Bitcoin, Musk & the great Tesla U-Turn

Investments

Elon Musk, eh? His influence on cryptocurrency seems total. Even his smallest tweet can cause seismic price movements. He’s been at it again, this time with a major statement that has wiped billions off Bitcoin’s market cap. 

Musk voices big Bitcoin concerns 

On Wednesday, Musk announced Tesla will no longer be accepting payment in Bitcoin. The enigmatic billionaire cited concerns over “rapidly increasing use of fossil fuels for bitcoin mining”, as reasons for this big U-turn. 

“Cryptocurrency is a good idea on many levels, and we believe it has a promising future, but this cannot come at great cost to the environment,” Musk wrote in a long statement posted as a tweet. 

It appears, at least on the surface, that Musk’s cryptocurrency jitters have been triggered by some pioneering research from Cambridge University.  

The Cambridge Bitcoin Electricity Index measures the volume of electricity needed to power Bitcoin mining, the complex computational conundrum that generates the in-demand tokens. 

Cambridge’s findings are shocking, to say the least. Generating new Bitcoin tokens requires more energy than countries like Sweden or Malaysia. Fossil fuels, particularly coal, are heavily involved in Bitcoin’s power generation chain.  

The conclusion is simple: heavier Bitcoin mining means higher greenhouse gas emissions. 

Musk’s decision to stop accepting Bitcoin as payment is also a realisation of a fact: people don’t want to spend their Bitcoin. People are investing in it, not spending it. It’s less a currency than an investment asset to buy and hold (or HODL). 

The U-turn that turned into a slide 

Markets were not happy. Losses mounted quickly. Musk’s comments initially led to a $365.8 million drop in value for Bitcoin, heavily biting into its previous $2.5tn market cap valuation. 

Bitcoin, which recently passed the $61,000 mark for the first time, had been trading around $56,000. It subsequently dipped below $50,000, hitting $46,000 to reach the lowest levels since early March.  

Bitcoin is a crypto bellwether. Usually, when it goes, all the other tokens go with it. That was the case on Wednesday evening. 10 of the major cryptos, including joke-but-not-actually-a-joke token Dogecoin, a pet favourite of Musk, fell precipitously too. 

Despite its wild price swing, BTC is still making gains at a frenzied pace. The world’s most popular crypto is up 400% year-to-date.  

What’s next?  

It all depends on how Bitcoin mining reacts. If it keeps up its current energy consumption levels using fossil fuel-powered energy generation, then the damage to the environment will rise. That may cause further ripples of discontent against the crypto. 

The complexity of the algorithm required to mint fresh Bitcoin tokens is increasing too. It will require more computing power to create new coins. More power will be needed. Not great for the environment. 

Some steps are being taken. China announced in March that crypto mining operations in the Inner Mongolia region will be shut thanks to their power-hungry energy requirements becoming too high for example. 

Others say increased crypto mining activity could act as a catalyst for renewable energy.  

Cathie Wood of Ark Investment fame, alongside Square’s Jack Dorsey, has put out a memo with words to that effect, but critics are not so sure. They claim Woods and Dorsey have a vested interest in touting Bitcoin’s potential positive environmental impact when the current research suggests the opposite. 

There’s a bit of hypocrisy, or at least contradiction, at play for Tesla too. The company makes electric vehicles that are viewed as the environmentally-friendly alternative to internal combustion motoring (questions around battery component mining notwithstanding).  

Can it really be seen to continue investing in Bitcoin for its balance sheet with the current conversation around crypto mining’s sustainability? 

Eagle-eyed crypto hounds will no doubt recall Tesla padding its balance sheet with $1.5bn of Bitcoin earlier in the year. Its stake had grown to $2.5bn as of May 2021.  

Trading reports suggest the automaker even made more profit from cryptocurrency trading than from the actual sales of cars in Q1 2021. 

CFO Mark Kirkhorn said in Tesla’s April earnings call that he believes in the token’s long-term value and was planning on using customer purchases to acquire more. Obviously, customer-generated BTC acquisition is off the cards, but will Tesla continue to dabble on crypto exchanges? 

