Are ESG fears curtailing bitcoin investing's potential?
With environmental, social and governance (ESG) concerns over the mining of bitcoin [BTC] and other cryptocurrencies gathering pace, we ask how much energy crypto mining actually uses, whether institutions are staying away, and explore potential alternatives.
June 14, 2021

This article was originally published on Opto - Invest in the Next Big Idea.

As bitcoin is mined using hugely energy-intensive supercomputers, the environmental impact is increasingly considered one of the most likely factors to scupper the longer-term price growth of bitcoin and other cryptos.

Since Elon Musk raised the overuse of fossil fuels in bitcoin mining just under a month ago, and announced Tesla [TSLA] was suspending bitcoin purchases, the bitcoin price has fallen 41.48% from $57,939.36 to $33,504.26, as of 1am BST on 9 June. Between 7 and 8 June, the cryptocurrency saw a decline of more than 10% of the decline in just 24 hours, based on Coindesk's pricing. Bitcoin hasn't finished a day above the $40,000 level since 20 May -- as a reminder, bitcoin hit a record high of $64,829.14 on 14 April.

The Blockchain theme has moved down 0.62% on our performance scanner in the last week, placing it in the bottom 10 of 35 tracked themes (as of 9 June's close).

How much renewable energy does bitcoin use?

Bitcoin mining already uses a significant amount of renewable energy, but pinpointing the precise figure is difficult and estimates vary. However, somewhere between 39% and 73% of bitcoin mining is powered by renewable energy, according to Weiss Ratings cryptocurrency analyst Alexander Benfield, who was interviewed by last week.

Benfield points out that even the lower figure "is far higher than the percentage of renewable energy across the whole US power grid", which means that "bitcoin is far more energy-conscious than the average industry."

Bitcoin mining also uses excess energy that would otherwise go to waste -- Benfield uses the example of bitcoin miners in rural China using hydro-electric energy that would otherwise be wasted as a result of low local energy demand.

Firms stay away from bitcoin over ESG worries

Only 10% of financial institutions that are interested in investing into bitcoin have done so, according to the Canadian investor and television personality, Kevin O'Leary, who cites ESG concerns as a major factor. While O'Leary reckons it's "going to be a problem going forward", it has also been an issue for more than four years, according to EY Blockchain's Paul Brody.

He told Coindesk: "We have so many enterprise clients that care about this topic ... [but] quite a few enterprise clients have held off on doing stuff in blockchain over their concerns about the carbon footprint."

One mooted possibility is the introduction of a different type of bitcoin -- a cleaner, more ethical version. Digital payments startup Square [SQ] is aiming for net zero carbon emissions by 2030 and in December, launched a Bitcoin Clean Energy Initiative, committing $10m to support companies working to integrate green energy technologies within bitcoin mining. Seetee, the newly-launched investment arm of Norway's holding company, Aker ASA [FKM], will mine bitcoin using "stranded or intermittent electricity", reports Coindesk's Daniel Kuhn.

Why are firms going green?

According to Brody, there are two key reasons for companies wanting to move to cleaner forms of bitcoin mining. Firstly, they are anticipating future regulatory changes in the bitcoin sector. Brody tells Coindesk, "in practice, firms either get comfortable with the ESG hit of bitcoin and allocate, or they don't and stay away."

The second factor is that customers, along with other important stakeholders such as ESG investors, are essentially demanding that businesses adopt more eco-friendly practices to help deliver a more sustainable future.

Are there greener bitcoin alternatives?

While environmental concerns also surround ethereum, its blockchain draws approximately seven times less energy than bitcoin, according to Kuhn. Meanwhile, proof-of-stake cryptocurrencies, which do not incentivise energy consumption and are therefore more energy efficient than the commonly used proof-of-work model, suggest "new projects will likely shift their attention toward proof of stake because of the energy benefits", says Benfield. Ethereum is set to adopt the proof-of-stake mechanism later this year.

One factor to take into account is that most of bitcoin's energy use is connected to the mining of new coins and not the actual processing of transactions. Benfield suggests that, "once all the coins have been mined, energy usage is likely to come down, as the act of validating transactions uses far less energy than coin mining."

The crypto sector will become more environmentally conscious over time, though for bitcoin, the journey could take a while longer yet. As Kuhn puts it, "until the global grid goes green we'll have to put the idea of compliant bitcoin to bed."

MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

The Home of Successful Investing.

© 2023 MyWallSt Ltd. All rights reserved.






This website is operated by MyWallSt Ltd (“MyWallSt”). MyWallSt is a publisher and a technology platform, not a registered broker-dealer or registered investment adviser, and does not provide investment advice. All information provided by MyWallSt Limited is of a general nature for information and education purposes, and you should not construe any such information as investment advice. MyWallSt Limited does not take your specific needs, investment objectives or financial situation into consideration, and any investments mentioned may not be suitable for you. You should always carry out your own independent verification of facts and data before making any investment decisions, as we cannot guarantee the accuracy or completeness of any information we publish and any opinions that we publish may be wrong and may change at any time without notice. If you are unsure of any investment decision you should seek a professional financial advisor. MyWallSt Limited is not a registered investment adviser and we do not provide regulated investment advice or recommendations. MyWallSt Limited is not regulated by the Central Bank of Ireland. MyWallSt Limited may provide hyperlinks to web sites operated by third parties. Your use of third party web sites and content, including without limitation, your use of any information, data, advertising, products, or other materials on or available through such web sites, is at your own risk and is subject to the third parties' terms of use.