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Cathie Wood’s ARK Invest, a firm focused on disruptive innovation, released their “Big Ideas 2022” report last week. The firm expressed their belief that there are five “innovation platforms” that will generate significant equity market returns over the long term: artificial intelligence, robotics, battery technology, gene sequencing, and blockchain.
Within blockchain, ARK analyst Yassine Elmandjra covered Bitcoin, which he described as a “Monetary Revolution.” According to the report, despite reaching $1 Trillion in 2021, “Bitcoin’s market capitalization still represents a fraction of global assets and is likely to scale as nation-states adopt it as legal tender,” adding that “Bitcoin’s market capitalization could scale more than 25-fold in the next decade, with each [bitcoin] exceeding $1 million in value.” Further, the report notes that Bitcoin’s cumulative transfer volume increased by 473% in dollar terms in 2021, from $2.3T to $13.1T (or 212 million BTC to 275.4 million BTC). Average daily transfer volume increased by 460% in dollar terms, from $6.4B in 2020 to $35.9B in 2021.
In the report, Elmandraj described 2021 as a year of important technological breakthroughs and strong institutional adoption. He points to the significant growth in channels (+119%) and BTC capacity (+210%) on the Lightning Network and the successful activation of Taproot, the network’s biggest base-layer
protocol upgrade since SegWit in 2017. Regarding increased institutional adoption, ARK reports that “Exchange Traded Products [ETPs], Countries, and Corporations Held 8% of Bitcoin’s supply as of November 2021.” With continued BTC purchases from public companies like Michael Saylor’s MicroStrategy and the launch of financial products from major corporations like Fidelity ($4.2T assets under management), institutional adoption seems likely to continue through 2022.
In addition to broadening corporate adoption, El Salvador became the first nation-state to adopt bitcoin as legal tender in September 2021. According to ARK’s report, as of December 31, 2021, El Salvador had purchased 1,391 BTC and an estimated 3.8 million people were using El Salvador’s Bitcoin wallet, Chivo, suggesting 84% adoption among eligible citizens (compared to only 1.9 million who have traditional bank accounts).
In addressing common ESG-based arguments against Bitcoin, ARK concluded that “concerns about Bitcoin’s lack of sustainability seem ill-informed.” Socially, they argue that “Bitcoin has the potential to transform monetary history by providing financial freedom and empowerment in a fair, global, and distributed way.” The report notes that Bitcoin mining incentivizes efficient forms of energy generation, can capture natural gas that otherwise would be vented or flared, and can increase renewables share of energy on the power grid. The report also points out that the bitcoin mining industry itself has grown into a multibillion dollar industry and could be a breeding ground for innovation, particularly for developing “new and more efficient forms of energy generation.”