Prices for bitcoin plummeted in May after Tesla CEO Elon Musk criticized the energy usage of the peer-to-peer network underlying the cryptocurrency.
“We are concerned about the rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel,” tweeted Musk, the founder of the largest manufacturer of electric vehicles.
Musk’s tweet played a part in pushing bitcoin prices down from nearly $60,000 to $30,000 in just one month. The loquacious Musk would go on to temper his criticism of bitcoin over the next several weeks, but the damage was done; his comments had reopened a long-running debate about the environmental impact of bitcoin’s “proof of work” consensus protocol.
Proof of work is the mechanism by which nodes on the bitcoin network come to a consensus about which transactions should be added to the blockchain, the decentralized ledger that keeps track of who owns what. However, mining—the “work” in “proof of work” is a highly energy-intensive process. The Bitcoin network has been reported to use as much energy as all of Switzerland.
While it’s up for debate whether Bitcoin’s energy usage is useful or not, there is no doubt that it has turned some investors off from investing in the crypto space.
ESG Mining ETF
That’s where the Viridi Cleaner Energy Crypto-Mining & Semiconductor ETF (RIGZ) comes in. RIGZ, which launched today, is a fund that invests in companies in the cryptocurrency mining industry with “robust and sustainable environment, social and governance (ESG) policies.”
RIGZ doesn’t invest in cryptocurrencies themselves. Rather, its holdings include all the firms associated with the process of cryptocurrency mining, including producers of computer chips, manufacturers of computer equipment and miners themselves.
Miners invest vast sums of money setting up mining rigs with which they solve complicated mathematical puzzles. The process, which uses up large amounts of energy and computing resources, enables participants in "proof of work" blockchain networks like Bitcoin to reach consensus on which transactions are valid, and it secures the blockchain from attacks. In return for their efforts, miners are rewarded with freshly minted cryptocurrencies and transaction fees.
Viridi Funds will screen its ETF’s holdings based on certain ESG criteria, aiming to select cryptocurrency industry companies that “maintain robust and sustainable ESG policies.”
“Our intention with the fund was really to focus on the ‘E’ in ‘ESG.’ I think the underlying commodity that all of these crypto miners are supporting does a pretty great job of addressing the ‘S’ and ‘G’ in ‘ESG,’” said Wes Fulford, CEO of Viridi Funds. For instance, bitcoin is helping to provide banking services to many of the unbanked around the world, and it’s acting as a sovereign currency not tied to any one macro government’s printing press, he notes.
“The ‘E’ is where we have been focused. There are a lot of responsible [miners] that have been focused on identifying stranded sources of energy and renewable sources of energy,” he added.
According to Viridi, over 50% of North American bitcoin mining is already done using renewable energy sources.
Viridi’s Fulford said that an investment in miners can offer upside (and downside) beyond what you would get with a direct investment in cryptocurrencies.
“The rationale for owning a mining and infrastructure company is much the same as a senior gold producer: leveraged returns as compared to the underlying commodity,” said Fulford. “We believe that based on recent developments within the Chinese mining sector, North American miners that have access to sustainable low-cost power, large fleets of new-generation rigs, and access to capital are well- positioned to generate higher returns during the months and years ahead.
He added: “We are excited to be launching RIGZ at such a pivotal point within the evolution of this market sector, and to be prioritizing investment into sustainable crypto mining practices through Viridi’s clean energy focus.”
RIGZ is an actively managed ETF with an expense ratio of 0.9% and is listed on the New York Stock Exchange.