Cathie Wood, CEO of ARK Invest, speaks at a conference in 2018.
Alex Flynn/Bloomberg
Cathie Wood ‘s ARK Invest has weighed into the debate over whether or not Tesla CEO Elon Musk was right to stop accepting Bitcoin payments for Tesla vehicles on environmental grounds.
Monday, Wood’s firm reiterated its stance that Bitcoin mining can help, not harm, the environment by speeding the world’s transition to renewable energy. That puts ARK in opposition to the opinion of the CEO of the company where its flagship investment fund has put the biggest share of its assets.
ARK’s opinion that Bitcoin mining can be good for the environment differs from the consensus. Most people, including Musk, believe the amount of electricity needed to run all the computers “mining” Bitcoins is problematic. Coal still accounts for a hefty share of electric-power generation, so the more Bitcoin is mined, the more coal must be burned. That releases carbon dioxide, the main gas blamed for climate change, into the atmosphere.
“Tesla’s decision seems to have been triggered by private equity firm Greenidge’s plans to revive a coal power plant to mine bitcoin,” reads a Monday newsletter from ARK, adding “the concerns around Bitcoin’s energy consumption are misguided.”
The idea of an entire coal plant coming online to mine Bitcoin could be concerning, but what is happening on the ground is more complex. The company now known as Greenidge Generation bought some closed-down coal-fired power plants in 2014, converting them to natural gas and using the electricity generated to mine Bitcoin. About one fifth of the planned capacity is running.
Greenidge recently said it was buying carbon offsets intended to make its Bitcoin mining operations carbon neutral, with no net emissions of the greenhouse gas, after receiving scrutiny from environmental groups.
ARK sees the constant demand from cryptocurrency mining as likely to provide the profits needed for utilities to pay for the battery-storage capacity needed to shift more decisively toward renewable sources of power. Batteries could allow utilities to store backup supplies of electricity, allowing them to rely on sources such as wind power that are available only intermittently.
Without Bitcoin, the argument goes, it would take longer for utilities to put battery backup systems in place, so coal and natural gas generation would still be required to meet demand when wind turbines aren’t turning.
It sounds a little like broken-windows economic theory, the idea that breaking windows could generate sales for companies that produce frames and glass. It might work for makers of glass and frames, who can hire workers, but it takes business from other parts of the economy.
In this case, closed generating capacity is restarted, emitting extra carbon dioxide—an environmental problem—for crypto mining in the hope that utilities will invest in battery backup that would help reduce emissions in the long run. ARK wasn’t immediately available to address any feedback received on its idea.
The newsletter is noteworthy because Tesla (ticker: TSLA) is the largest position in the ARK Innovation ETF (ARKK). The ETF holds roughly $2 billion worth of Tesla stock, accounting for about 10% of the fund.
Bitcoin as payment, however, isn’t likely to be a wedge issue between Tesla and ARK. Musk continues to speak positively about cryptocurrencies on Twitter (TWTR). ARK, for its part, appears to believe in cryptocurrencies, owning a large stake in Coinbase (COIN), the crypto exchange.
Since Tesla disclosed a $1.5 billion Bitcoin stake in February, shares have fallen by one-third. Those declines have hurt the ARK Innovation ETF too, which is down by about the same amount over that span. The S&P 500, meanwhile, is up about 6%. The Nasdaq Composite has fallen about 4%.
There are many reason both the stock and ETF have struggled, including rising interest rates and a shift out of the kind of high-growth, technology stocks that Wood favors. The Bitcoin issue, for Tesla investors, has become an additional distraction.
ARK is likely significant enough to influence the Tesla board’s view of its Bitcoin stake, but the firm appears to be fine with the holding. Investors in Tesla can expect to be following Bitcoin issues for the foreseeable future.
Write to Al Root at [email protected]
