WECC), which monitors electric grids in the western U.S. and Canada, estimates that without imports, Nevada, Utah and Colorado could be short power during hundreds of hours this year, or equivalent to 34 days. New Mexico and Arizona fare a little better with being short only 17 days, under worst-case scenarios this year. The WECC’s Jordon White said: “It’s no longer necessarily a California problem or a Phoenix problem. Everyone is chasing the same number off megawatts.” Miners included!
- AngloGold Ashanti and Barrick Gold continue to trade with little premium for management with the Democratic Republic of the Congo still not repatriating their profits back to the companies this year. Plus, the state-owned Congolese mining company SOKIMO has lodged a claim against Kibali Goldmines for $1.114 billion for unpaid dividends and other funds.
- The major market indices finished down this week. The Dow Jones Industrial Average lost 1.14%. The S&P 500 Stock Index fell 1.39%, while the Nasdaq Composite fell 2.34%. The Russell 2000 small capitalization index lost 2.07% this week.
- The Hang Seng Composite lost 2.45% this week; while Taiwan was down 8.43% and the KOSPI fell 1.37%.
- The 10-year Treasury bond yield rose 5 basis points to 1.631%.
- Of the cryptocurrencies tracked by CoinMarketCap, the best performer for the week was Australian Safe Shepherd, rising 2870.95%.
- South Korea-based technology giant Samsung announced that it is connecting its smartphone cryptocurrency wallet to Ledger storage devices. Launched in 2019, the Samsung Blockchain Wallet supports Bitcoin, Ether, ERC-20 tokens, Tron, and Tron’s ERC-20 analog, and allows third parties to create decentralized apps. Samsung’s VP and Head of Blockchain said that the company is planning on expanding its wallet’s support to more cold storage wallets and added that monthly active users of its blockchain ecosystem have doubled in the past seven months.
- Ethereum’s market capitalization surpassed the $500 billion mark this week, as the blockchain’s native token Ether set a new-record high, trading at $4,362.35 per token. This week saw Ethereum surpassing market capitalizations of financial behemoths JPMorgan Chase & Co. and Visa Inc. Ethereum’s record setting rally is backed by fundamentals, as the number of active Ether addresses also rose to a record high of 7.94 million, topping the previous peak of 7.14 million reached in January 2018.
- Of the cryptocurrencies tracked by CoinMarketCap, the worst performing for the week was Crypto Village Accelerator, down 99.18%.
- Colonial Pipeline, which was the victim of a ransomware attack this week, has reportedly paid $5 million in an “untraceable cryptocurrency” as ransom to its alleged Eastern European hackers. Contrary to earlier reports, the private company did pay the hackers, who the FBI has identified as having links to the DarkSide group, to restore its functionality. “Untraceable cryptocurrency” suggests that the payment was made using privacy coins like Monero or Zcash, but people familiar with the matter noted that the ransomware group demanded payment in Bitcoin.
- Bitcoin is set for another weekly decline as the world’s biggest cryptocurrency based on market capitalization fell below $50,000 per coin for the first time in almost three weeks. The sell-off is being attributed to Elon Musk tweeting that Tesla will no longer allow customers to pay for its vehicles using Bitcoin, citing issues regarding the environmental impact of mining the cryptocurrency. Although Bitcoin has since jumped above the $50,000 mark, the volatility and influence from one tweet does showcase that the crypto markets could benefit from investor protection and additional regulations.
- Toronto-based Ninepoint Partners LP is planning on dedicating a portion of its crypto ETF’s 0.70% management fee to offset the fund’s carbon footprint. The Canadian investment firm announced that it is partnering with CarbonX, an environmental software fintech-firm, to purchase carbon credits and support forest conservation projects. Additionally, the Crypto Carbon Ratings Institute, which tracks energy consumption and environmental impact of cryptocurrencies, will work in tandem with CarbonX to provide carbon footprint analysis to Ninepoint Partners.
- San Francisco-based Bitwise Investments launched a new ETF that provides its investors exposure to companies in the cryptocurrency sector. Trading under the ticker “BITQ”, the Bitwise Crypto Industry Innovators ETF aims to track Bitwise’s Crypto Industry Innovators 30 Index, which is made up of companies that have either 75% of their income derived from cryptocurrencies or 75% of their net assets in cryptocurrencies. Furthermore, firms with at least $100 million of liquid crypto assets on their balance sheet are also included in the ETF.
- Spain’s stock exchange BME is testing its blockchain infrastructure for small and medium-sized enterprises (SMEs) financing under the guidance of a regulatory sandbox created by Spain’s Ministry of Economic Affairs and Digital Transformation. The tests will allow BME to examine the suitability of the Ethereum-based system in raising capital for limited liability companies outside the traditional bank financing route. BME reported that its blockchain platform seeks to facilitate SME financing digital assets that represent funding avenues like convertible notes and participatory loans, adding that the platform will also include a digital wallet for SMEs to store both their financial investment instruments and electronic money.
- Bank of Korea (BOK) reported that it is seeking to maintain a stricter oversight on cryptocurrency trading activity via real-name bank accounts. BOK officials added that they are wary of unlawful crypto transactions causing risks to internal monetary control policies, and that the country’s Financial Services Commission (FSC) and the Financial Intelligence Unit are closely monitoring the crypto markets, with the FSC asking its employees to declare all their cryptocurrency holdings. BOK has given crypto service providers, including exchanges, custodians, wallet platforms and asset managers, until September to be in full compliance with the new reporting requirements. The nation also introduced a 20% capital gains tax on cryptocurrency trading profits above $2,200 beginning in January 2022.
- The Reserve Bank of India (RBI) is informally encouraging country’s lenders to cut ties with cryptocurrency exchanges. A senior executive at an Indian bank told Reuters that regulators are unofficially questioning banks as to why they deal in such speculative assets, adding that RBI is not comfortable with this type of trading activity that allows for money to flow overseas, citing money laundering risks. This comes a few months after India’s proposed ban on all private cryptocurrencies, discussions on which are currently ongoing.
- The U.S. Securities and Exchange Commission (SEC) issued an investor warning regarding risks of mutual funds that have exposure to Bitcoin futures, emphasizing the volatility of both Bitcoin and Bitcoin futures markets as well as lack of regulation and potential fraud or manipulation in the underlying Bitcoin market. Furthermore, the SEC said that it is closely monitoring Bitcoin futures-exposed mutual funds’ compliance with the Investment Company Act of 1940 and federal securities laws, and it will also assess the impact of mutual funds investing in Bitcoin futures on investor protection, capital formation, and the fairness and efficiency of markets. This comes on the back of the SEC delaying its decision on approving the VanEck Bitcoin ETF until June.
May 14, 2021
By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors