How the Bitcoin Industry Is Responding to Wall Street's ESG Concerns
“They are doing it out of the sense of survival,” said John Reed Stark, former chief of the U.S. Securities and Exchange Commission’s Office of Internet Enforcement.
One cryptocurrency asset manager is buying emission offsets. A digital-asset trading platform says it wants to be "carbon negative" within 18 months. A new token would wrap bitcoin with carbon credits so that they could trade together as a single asset.
Just a month after Tesla CEO Elon Musk tweeted his concerns about the potential environmental harm from bitcoin mining, sending the cryptocurrency’s price into a tailspin, some industry players are rushing to respond. They’re looking at ways to address the environmental, social and governance (ESG) issues that might deter big institutional investors from embracing bitcoin.
“They are doing it out of the sense of survival,” said John Reed Stark, a former chief of the U.S. Securities and Exchange Commission’s Office of Internet Enforcement who now works as a consultant.
Though some experts had been warning for years that the bitcoin market’s narrative of “institutional adoption” was on a collision course with the ESG mandate that now dominates the activities of big money managers like BlackRock, it’s too early to tell how much of a difference the latest efforts might make. Will the bitcoin mining industry actually shrink its carbon footprint or just announce ambitious goals and make peripheral adjustments to give big investors cover?
“Bitcoin in its current form is not good for the environment,” said Campbell R. Harvey, an economist and professor at Duke University. “Nobody can argue that this isn’t a true statement.”
Some industry executives have criticized the narrative that bitcoin is particularly bad for the environment, arguing that the adverse climate effects are overblown. As MicroStrategy CEO Michael Saylor said at a meeting this week of the newly formed Bitcoin Mining Council, "We are not trying to fix bitcoin" but trying to counter the threat that "people don't understand bitcoin."
Another position is that the digital currency's value to the economy and society justifies the energy consumption.
Jesse Powell, CEO of the cryptocurrency exchange Kraken, told Bloomberg in an interview published this week that bitcoin is "a lot greener than people give it credit for." Early Thursday, Bitcoin Magazine tweeted out a screen grab of the interview, and Musk tweeted in response: "Based on what data?"
The issue doesn't seem to be going away, with bitcoin now changing hands at around $37,500, well off the all-time high near $65,000 reached in April.
So some big players are moving beyond the rhetoric and denial toward business changes that might help to address or remedy any environmental ills.
Here's a rundown:
- Crypto.com wants to be "carbon negative." Crypto.com, an app for trading cryptocurrencies, announced in a blog post on May 27 that it had set a goal for the next 18 months of becoming “carbon negative.” "Starting immediately, the first phase will focus on an assessment of the carbon generated through cryptocurrency trading, deposit and withdrawal activities across all of Crypto.com’s platforms (App, Exchange, NFT, DeFi, and Crypto.org Chain)," according to the post. "The second phase will identify the most effective ways to offset the carbon generated, with the support of accredited organizations specializing in carbon offsetting and sequestration." A third-party auditor will be retained to offer accountability. “The climate crisis is the most pressing issue of our time” CEO Kris Marszalek said in the post.
- One River Digital and "tokenized carbon credits." The asset management firm has filed for a bitcoin exchange-traded fund (ETF) that would be carbon neutral. The company said last week that an overwhelming majority of assets in an existing institutional bitcoin fund had chosen to switch to a new "carbon neutrality share class." The firm has "developed an index (BTC.X) based on the estimated carbon emitted per bitcoin and the market price of the offset required to neutralize that emission," according to a press release. "At today's prices and estimated carbon emissions, this is equivalent to $55 per year, or 0.15% of the cost of a bitcoin. One River buys tokenized carbon credits, validated on a blockchain."
- CoinShares and the "ESG crypto mining product." CoinShares, a digital asset investment firm, said in a May 27 press release that it had made a strategic investment in Viridi Funds and that it will advise the manager on "the first ESG crypto mining product in the U.S.” According to the press release, the move will help "meet emerging client appetite for these types of products."
- Tokensoft and the "carbon-neutral bitcoin-backed asset." Wrapped, a collaboration between tokenization specialist Tokensoft and digital-asset custodian Anchorage, announced a "carbon-neutral bitcoin-backed-asset" called Eco BTC (eBTC). According to a press release, the asset will combine bitcoin and carbon credits into a single digital asset, built atop the Celo blockchain platform. The deal will allow "institutional investors to add bitcoin to their portfolio and meet their fund's sustainability goals," Tokensoft CEO Mason Borda said in the statement.
Of course, bitcoin mining represents just one of many industries struggling to adapt to the ESG concerns. According to the Wall Street Journal, General Motors and Ford are boosting investments in electric vehicles to reduce emissions, while utilities including Xcel Energy and CenterPoint Energy are producing more renewable power.
“The auto industry in America is tackling ESG concerns at the moment," said Steve Ehrlich, CEO of Voyager Digital. “However, it doesn’t come under the same level of scrutiny as the crypto industry does.”
Harvey, the Duke professor, says some investors might latch onto the idea that their bitcoin-related investments could be sanitized via carbon credits, but he notes that other investors might not care at all – preferring the returns that might come from fast-moving cryptocurrency markets and disregarding the potential environmental impact.
In the long run, Harvey says, the concerns might be mitigated because “eventually energy production won’t be dirty,”
“Then bitcoin will no longer have this problem,” he said.
None other than Arthur Hayes, founder of the BitMEX exchange (and also a defendant in U.S. federal charges over alleged violations of the Bank Secrecy Act) noted in a blog post last week how crucial the issue had become.
“The ESG narrative is front and center because the most desirable locations for mining bitcoin are those that appear to be ESG-compliant,” Hayes wrote on June 10. “That stamp of approval allows institutional money to check their box, and invest.”
Sam Bankman-Fried, CEO of the cryptocurrency exchange FTX, told Bloomberg this week in an interview that solutions to address investors’ concerns might be “something the industry could pay without really setting itself back that much.”
“The answer is that it’s not free to mitigate, but it’s not that expensive,” Bankman-Fried said.
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