Cathie Wood's Bitcoin Claims Are Overheated

(Bloomberg Opinion) -- Given the dizzying price of Bitcoin and its increasingly rich and high-profile backers, it was only a matter of time before a cryptocurrency lobby emerged to tell positive stories about an investment still viewed with some suspicion by politicians, regulators and consumers. 

Yet even by the standards of crypto-advocates who stick laser eyes on their Twitter avatars and taunt opponents as destined to stay poor, the Kool-Aid served this week in a paper promoting Bitcoin mining as good for the planet — timed for Earth Day — leaves a sour taste.

Backed by Square Inc.’s Jack Dorsey, Tesla Inc.’s Elon Musk and ARK’s Cathie Wood, famous for her ultra-bullish moonshot bets, the report sets out Bitcoin mining as an “ideal” complement to renewable power projects backed by solar or wind energy and battery-storage technology. This is a bold claim, made somewhat dubious by what we already know about Bitcoin mining.

The technological arms race to grab freshly minted Bitcoins and collect transaction fees has outgrown the humble laptop and now requires huge computing rigs running 24/7. Cheap and abundant power is a competitive edge, which is why coal accounts for an estimated 38% of these miners’ power supplies, according to the Cambridge Center for Alternative Finance. Estimates of the Bitcoin network’s total energy consumption vary widely, from 20-80 terawatt-hours in 2019 to over 100 this year, more than some countries. That a few diehards choose to heat their living room with a mining rig doesn’t make it much greener.

The report argues that Bitcoin miners’ hunger for power is actually an incentive for utilities to invest more in renewable energy to meet that demand. The cost of providing more renewable but intermittent energy such as solar, and the necessary battery equipment to store it reliably, would be offset by the revenues generated from the crypto miners, it argues. This would move more solar and wind projects into profitable territory, while boosting battery capacity would leave more excess energy on hand than would otherwise be the case. The report uses the estimated power needs of Austin, Texas as a theoretical model.

The model’s estimates leave more questions than answers. One is the cost of storing power. The proposed battery capital cost is estimated at $200 per kilowatt-hour, but my BloombergNEF colleague Tifenn Brandily reckons it could be as much as 40%-60% more. Battery “oversizing” can make projects unviable, he says: “It makes electricity more expensive … It’s like advising a family going on vacation to drive in a bus meant for 30 people.”

Another question is the cost-efficiency of mining hardware. The report assumes an equipment lifespan of four years, but Alex de Vries, creator of the Digiconomist website that tracks crypto’s energy consumption, estimates elsewhere a lifespan of 1.5 years. Blockchain firm Elwood, in a paper published last year, estimated “approximate useful life” at two. If mining hardware does turn out to be half as durable as the model suggests, that will bring more hidden costs when it needs to be replaced.

There’s also the issue of whether Bitcoin prices will stay reliably high enough to fund green energy, given their volatile history. When they crashed in 2018, several miners went bust.

These might sound like quibbles, but they suggest a bullishness that doesn’t reflect reality. If Bitcoin is the key to an abundant clean-energy future, we’re a long way off. Earlier this month a derelict New York power plant was resurrected as a Bitcoin mining operation fueled by natural gas. Texas, the state used as a model by the research paper, has also lured mining firms with cheap power backed by gas. Disruptions in Chinese coal plants, following actual coal-mining accidents, recently affected power suppliers for Bitcoin mines in the region. Crypto miners seem to entrench the carbon status quo.

Judging by Wood’s enthusiastic tweets claiming the new research debunks the “myth” of Bitcoin’s environmental harm, one wonders if this report was designed to solve a problem or protect an investment. The message being sent out is that it’s not up to Bitcoin to fix its glaring issues — such as energy-inefficient mining algorithms that were always going to create problems at scale — but it’s the rest of the world that must adapt. Given the huge amount of money riding on Bitcoin staying just the way it is, namely digital gold to be hoarded speculatively rather than spent efficiently, its defenders will probably keep pushing complicated workarounds, not fundamental change.

There’s plenty of heat here, but little light.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Lionel Laurent is a Bloomberg Opinion columnist covering the European Union and France. He worked previously at Reuters and Forbes.

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