Bitcoin is on its way to reaching mainstream acceptance, according to several reports this week. Ark Investment Management CEO Cathie Wood reiterated a bullish case for crypto at a conference, while Citigroup said it could be near a “tipping point.”
Yet Bitcoin is also increasingly adding to global energy consumption—raising concerns about the environmental impact and sustainability of the cryptocurrency.
Speaking at a Mizuho Securities conference this week, Wood reiterated bullish views on Bitcoin, saying institutional interest in crypto could be a significant positive driver for the price, according to a note published Thursday by Mizuho analyst Dan Dolev. If institutional investors were to allocate between 2.5% and 6.5% of the money they manage to crypto, the price of Bitcoin could gain $200,00 to $500,000, in her analysis.
Bitcoin recently traded around $49,700, resulting in a total market value of around $927 billion, according to Coindesk. A year ago, Bitcoin traded around $9,000. It is up 69% in 2021.
(ticker: TSLA) have been buying Bitcoin—aiming to eventually allow its cars to be purchased in the currency. More companies are likely to invest in crypto, according to Wood, due to growing concerns that fiat currencies could be devalued by inflation and central bank monetary policies as global debt levels surge.
Citigroup, in a report this week, said that institutional acceptance of Bitcoin is accelerating. “The intersection of low yields and inflationary expectationshas increasingly fostered the institutional investor view that Bitcoin could represent an inflation hedge, a portfolio diversifier, and a safe haven not currently offered by traditional government bonds all at once,” Citi’s research team wrote.
More than $20 billion in Bitcoin is now traded daily, fueling $500 billion in crypto exchange volumes in the first few weeks of 2021, according to Citi.
Bitcoin may be a good insurance policy against “confiscation of wealth by inflation,” according to Dolev. If individuals with at least $1 million in net worth took out a 5% Bitcoin insurance policy, it could add $300,00 to $400,000 to the price, Wood said, citing a study.
None of these forecasts are likely to play out near-term. And Bitcoin isn’t without controversy. It’s highly volatile, for one thing, going through multiple boom-bust cycles. Treasury Secretary Janet Yellen recently cautioned that it is “inefficient” as a transaction currency. Indeed, it may work better as an asset class than as an everyday currency, since it can lose or gain 10% in the time it takes to buy a cup of coffee.
Bitcoin’s environmental toll is also mounting. Bitcoin “mining” is highly energy-intensive, requiring huge quantities of electricity by a global network of computers to verify transactions and generate new units of the currency.
Bitcoin’s energy consumption has skyrocketed, according to the Cambridge Bitcoin Electricity Consumption Index. Consumption has more than doubled since last November, reaching an estimated 130 Terawatt hours (TWh) in annualized consumption. For context, the global Bitcoin copmuter network is now consuming as much or more electricity as countries such as Argentina, Ukraine, and Sweden do in an entire year, Cambridge says. The world consumes more than 23,400 TWh of electricity a year, with Bitcoin representing nearly 0.6%.
China—where 65% of the world’s Bitcoin is mined with cheap coal-fired energy—is starting to scale back. The country’s Inner Mongolia region plans to ban new cryptocurrency-mining projects and shut down existing ones, according to media reports this week.