Most pro investors remain sceptical about cryptocurrencies, largely due to a lack of regulated investment vehicles that they can use, and also because of worries surrounding the underlying infrastructure that supports crypto markets.
Security concerns were again raised this week, following the successful $613m hack of cryptocurrency platform Poly Network. While half of the coins stolen have now been returned by the thieves, thanks in part of coordinated activity by the crypto industry, the incident has again raised questions around just how secure crypto networks are.
How climate friendly is Bitcoin?
The other big issue for asset managers remains the environmental question – how much energy Bitcoin miners burn, for example. With fund managers under increasing pressure to ensure their investments are climate friendly, Bitcoin in particular has a hard mountain to climb. Miners are predictably shifting to cleaner, renewable sources of power in response, but is that enough?
The participation of professional investors in the market is going to be an important step in the evolution of cryptocurrency.
Commenting on Elon Musk’s announcement that Tesla could resume accepting Bitcoin as payment for its vehicles as the cryptocurrency increases its use of renewable energy for mining, Nickel Digital Asset Management, a regulated investment manager connecting traditional finance with the digital assets market, says addressing the ESG issues around the cryptocurrency could dramatically increase the amount invested in it by professional investors.
Investors still lack tools, worry about ESG
New research from Nickel amongst wealth managers and institutional investors reveals 27% would invest in Bitcoin for the first time if there were funds and investment vehicles that addressed the ESG issue around mining the cryptocurrency. Two thirds (64%) say they would increase their allocation.
Nickel says in most cases institutional investors with holdings in Bitcoin and other cryptocurrencies have very low levels of exposure as many have just been testing the market to see how it works.
Anatoly Crachilov, co-Founder and CEO of Nickel Digital, commented: “Mining Bitcoin is an energy-intensive process because of the Proof-of-Work consensus mechanism, which defines the core security layer of bitcoin protocol and plays a critical role in securing nearly a trillion dollar worth of digital assets. It is a conservative mechanism and is unlikely to be altered in the near future. It is important, therefore, to focus on the energy mix deployed in Bitcoin mining [the percentage of renewable vs. fossil fuel] rather than an absolute amount of energy used.”
According to a report published by the Cambridge Centre for Alternative Finance last year, as much as 76% of miners used at least some share of renewables in their energy mix, while as much as 39% used exclusively green energy sources.
These figures are set to improve further as miners are constantly searching for the cheapest form of electricity – their main cost item – which increasingly comes from renewables.
Furthermore, the recent exodus of many Bitcoin miners from China into new jurisdictions, for example the USA and Canada, should further accelerate the adoption of renewable energy sources, taking the share of renewables above 50% and beyond.”