Below is the introduction to the latest report by CoinDesk Research associate George Kaloudis, which unpacks some of the myths, acknowledges some of the realities and looks ahead to the evolving energy mix, bitcoin’s role in improving renewables distribution and how policy can help further bitcoin’s relationship with the energy industry going forward.
Bitcoin (BTC) experienced a retail-driven meteoric price rise in late-2017, breaching $19,000 in December 2017 and a subsequently rapid price fall to ~$6,000 in February 2018. Professional investors took notice then, but few considered bitcoin a viable avenue to responsibly grow capital while properly managing risk. Three Februarys later, bitcoin topped $1 trillion in total market value and financial institutions are now serious about cryptocurrency. Bitcoin is no longer widely characterized as an inappropriate institutional investment.
While institutional bitcoin investment merits may overlap with retail bitcoin investment merits (for more on this, see our report on bitcoin’s value proposition), institutions face different types of pressures. Institutions face performance pressure from investors, policy pressure from regulators and reputation pressure from the public. A common concern from these stakeholders is bitcoin’s undeniable relationship with the environment and energy consumption.
While there are some headwinds to the rise of what is known as environmental, social and corporate governance (ESG) investing, a growing number of institutions have recognized the importance and have implemented internal mandates. BlackRock and JPMorgan, for example, have made their ESG commitments public. Younger investors also want their money to benefit society and the environment, providing a map to where they will direct funds as their wealth grows.
As the price of bitcoin continues to climb, ESG discussions become more salient. With more mainstream attention, bitcoin will come under increasing criticism for its environmental impact given its price growth is related to increased energy consumption and its well-documented ties to Chinese miners who use coal-fired energy.
Bitcoin’s decentralized nature and open-access ethos potentially give it a role in ESG funds. Yet, concerns around its environmental impact are likely to act as a barrier for institutional investors who answer to clients, boards and mandates. This report aims to address these concerns and show that bitcoin is not as polluting as its critics claim and that it can meaningfully contribute to progress in energy development as current industry trends become the norm.