Kevin O’Leary explains why bitcoin will beat stocks now
You can’t say “Mr. Merveilleux” didn’t warn you.
Shark Tank host Kevin O’Leary was among the first in the investment community to sound the alarm on bitcoin’s sustainability issues, when he pointed it out in an interview with Yahoo Finance in early May. Two weeks later, Elon Musk announced that Tesla was reversing its stance on accepting crypto as a form of payment, citing the same sustainability issues, causing the price of bitcoin to collapse by 35% for the month.
But now, speaking with Yahoo Finance at the 2021 Bitcoin conference in Miami this weekend, O’Leary has said what was bitcoin’s biggest problem has become its biggest opportunity, predicting a shift among miners. Bitcoin’s move towards more sustainable forms of energy could propel bitcoin to vastly outperform stocks over the next decade if it manages to solve its sustainability problem to attract institutional investors again.
â€œThis is both a huge problem and a huge opportunity, I prefer to look at the opportunity,â€ said O’Leary. â€œI called him during this interview with Yahoo Finance, and the proverbial poo hit the fan. I’ve taken a lot of criticism, but it’s obviously in the mind of the institutional client.
As O’Leary argues, the perspective of a fraction of the miners using non-renewable energy, such as some of the Chinese miners still running on coal-fired electricity, has prevented a number of institutional investors from investing in bitcoin because of fears about ESG, or environmental, social and corporate governance, compliance. Despite the fact that a 2020 Cambridge University study ranked sustainable miners at around 40% of the bitcoin network and is climbing, the stigma attached to other miners contributing to carbon emissions and global warming remains an issue. ESG overhang.
â€œAt the end of the day, there’s a new sheriff in town, his name is ESG. Every institution, including from Larry Fink to BlackRock who published their ESG letter, their sustainability mandate, used to be a margin, it’s no longer a margin. You have to be sustainable in terms of how you plan to invest, otherwise you will lose your investor, â€he said.
As such, O’Leary has made deals with miners who use sustainable forms of electricity, like large miners at Texas-based wind farms, to secure payment in bitcoin that he can prove was sustainably extracted. Other bitcoin advocates have suggested matching bitcoin held in wallets with carbon credits to offset any potential ESG conflict.
â€œI just think that the minute we solve the institutional ESG problem, Katy bars the doors. Because people don’t understand that the majority of investments in the world are in institutions and sovereign wealth funds. That’s where the real money is, â€he said.
Galaxy Digital CEO Mike Novogratz echoed this sentiment in an interview with Yahoo Finance at the Bitcoin 2021 conference, noting that institutional players largely helped bitcoin reach new heights earlier this year.
As an example of the importance of bitcoin, O’Leary said the same ESG overhang has put negative pressure on oil companies. Highlighting the declining price-to-earnings ratios in the space, he says institutional pressure to divest has driven down the price of oil stocks despite an increase in cash flow.
â€œThese are sustainability committees that pull stocks out of portfolios mandatesâ€¦ which only give you a sense of the power of the ESG mandate,â€ he said. â€œWe have to solve for the institutional client. They want to invest in bitcoin. They can’t at the moment, it’s a really strange situation.
O’Leary remains optimistic, however, that institutional investors will find a way to be creative in making the stance work – as he did – and believes that once that hurdle is cleared, bitcoin would be back. to continue to outperform stocks over the next decade.
“I think we are going to fix the bitcoin ESG issue in the next 12-18 months and I think in the next 10 years the bitcoin asset itself will beat the S&P. . So if you think of an average of 7-8% over a decade on the S&P, I think bitcoin would be 300-400 basis points higher, I really mean it, â€he said.
The call seems cautious of bitcoin’s historic outperformance against the stock market. Bitcoin’s annualized return over the past decade has averaged 230%, more than 10 times higher than the ETF that tracks the Nasdaq (QQQ) and over 16 times the ETF that tracks the S&P 500 (SPY), which averaged 20% and 14% annualized returns over the same period, respectively.
Zack Guzman is an anchor for Yahoo Finance Live as well as a senior writer covering entrepreneurship, crypto, cannabis, startups and breaking news at Yahoo Finance. Follow him on twitter @zGuz.
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