Cryptocurrency is associated with some practices that are not good for the earth. But that doesn’t stop many investors who care about social and environmental concerns from investing in bitcoin, ether and other digital assets.
According to a new survey by digital investment advisor Betterment, a whopping 96% of investors who hold ESG investments – environmental, social and governance factors – in their portfolios are aware of the environmental concerns surrounding cryptocurrency. But that doesn’t stop them from buying it: 80% of those who hold ESG assets also hold crypto, according to the survey.
For comparison, only 22% of non-ESG investors own crypto. The online survey was conducted in April and included 1,000 US investors.
“Because we believe crypto as an asset class is here to stay, the sustainability concerns surrounding crypto, particularly as it scales up, should be taken seriously,” Boris Khentov, senior vice president of product strategy and sustainable investing at Betterment, wrote in one Report that accompanied the survey.
In the meantime, ESG investors seem to be trying to have their cake and eat it too.
Boom in ESG investing and cryptocurrencies
ESG investing is a term used to describe investments that meet environmental, social and governance factors (aka non-financial factors, which are traditionally not considered when assessing the value of a stock or bond). And it’s very popular right now.
According to Morningstar, investors poured nearly $70 billion into U.S. sustainable funds in 2021, a 35% increase from 2020.
The strategy has attracted plenty of younger investors who — in the face of scary issues like climate change — appear keen to support brands and companies that prioritize concerns around the environment, diversity and more. Betterment’s survey found that 54% of Gen Z and Millennial respondents said they invest in ESG investing, versus 25% of Gen X and 42% of Baby Boomers.
Investments in cryptocurrencies have also skyrocketed in recent years, with the value of the crypto market growing from $965 billion to as high as $2.6 trillion in 2021. Cryptocurrency has suffered from a massive sell-off lately, but these digital assets don’t seem to be going anywhere anytime soon.
However, the two types of investments don’t exactly go hand-in-hand. Bitcoin mining, in which computers solve complicated math problems to create new bitcoins, has faced a lot of backlash, mostly because of its negative impact on the environment. The electricity consumption of the Bitcoin network is roughly equivalent to that of Washington State. The New York Times reported last year.
Why do ESG investors also own cryptocurrency?
There is no definitive answer as to why ESG investors own crypto. But one factor that might play a role is that ESG investors are not only who are interested in investing with their values. They may also like the idea of exposing their portfolios to innovative asset classes, which in some cases are still evolving — which is certainly the case with cryptocurrencies, Khentov Money told via email.
Also, not all crypto assets have the same environmental impact. Bitcoin mining notoriously uses a lot of energy through a process called proof-of-work. But proponents of proof-of-stake — an alternative method of creating new crypto tokens — say it uses a lot less energy. Ethereum, the network that powers ether (the second-largest cryptocurrency by market value after bitcoin), is transitioning from proof-of-work to proof-of-stake.
Perhaps crypto investors who care about the environment are doing their research and deciding to put money into digital assets that are more environmentally friendly.
“These ESG investors are literate and aware of their investments and take the time to make sure they fit their portfolio,” says Khentov. “As a result, they apply that type of due diligence and broader perspective to other asset classes and are educated on the nuances of the technology.”
Those investors may also be aware of the sustainability challenges and interested in moving the space forward, Khentov adds. The survey found that 90% of those investing in crypto believe it is important for major cryptocurrencies to become greener.
More of money:
It just got easier to mine Bitcoin at home
What is cryptocurrency?
The 6 Best Crypto Wallets of June 2022