The (Un-)Sustainability of Bitcoin Investments
19 Pages Posted: 22 Apr 2019
Date Written: April 4, 2019
This paper analyzes if Bitcoin enhances investment portfolios both financially and in terms of lower carbon emissions. We show that the addition of Bitcoin to a diversified equity portfolio does improve the risk-return relationship of the portfolio but not its sustainability by reducing the portfolio’s carbon emissions. More specifically, current carbon footprint estimates of the Bitcoin network significantly deteriorate the sustainability of portfolios even for small Bitcoin allocations, as Bitcoin mining forms an extremely energy- and carbon-intensive process. Given the significant energy consumption of Bitcoin, we further study the relationship between Bitcoin prices and energy prices. Our analysis indicates that Bitcoin’s energy consumption influences energy company valuations, which in turn influences Bitcoin prices. Overall, our findings substantiate the unsustainability of Bitcoin investments from a carbon perspective. However, if Bitcoin miners increasingly utilize renewable energy sources, such a hydrogen or solar power, the Bitcoin network may become cleaner in the future – potentially transforming Bitcoin into a carbon diversifier.
Keywords: Bitcoin; carbon footprint; sustainability; diversification
JEL Classification: G11, G18
Suggested Citation: Suggested Citation