Cathie Wood’s ARK Has Bitcoin and Solar Backwards

Does this look like an industry that has a problem with costs?

Cathie Wood’s ARK Investment Management LLC seems to think so. In a piece timed for Earth Day, her head of research suggests that Bitcoin, far from being a virtual coal furnace with a gambling habit, can actually help green the planet by encouraging more solar power projects, and thereby reducing their cost.

This frames the issue exactly backwards. Renewable power is doing just fine; the president of the biggest economy in the world just announced a wildly ambitious decarbonization target backed by a multi-trillion dollar infrastructure plan. Taking renewables’ share of the grid up to 80% shouldn’t be too difficult or expensive from here. It’s Bitcoin that has a problem in need of a solution. 

The argument is in one sense familiar to anyone in the renewables business. Solar is an intermittent power source and frequently reaches its peak production at times when all that power isn’t necessarily needed (that is, around lunchtime). One solution for this is to build batteries that store cheap surplus power during the day and dispense it (for higher prices) when you’re switching on the lights at night. But batteries are expensive for now. So another way to extract value from the surplus power is to use it to make something useful. Something like Bitcoin.

Possibly you see the issue here already.

The idea of “storing” surplus intermittent energy in the form of some useful item made with it is nothing new. We are already seeing offshore wind turbines being hooked up to plants that make hydrogen. Such projects can be a win-win. The solar or wind-power developer gets a guaranteed customer for times when few customers can be found, raising utilization, reducing unit costs and making the project easier to finance. We also end up with a potentially useful product that is greener and more cost-competitive because it is made with cheaper renewable electricity.

Does Bitcoin fit that bill? One is dubious about that. There is the existential question of what the actual utility of Bitcoin really is, beyond giving certain social media accounts something to focus on. This can be debated.

But there are surely other items of more tangible value that are higher up the priority list. How about aluminum, for example? It’s very carbon-intensive, in part because so much is produced in coal-heavy China (a bit like a certain cryptocurrency). It’s also very useful if you happen to want to actually decarbonize the global economy by building real things such as power grids and electric vehicles. Yes, greener aluminum sounds like something that will help and enjoy sustained demand for a while. And while it’s a commodity, and therefore prices can certainly be erratic, they’re nothing compared to Bitcoin.

Bitcoin miners, like power-plant developers, need to utilize their equipment as much as possible to make the economics pencil out. This knocks ARK’s argument, too. Bitcoin mining is not a flexible load that will run on the rhythms of the sun. When the sky goes dark, those power-hungry processors will switch to whatever’s cheapest and available. If that happens to be a coal plant desperate to offload electrons for any price it can get, then so be it. If anything, Bitcoin might be a useful adjunct for a dispatchable, low-carbon power source suffering from persistently high costs … nuclear Bitcoin, anyone?

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

Liam Denning is a Bloomberg Opinion columnist covering energy, mining and commodities. He previously was editor of the Wall Street Journal’s Heard on the Street column and wrote for the Financial Times’ Lex column. He was also an investment banker.

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