Energy transition metals
Many countries around the world are making carbon neutrality by 2050 a priority goal. Solar photovoltaic panels, wind turbines and electric vehicles are key to achieving climate goals. However, most of these clean technologies rely on very specific metals and some of them are already in short supply. To achieve carbon neutrality, the demand for some metals is expected to continue to grow by a much larger magnitude than supply. Lithium and cobalt, in particular, are creating bottlenecks in production chains. Lithium is an important component of lithium-ion batteries. They are found in a wide range of products, from smartphones to electric cars, which are currently their most important customers. Copper could also find itself in a supply-demand an imbalance.
Another example is the rare earths, a group of 17 chemically related elements. Each has its own set of qualities, making them essential components for many functions, from energy-efficient lighting and catalytic converters to magnets in wind turbines, electric vehicles and computer hard drives. Rare earths, cobalt and many other elements have been designated as key materials by the U.S. Department of Energy and the European Union because of their importance to clean energy, the risk of supply shortages and the lack of replacements.
Uranium
In the energy transition, nuclear power could also play an important role. This energy source emits nearly 70 times less carbon dioxide than coal. In addition, the costs of nuclear power plants tend to be relatively low. These are very attractive characteristics in the context of the energy crisis we are experiencing. While the world has a great need for clean energy, governments are also realizing that renewable energy cannot replace fossil fuels in such a short period of time. It is therefore not surprising to see many countries considering nuclear power in the coming decades. This is the case in Asia. For example, China is planning to build 168 new reactors in addition to the 18 currently under construction and 37 planned, which would represent a 337% increase.
These projects are driving up demand for uranium even though uranium mine supply covers only 74% of the needs of currently operating reactors. This gap is expected to continue to widen as demand continues to grow. As a result, the price of uranium is rising sharply, as are mining stocks. Given the imbalance between supply and demand, this theme could remain attractive in the coming years.
Bitcoin and Ether
The year 2021 may mark a turning point in the history of blockchain technology and the adoption of cryptocurrencies by users and investors. Among them is Bitcoin, often referred to as “digital gold.” Indeed, its time-limited supply is one of its main similarities to precious metals. The “white paper” published before its launch in 2009 stated that Bitcoin production would be capped at 21 million by 2140. Today, 90% of the tokens have already been mined.
It is estimated that there are less than 0.4 Bitcoin per millionaire on the planet. This ratio is expected to decline, as the number of millionaires grows faster than the number of Bitcoins in circulation. The process of introducing new Bitcoins into the economy is therefore the opposite of fiat currencies, for which an unlimited amount of bills are currently printed. Bitcoin is thus the first “scarce” asset that can be transferred digitally. In addition, this digital scarcity has contributed to the sharp rise in its price.
While many experts view bitcoin as a digital storage asset, Ether (ETH) – the native currency of the Ethereum blockchain – is often seen as the equivalent of Web 3.0 and is more akin to a technology asset. However, a recent update to Ethereum (“London”) will also introduce a notion of scarcity to the Ether cryptocurrency. This is the “coin burning”, a practice that consists of voluntarily destroying cryptocurrency units in order to increase their value.
With each transaction on the blockchain, some ETHs are now being burned. Eventually, the burning rate could become greater than the inflation of ETH (i.e. the increase in new supply).
The “net” supply could therefore fall. LuckyHash estimates that the rate of deflation on the ETH network should reach 1% per year. This is a very attractive equation for investors: the growing success of the Ethereum protocol will not only increase demand but also reduce supply – the perfect “scissor effect”. More investors are therefore inclined to hold ETH because of this scarcity effect.
In a world of abundant liquidity and inflationary pressures, assets that are in short supply should continue to appreciate in price. Even if all these assets are not necessarily liquid or even accessible, it is still possible to create a basket of assets that are characterized by a scarcity effect. This is the case for certain growth stocks (technology, luxury), certain metals (precious and industrial), uranium mines or even ETPs on bitcoin and Ether.
