Bitcoin Can Be ESG Driver

Due to the energy-intensive nature of the bitcoin mining process, many consider miners and the digital currency itself detractors to environmental, social, and governance (ESG) and sustainability objectives.

Those criticisms can affect bitcoin mining equities and the exchange traded funds that hold those stocks, including the Invesco Alerian Galaxy Crypto Economy ETF (SATO). Fortunately, some experts are optimistic that the bitcoin mining industry is cognizant of the need to be a better environmental steward. There is also optimism that it sees long-term benefits in boosting adoption of renewable energy.

The current proof-of-stake mining system contributes to air pollution and climate change. Indeed, the ASIC hardware used to mine bitcoin results in a process that produces Scope 1 emissions. This indicates that some SATO member firms would do well to increase adoption of green energy.

As noted by KPMG, bitcoin mining requiring a lot of energy isn’t so much the problem as is the use of fossil fuels in the mining process. Bitcoin miners’ consumption of fossil fuels creates harmful emissions, and that weighs on the industry’s ESG credentials.

Bitcoin Miners Have Advantages

SATO member firms can locate mining farms nearly anywhere they choose. This is advantageous when dealing with some reliability issues tied to renewables.

“Renewable energy facilities are incentivized to produce at their maximum capacity to deliver electricity in a manner consistent with their contractual agreements,” observed KPMG. “This can leave utilities with an excess supply of electricity, which if coupled with a supply and demand mismatch, can lead to low, and even negative, electricity prices.”

Bitcoin miners have the ability to be selective when it comes to location, as well as other advantages. Miners, including those that dwell in SATO, can leverage this over the long term to potentially bolster their ESG resumes.

First, bitcoin miners can swiftly adjust to real-time demand conditions. In a hypothetical example, a bitcoin miner operating in the Phoenix can scale back activity during sweltering summer days. This would reduce energy consumption. Conversely, when energy demand falls during the more accommodating winter months, miners can increase output.

Second, as noted by KPMG, bitcoin miners can “provide additional incentive to the buildout of renewable energy capacity.” Moreover, in a broad sense, bitcoin arguably isn’t getting the ESG credit it deserves.

“Bitcoin appears to provide a number of benefits across an ESG framework,” concluded KPMG. “Throughout its short history, new and innovative ways of leveraging the network and its native asset continue to emerge, such as helping to stabilize energy grids, reduce greenhouse gas emissions, and even assist with providing sustainable heat to commercial and residential properties.”

VettaFi LLC (“VettaFi”) is the index provider for SATO, for which it receives an index licensing fee. However, SATO is not issued, sponsored, endorsed or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing or trading of SATO.

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