Ark Invest's Cathie Wood discusses the crypto market, attributing the recent plunge to institutions pausing purchases due to ESG concerns.

Ark Invest founder Cathie Wood pointed out at the 2021 Consensus conference that the main reason for the recent Bitcoin price drop is institutional investors pausing their Bitcoin purchases due to concerns over the negative environmental impact of mining activities.

Bitcoin Price Drop Due to ESG Concerns

Cathie Wood, the founder of Ark Investment Management, pointed out at the 2021 Consensus Conference that the recent halving of Bitcoin's price is related to institutional investors' environmental concerns regarding mining activities.

"The drop is driven by the ESG (Environmental, Social, and Corporate Governance) movement and exacerbated by Elon Musk's tweets. There are real environmental issues with Bitcoin mining, causing many institutions to pause their purchases."

Cathie Wood further noted that Elon Musk may have received feedback from investment institutions such as BlackRock, Tesla's third-largest shareholder, whose CEO Larry Fink has been an advocate of ESG principles, especially concerning global climate change.

"I'm sure BlackRock has received some complaints, perhaps from some very large European investors who are very sensitive to this issue."

Optimistic View on Bitcoin's Energy Issue

However, Cathie Wood holds a relatively optimistic view on Bitcoin's environmental concerns. As outlined in a recent whitepaper jointly released by Ark Invest and Square, mining activities and renewable energy will mutually benefit each other, with Bitcoin serving as a battery to absorb excess electricity generated from natural sources like solar and wind energy.

While investing in solar and wind energy and other green industries has historically yielded low returns, this situation may be changing. Mining rewards will become funding for the development of renewable energy, making green industries like solar energy more attractive to innovative investors. Musk's advocacy will have a positive long-term impact on Bitcoin and help steer Bitcoin miners towards a more environmentally friendly direction.

Inflation? Deflation?

Former US Treasury Secretary Lawrence Summers and Bridgewater Associates founder Ray Dalio have recently warned publicly that government and central bank spending may exacerbate the inflation issue for the US dollar this year. However, Cathie Wood, known for her unconventional views, believes that deflation is more likely, predicting a significant drop in commodity prices, with emerging technologies like AI and blockchain helping to reduce global business costs.

"We see a higher likelihood of deflation. I know most people would think this idea is crazy given current developments, but we are already seeing signs of collapses in commodity prices."

Cathie Wood further stated that in emerging markets, if commodity prices fall (many commodity prices are linked to bulk commodity prices), their currencies will come under immense pressure. In such a scenario, central banks of some emerging markets may start increasing their Bitcoin reserves, as they know their currencies are declining. If they do not take action and allow their reserves to continue to decline, they will come under attack.

Unstoppable Technological Development

Regarding regulation, the founder of Bridgewater Associates reiterated concerns about Bitcoin's regulation at the Consensus Conference, suggesting that Bitcoin poses a competitive threat to fiat currencies, prompting governments worldwide to take action and attempt to ban Bitcoin. However, Cathie Wood believes that governments have realized that innovation is key to long-term growth and that true technologies, such as current cryptocurrencies or previous internet technologies, are unstoppable.

Focus on Ethereum Development

Lastly, at the conference, Cathie Wood revealed that Ark is increasingly focusing on Ethereum, having invested in Grayscale's Ethereum Trust (ETHE) and hired Ethereum miners to join its fintech analysis team.

"Of course, we are very interested in applications such as stablecoins, DeFi, and NFTs, and we have noticed more and more developers rapidly moving to Ethereum. I always tell our analysts: focus on developers and see what they are working on, as that will be a very clear signal."