ESG, environmental, social & governance, is a growing concern for investors. Some Tesla shareholders may be feeling a little queasy at the automaker’s crypto dalliance. After all, this is meant to be a company pioneering a greener mode of travel. If it continues to work with Bitcoin, some shareholders’ green thinking may cause them to pull out and that could affect the share price. 

Bitcoin probably isn’t going anywhere any time soon either. This volatility is something we’ve come to expect from the world’s most popular crypto. But with ESG and sustainability conversations intensifying, it’s going to be an interesting year for the digital currency. 

Thematic investing: renewable energy stocks

Equities
Investments

The world is starting to invest in renewable energy. You can too. From wind energy stocks to utility firms, we take a look at some of the key clean power stocks that could perform well in the short and long term.

How you can invest in renewable energy

The case for green power

Global governments have committed to slashing their carbon emissions. The UK and US are both gunning for net-zero CO2 emissions by 2050, while the EU has pledged to cut its own greenhouse gas output in half by 2030.

We’ve also seen countries in areas like Central America go all in on renewables, adopting mass solar, wind and hydro power for their national grids. Billions is being pumped into large-scale solar farms throughout the Middle East too with Saudi Arabia, Dubai, and Abu Dhabi leading the way.

Pressure is mounting on China to cut the use of coal-fired power stations over the next decade to meet climate goals.

The historic 2016 Paris Climate agreement was a major step towards a greener future. Under its protocols, signed by 197 nations, the world essentially pledged to limit global temperatures no more than 2°C higher than pre-industrial levels. A lofty goal, to be sure, but one that could pay dividends for investors and traders.

The investment behind this worldwide initiative is nothing short of gargantuan. Joe Biden’s presidency alone is pushing through $2 trillion worth in clean energy projects and investments. Since 2019, over $54bn has been spent by the EU and UK on wind power development alone. China’s figure is over $100bn.

Climate change is one of the biggest challenges the planet faces. Countries are likely to continue to invest in renewable energy into the 21st century.

Using Britain as an example, the UK’s renewable market is expected to grow at a CAGR of other 9% from now until 2026, and that’s just one nation amongst many.

We can also see commitment to new green power generation infrastructure by looking at capacity installation. In total, 260 GW of renewable capacity was installed in 2020 – a 50% y-o-y increase.

As such, wind energy stocks, solar, and other green power sources could be poised to benefit greatly in the short and long term. See below for some renewables stocks that could be worth adding to the portfolio of the environmentally-conscious commodities investor.

Renewable & wind energy stocks to watch

Brookfield Renewable Partners

Brookfield Renewable Partners is one of the world’s largest publicly traded clean power suppliers. It has a multi-pronged approach to renewable energy, developing and supplying solar, hydro and wind power, as well as offering energy storage functions.

The bulk of Brookfield power is purchased under long-term, fixed rate deals, giving the firm steady cash flow. It also boasts a strong balance sheet and a BBB+ bond rating from S&P – one of the highest awarded to a renewables firm.

Currently, Brookfields believes it can pump around $800m-$1bn worth of liquidity into fresh projects from now until 2025. Estimates suggest annual cash flow growth per share of 11% to 16%, supporting yearly dividend increases between 5% to 9%, making it one to watch.

Vestas Wind Systems

One the key wind energy stocks is Vestas.

It’s a bit of a behemoth when it comes to wind power, being a cornerstone turbine supplier to on and offshore projects throughout the world, including three upcoming projects in Australia totalling 420 MW. The Danish firm is also mulling over expanding its footprint in the UK’s offshore sector.

In 2020, Vestas revenues grew by an impressive 22%, with its bottom line amount too €771m. Profitability did dropped by 25%, to €750m, caused by Covid-incurred costs. Deliveries, however, increased over 2020, with Vestas delivering 17.2 GW of capacity to project sites across the world – a 34% year-on-year rise.

Vestas’ €43bn project backlog is enough to inspire major confidence. It has increased dividend by over 5% in 2021, making the company one of the few renewable energy stocks with a pay-out (although its yield is less than 1%).

