'If you invest in Bitcoin, you don't really care about ESG'
The continued rally in crypto currencies was a major source of excitement over the past week, with Bitcoin topping $45,000 (now $50,000) in the wake of Tesla’s announcement that it has invested $1.5bn of its funds into the unit and that it plans to start accepting it as a source of payment. The ‘FOMO’ generated as Bitcoin prices have ascended by 500% in the past four months continues to draw new investors towards the asset class.
However, we would note that from an ESG perspective, such investments have particularly negative consequences. Aside from concerns that crypto currencies are heavily utilised to finance criminal activities in a non-regulated market and that lax governance of coin exchanges potentially exposes retail investors to catastrophic losses, an increasingly important concern relates to the energy consumption associated with computer-heavy coin ‘mining’ activities. It was estimated that the electricity consumption from digitally mining Bitcoin is already greater than the total electricity consumption of a country the size of Argentina, even before the latest spike in prices.
As crypto-currency prices rises, so does the incentive to mine, meaning that energy consumption may continue to rise at an alarming rate. In this context, investors should question whether the carbon reduction one may believe one achieves by investing in Tesla, relative to traditional auto manufactures, has in practice been offset by a carbon-increasing decision to allocate corporate funds to Bitcoin and drive its price higher.
Either way, it can be argued that the hipsters and millennials piling into cryptocurrencies right now simply don’t care for ESG and are more motivated by a desire to get rich quick by chasing prices.