It has finally dawned on electric vehicle manufacturer, Elon Musk, that Bitcoin is very un-green.
Musk tweeted today: “We are concerned about rapidly increasing usage of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel”. His comments caused Bitcoin prices to dip rapidly, losing more than 10%.
We think environmental concerns are just one of the factors people should consider before buying Bitcoin
Bitcoin has a massive carbon footprint
Each year, the Bitcoin network consumes as much electricity as entire nations like Austria or Finland.
This is compounded by the fact that two of every three Bitcoins are mined in China, which, as Musk points out, relies heavily on coal for electricity generation. Recently, Bill Gates spoke out about this impact, sharing that, “Bitcoin uses more electricity per transaction than any other method known to mankind”.
To put Bitcoin’s impact in perspective, the annual carbon footprint of Bitcoin is equal to the total annual carbon output of New Zealand.
Unlike gold, which requires very little electricity once it has been mined, even previously mined Bitcoin requires the network to be sustained continually through ongoing mining.
Bitcoin’s legal and regulatory risks remain open questions
Last year, the US Department of Justice confiscated $1 billion in Bitcoin because it had been used in a crime, seven years earlier. Researchers in Australia even estimate that 46% of all Bitcoin could be traced somehow to prior criminal activity.
Forbes magazine recently explained that since each Bitcoin ledger entry can be identified uniquely, there is an ongoing risk that they can be confiscated by authorities as the proceeds of crime.
Certain governments are even proposing outright bans. China has already made it illegal to exchange Chinese yuan for Bitcoin, and India is in the final stages of passing similar legislation.
The Bank of America released a research note last week that said that more than 80% of the world’s central banks are piloting their own officially-sponsored central bank digital currencies (CBDCs). They went on to say that these, “would be like kryptonite for cryptocurrencies” because they would have the same level of technical innovation but would be fully backed by issuing governments and taxing powers.
By contrast, gold—especially fully-owned, physical gold bullion like what Rush provides—is easy and legal to own and use around the world.
The central banks of the US, Germany, China, and Russia, for instance, each own thousands of tonnes of gold. In many countries, gold has also played a significant role in cultural and religious practices for centuries.
Extreme price volatility continues to be an issue
In March 2020, stock markets plunged 9% (with some stocks depreciating even more) in one day as concerns about COVID-19 took hold.
Bitcoin, however, fared far worse by dropping 40%. This triggered losses for even aggressive traders who saw their stop-loss orders filled during the extreme whipsaw price action.
Bitcoin correlation to stocks (S&P 500) has risen from 0.01 in 2014–2020 to 0.22 in 2020–2021, meaning the price of Bitcoin is becoming more closely related to stock prices. What this means is that it is becoming less effective as a hedge, compared to assets like gold that demonstrate consistently low correlations with these markets.
Additionally, Musk’s market-moving tweet wiped out more than $90 billion in Bitcoin value instantly. Once again pointing out the price volatility of even the largest cryptocurrency.
So while investors may wish to include cryptocurrencies as a part of their holdings, they should do so with a close eye on some of the real-world risks they face.