You can’t say “Mr. Wonderful” didn’t warn you.
Shark Tank host Kevin O’Leary was one of the first in the investment community to raise the alarm about Bitcoin’s sustainability concerns when he emphasized: during an interview with Yahoo Finance in early May. Two weeks later, Elon announced Musk Tesla changed its attitude on the acceptance of crypto as a means of payment, citing the same sustainability issues, which triggered a 35% drop in Bitcoin price for the month.
But now, speaking with Yahoo Finance at the Bitcoin 2021 conference in Miami over the weekend, O’Leary said that Bitcoin’s biggest problem has become its biggest opportunity, and predicted that bitcoin miners would shift to more sustainable ones Forms of energy could drive Bitcoin to far outperform stocks over the next decade if it can solve its sustainability problem to attract institutional investors again.
“It’s both a huge problem and a huge opportunity. I prefer to take the opportunity,” said O’Leary. “I mentioned it in this Yahoo Finance interview, and the proverbial poo-poo hit the fan. I swallowed a lot, but it’s obviously in the institutional client’s mind.”
As O’Leary claims, the look of a fraction of miners who use nonrenewable energy, like some of the Chinese miners who are still running on coal-fired power, has prevented a number of institutional investors from turning into Bitcoin because of ESG fears to invest, or environmental, social and corporate governance, compliance. Despite the fact that a 2020 University of Cambridge study pinpoints sustainable miners at around 40% of the Bitcoin network and climbing, the stigma associated with the other miners who contribute to carbon emissions and global warming remains an ESG Overhang.
“Ultimately, there’s a new sheriff in town, it’s called ESG. Every single institution, from Larry Fink down to BlackRock, who issued his ESG letter, his sustainability mandate, that used to be Rand, it’s not” you must be sustainable in terms of investments or you will lose your investor, “he said.
Because of this, O’Leary has made arrangements with miners who use sustainable forms of electricity, like the big Texas-based wind farm miners, to secure payment in bitcoin, which he can prove has been sustainably mined. Other Bitcoin proponents have suggested matching Bitcoins held in portfolios with carbon credits to offset potential ESG conflicts.
“I just think that the moment we solve the institutional ESG problem, Katy is locking the doors. Because people don’t understand that the majority of global investment is in institutions and sovereign wealth funds.
Mike Novogratz, CEO of Galaxy Digital, echoed this opinion in an interview with Yahoo Finance at the Bitcoin 2021 conference, noting that institutional players in large part helped Bitcoin hit new highs earlier this year.
As an example of why it matters to Bitcoin, O’Leary said that the same ESG overhang has put negative pressure on oil companies. Emphasizing the declining price / earnings ratio in the space, he says institutional pressure to sell has caused the price of oil stocks to fall despite an increase in cash flow.
“These are sustainability committees that are pushing the stocks out of the mandates out of the portfolios … that just gives you an idea of the power of the ESG mandate,” he said. “We have to solve for the institutional customer. You want to invest in bitcoin. You can’t right now, it’s a really strange situation. “
However, O’Leary remains optimistic that institutional investors will find a way to get creative to take up a position – as he did – and believes that once that hurdle is cleared, Bitcoin will be back on the road to stocks over the years to surpass next decade.
“I think we will solve the ESG problem on Bitcoin in the next 12 to 18 months and I think in the next 10 years the Bitcoin asset itself will beat the S&P . So if you think the S&P is an average of 7 to 8% over a decade, I think Bitcoin would be 300 to 400 basis points above that, I really do, ”he said.
The call appears to be conservative compared to Bitcoin’s historic outperformance compared to the stock market. Bitcoin’s annualized return over the past decade averaged 230%, more than 10 times that of the ETF, which runs the Nasdaq (QQQ) and more than 16 times higher than the ETF that owns the S&P 500 (SPY), which achieved an annualized return of 20% and 14% respectively over the same period.