NextEra Energy

NextEra Energy powers 5.5m Florida homes with a combination of wind and solar and claims to be one of the world’s largest suppliers of wind and solar-generated power.

The company has been pumping cash into its renewables subsidiary over the past decade. Under its Florida Power & Light utility provider, the firm will be piloting something new for Florida: a “green hydrogen” plant, generating clean gas production via solar power, set to go live in 2023.

What’s more, NextEra has snapped up desirable acreage throughout the Sunshine State. It has plans to develop these key sites over the next 20 years.

In the short term, NexEra’s investments should power earnings growth of at least 6% to 8% per year through 2023. The firm could also increase its dividend by about 10% annually through at least 2022.

Want to invest in renewable energy? Remember the risks

While in the long term, the world is shifting towards a cleaner, greener future for energy generation, please be aware that all investing and trading is risky.

Whether you want to add wind energy stocks to your portfolio, or you’re looking at renewable utility suppliers or solar companies, bear in mind your investment can go up or down. You can lose more money than what you started with.

Only invest or trade if you are confident you can afford any losses.

The European Green Deal and COVID-19 Recovery Package

Equities

The European Union is set to officially present a recovery package next week on May 27th, with a focus on the EU Green Deal – an economic rescue plan aimed at generating jobs and private investment across the continent, while also integrating into the package policies geared towards reaching net zero greenhouse gas emissions by 2050.

Prior to the crisis, the European Commission had calculated that EUR 260 billion of additional annual investment was required to reach its 2030 emission goals, on the path to the net zero target.

Despite calls from some leaders to forget the EU Green Deal and focus instead on the virus, the EC has continued to reiterate its commitment to the Green Deal as being central to the recovery and reconstruction package. Earlier this week, a draft, unofficial document detailing the green recovery plan was published.

Considering this level of political support, we wanted to consider which sectors may stand to benefit from such green-focused policies, including renewables, building renovation and clean mobility. You can trade ESG stocks on Marketsx with ESG ETFs, as well as our unique ESG Leaders Blend.

Renewable energy

The goal of reaching net zero greenhouse gas emissions by 2050, as outlined above, could drive earnings growth for those utility companies with existing and scalable exposure to renewables in their power generation mix, and to those that are developing such exposure.

Two key renewable energy sources are wind and solar, which combined (Captain Planet, anyone?) form a complimentary mix: solar generation is largely during the sunnier, longer days in summer, while wind produces most in the winter months and typically peaks at night.

Screening for utilities with strong balance sheets could indicate that they have capacity for additional investment and growth in renewable energy sources.

Apart from decarbonising the power generation mix in a move to renewables, energy demand may also increase because of other measures, further accelerating growth in the sector.

For example, the use of electric heating in buildings is low in Europe, with the majority being gas or oil heated. Switching to electric heating, where electricity production comes from clean sources, could lower emissions while increasing power demand.

Increased use of electric vehicles could also contribute to growing power demand. It may also require the deployment of charging stations to facilitate long distance travel, where utility involvement could come in too.

Furthermore, it is not only utilities that stand to benefit from renewables growth, but also those companies involved in providing the infrastructure for renewable electricity generation and transmission.

Cleaner transport

Automobile manufacturers with a focus on battery electric vehicles (BEV) may stand to benefit from the green recovery plan. For example, consider a situation where public money is spent on subsidies that would reduce the cost for firms, or indeed cities, to cut emissions by converting vehicle fleets from combustion to electric engines.

A boost for public transport investment could have a significant impact on businesses in the sector. The report flags the importance of the European rail supply chain and supporting it and the businesses involved while it faces increased competition from China.

It is also worth noting that Volvo and Daimler recently announced a joint venture to develop and commercialise clean hydrogen technology for the truck market.

Building renovation

According to the leaked report we referenced above, buildings consume the largest amount of energy in the EU and are responsible for 36 percent of EU greenhouse gas emissions.

As previously discussed, a switch to electric heating could help in lowering emissions associated buildings.

Construction exposed companies could also be worth monitoring, such as those related to heating, ventilation and air conditioning, lighting, and electrical, as buildings are targeted for renovation to make them more energy efficient.

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