The quest for a US-listed spot bitcoin exchange-traded fund is almost as old as the asset class itself. The US Securities and Exchange Commission has rejected dozens of applications in the last decade.
But with these ETFs now newly approved, a whole new class of passive and active investors is exposed to bitcoin for the first time — and some of them may ask, will spot bitcoin ETFs harm or help the environment?
I believe that ultimately, this new wave of bitcoin adoption could be an incredible addition to forging a clean energy future.
As spot bitcoin ETFs launch in the US, there will be massive inflows of capital to bitcoin from both retail and professional investors. This is an opportunity to align these investments with our climate and clean energy goals. The injection of funds into the bitcoin market can serve as a driving force for sustainable development, specifically in the clean energy sector.
Now that the SEC has approved these ETFs, we can definitely expect attacks from groups like Greenpeace USA and policymakers like Senator Elizabeth Warren, who have historically been opposed to bitcoin adoption. In preparing for these critiques, I encourage bitcoin bulls to educate naysayers and skeptics about the misconceptions around bitcoin in an impartial way.
Read more from our opinion section: Want to help save the planet? Mine bitcoin
When evaluating any technology, we should be honest about both its benefits as well as its potential risks. Bitcoin is a significant and growing consumer of energy, just like other forms of computation, like artificial intelligence.
But we need to acknowledge that the relationship between bitcoin mining and the energy grid is not so simple — marrying the greatest digital money network with the most complex machine ever built will not happen overnight. Where some see beauty in a decentralized and permissionless monetary system, others could see something different.
Greenpeace in particular has been vocal about their desire to change Bitcoin’s underlying code, as seen in their “Change the Code, Not the Climate” campaign. While pressuring financial institutions to change Bitcoin’s code is not technically feasible, there is an opportunity for these institutions to directly incentivize bitcoin miners to utilize clean energy sources and adopt sustainable practices — rather than attempting to alter the core technology of Bitcoin itself.
This collaboration between financial institutions and miners could be a more pragmatic and impactful approach to address environmental concerns associated with bitcoin.
Contrary to popular belief, bitcoin miners can play a significant role in supporting the integration of renewable energy sources into the grid by providing a stable demand for energy that can be easily adjusted based on availability. While bitcoin mining is often lambasted for its energy consumption, from a purely technologist perspective it is simply a value battery for energy that is flexible, location-agnostic and interruptible.
And even though some existing energy technology solutions like batteries can be part of the answer to reduce our global footprint, no other energy load has these three important characteristics to the degree that bitcoin mining does. The IEA finds that this type of capacity, otherwise known as “Demand Response”, will require a tenfold increase by 2030 if the world is to achieve a net zero energy system by 2050, because of expected growth of intermittent renewable energy. Even the White House Office of Science and Technology Policy recognizes that bitcoin mining can be utilized to mitigate methane emissions, a key challenge in the fight against climate change.
As the world’s first digital and energy-native commodity, bitcoin’s environmental footprint is simple to calculate, and is overwhelmingly influenced by a single choice — what energy to use in the mining process.
Instead of hopelessly trying to convince institutional investors to “change Bitcoin’s code,” institutions’ existing preference for sustainable practices can foster a market-based solution to drive bitcoin to climate-positivity.
Bitcoin ETF investors and issuers could make their preferences known through market-based instruments that preserve bitcoin’s inherent fungibility, but allow investors to reward bitcoin mining companies that voluntarily buy clean energy without the need for policy intervention. By creating a separate commodity class that represents sustainable bitcoin mining (or is derived from the clean energy data of the Bitcoin network), investors can encourage miners to use clean energy and make their preferences known through the market, without saying any one bitcoin is “green” or not.
In this way, institutional investors — historically slow to adopt bitcoin due to concerns around environmental risk — can champion sustainability by promoting data-driven practices, especially at a time when regulators such as the SEC and FTC are considering crackdowns on green marketing claims.
In the quest for climate-conscious investing, the integration of environmentally responsible elements into bitcoin ETFs presents a transformative opportunity unlike any other asset given bitcoin’s unique relationship with energy.
By incorporating incentives for bitcoin miners to adopt verified clean energy sources, these ETFs could play a pivotal role in accelerating the clean energy transition. The inclusion of such environmental incentives within regulated bitcoin ETFs offers a unique selling point, opening the bitcoin asset up to the $30+ trillion governed by climate investing frameworks, while preparing for upcoming climate disclosure regulations. As the Bitcoin network expands, the capital inflow from these eco-aligned ETFs could continually fund more renewable energy initiatives, fostering a virtuous cycle of environmental stewardship and financial growth.
The approval of spot bitcoin ETFs in the US unveils a potentially promising new chapter in sustainable finance. Imagine a financial system where your money is not just a means of exchange or store of value, but directly incentivizes an equitable energy transition by bringing electricity access to places like Malawi or mitigating methane emissions here in the US.
This wave of bitcoin adoption will bring both challenges and opportunities, but by fostering transparency, collaboration and incentivizing best practices, institutional adoption of bitcoin can be a force for good in the ongoing clean energy transition.
Elliot is the Head of Climate Strategy at Sustainable Bitcoin Protocol, where he is helping unlock Bitcoin’s clean energy potential by bridging sustainable miners and climate-conscious investors. In his role at Sustainable Bitcoin Protocol, Elliot educates policymakers and NGOs on Bitcoin’s relationship with the energy system. He is a climatetech operator focused on alleviating energy poverty, bridging the digital divide, and promoting financial inclusion through technologies such as Bitcoin. Elliot was previously a Schwarzman Scholar and has served in the military, US Department of Energy, Clinton Foundation, and more.
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Source: https://blockworks.co/news/bitcoin-clean-energy-etfs