Crypto Energy Use: Could These Stocks Be Winners?

There’s loads of hypothesis behind the precise causes for the latest cryptocurrency sell-off. Whether costs for digital currencies are in a bubble or not is up for debate. But whether or not you are a fan of Bitcoin (CRYPTO:BTC) or view it as a worthless mirage, there is no denying that mining it has a big detrimental influence on the surroundings.

According to the Cambridge Centre for Alternative Finance, Bitcoin’s estimated annual power consumption is 116 terawatt-hours. That’s as a lot electrical energy as international locations like Argentina or The Netherlands devour in a yr. 

Bitcoin’s environmental influence has been a subject of dialog for years, but it surely’s gained extra consideration as of late. One cause is that well-known names have taken notice of it. When Elon Musk introduced that Tesla would now not take Bitcoin as a type of fee attributable to environmental issues, the value of the tokens slumped. Another problem is that the overall power consumption for Bitcoin mining tends to extend with its value as extra operators carry computer systems on-line to compete to mine new provide.

Further growing the power value was final yr’s “halvening,” which halved the variety of Bitcoins miners obtain for fixing every block of the complicated computations that permit transactions to be added to the blockchain. Yet regardless of Bitcoin’s latest 40%-plus plunge from its all-time excessive, the value of the cryptocurrency continues to be up round 27% for the yr, which is a greater efficiency than the practically 12% acquire S&P 500 has delivered. 

Whatever comes subsequent within the cryptocurrency market, the environmental value of Bitcoin mining is not a subject that can go away anytime quickly. And for traders seeking to capitalize on these issues, NextEra Energy (NYSE:NEE) and Western Digital (NASDAQ:WDC) are two shares that might be massive winners as crypto mining appears to be like to go inexperienced.

Image supply: Getty Images.

NextEra Energy

It’s no secret that roughly two-thirds of all Bitcoin mining takes place in China — whereas simply 5% to 10% of all Bitcoin is mined within the U.S. In China, entry to low-cost electrical energy from coal-fired energy crops reduces prices for Bitcoin miners on the expense of upper emissions. One method to scale back Bitcoin emissions is to energy extra rigs with electrical energy generated from renewable power. It sounds weird, however Bitcoin mining might be a worthwhile resolution to renewables’ power storage drawback. It’s well-known that renewable energy era is now cost-competitive with fossil fuels. But batteries stay too inefficient to retailer power from wind or photo voltaic at scale. Instead of storing extra electrical energy, energy firms may use it to mine Bitcoin. As U.S. renewable capability will increase, we may see a bigger share of Bitcoin mined from cleaner types of power.

Whether the surge in renewable power demand comes from crypto miners in search of options to fossil fuels to energy their large laptop complexes, or whether or not it is pushed by President Biden’s new infrastructure invoice (or each), NextEra Energy is poised to thrive.

Like most utilities, NextEra is seeking to combine renewables into its principally fossil-fuel-based portfolio. The distinction is that whereas lots of its opponents are nonetheless at comparatively early phases with their investments into renewable power sources, NextEra has already constructed and contracted a number of gigawatts (GW) of capability. Its renewable division, NextEra Energy Resources (NEER), secured 92% of its capability beneath long-term contracts in 2020. These contracts present predictable income streams, which helps with forecasting and justifying different progress initiatives.

NextEra plans so as to add between 23 GW and 30 GW of renewable capability between 2021 and 2024. On the excessive finish, that may put NEER’s complete renewable capability above 50 GW. For context, think about that the U.S. had 1,117 GW of utility-scale electrical energy manufacturing capability in 2020, and that features each renewable and nonrenewable sources.The firm’s anticipated contribution to the grid as an entire is noteworthy.

NextEra’s high-octane progress spurt has come at a value to its earnings and stability sheet, which have been weak over the previous few years. However, the corporate is forecasting that its adjusted earnings per share will develop by between 6% and eight% yearly beginning in 2022. NextEra can be a Dividend Aristocrat with a yield of two.1% primarily based on the share value on the time of this writing.

Solar panels and wind turbines at dawn.

Image supply: Getty Images.

Western Digital

My second decide is rather more Motley than a utility inventory like NextEra. Enter Western Digital, which has been making laptop laborious drives for many years. A pandemic-induced surge within the online game trade has immediately helped the corporate’s WD Black product line, which gives storage options for PC and console gaming. Just final week, it launched three new solid-state drives (SSDs) for the WD Black portfolio particularly designed for newer consoles just like the PlayStation 5 and Xbox One, in addition to its newest PC providing. So, what does all of this should do with crypto?

There’s been an enormous buzz round environmentally pleasant options to Bitcoin. Most of these options use what’s known as a “proof of area” mannequin versus Bitcoin’s “proof of labor” mannequin. Bitcoin miners rely on high-performance graphics processing items like these made by NVIDIA to mine new provide and confirm transactions on the blockchain. Proof of area tokens use storage as a method of verification. Put one other method, Bitcoin depends on the output of computing energy getting used, whereas proof of area tokens depend on the reminiscence supplied by laborious drives.

Chia is among the hottest proof of area options to Bitcoin. Even Amazon is opening its AWS platform to mine Chia. Chia mining nonetheless consumes loads of power, however the thought is that the mannequin is much much less taxing by way of energy consumption than Bitcoin as a result of it was particularly set as much as scale back emissions over time.

The younger cryptocurrency has scheduled halving occasions which are much like Bitcoin’s. Bitcoin’s halving occasions happen roughly as soon as each 4 years. While Chia lacks a hard and fast provide restrict like Bitcoin, its founders have devised a system that can progressively enhance the availability at a low and predictable price. 

A person holds an external hard drive while working on the computer.

Image supply: Getty Images.

Established companies with newfound upside

Utilities like NextEra Energy are among the many extra apparent picks for traders on the lookout for methods to learn from the longer term progress of unpolluted power, in addition to the push towards sustainable cryptocurrency mining. And Western Digital is a longtime enterprise that would profit from the rising issues about Bitcoin’s excessive environmental value. Chia is the front-runner amongst proof of area tokens, however others exist, and extra might be developed. To Western Digital, it is all the identical. Whether its demand comes from avid gamers or crypto miners, the tech firm appears to be like to be in a terrific place to learn from quite a lot of tailwinds. 

This article represents the opinion of the author, who might disagree with the “official” suggestion place of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even considered one of our personal — helps us all suppose critically about investing and make selections that assist us change into smarter, happier, and richer.

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About the Author: Daniel