Mitigating the Environmental Risk of Bitcoin through Environmentally Sustainable Financial Markets

Abstract

This paper investigates the cross-quantile relationship between Bitcoin, a carbon-intensive cryptocurrency, and environmentally sustainable financial markets, such as green cryptocurrencies, carbon prices, green stocks, and green bonds. Using a cross-quantilogram approach, our results show that Bitcoin is either negatively related or uncorrelated with environmentally friendly financial investments. The results suggest that green cryptocurrencies, carbon prices, green stocks and green bonds can provide diversification benefits for Bitcoin. However, our findings show that the diversification benefits provided by cryptocurrencies weaken after 2020, while the diversification benefits provided by other markets are more stable over time. We derive the implications of our results for environmentally conscious investors and policymakers.

Keywords: Bitcoin; Carbon footprint; Green Finance; Cross-Quantile Dependence

JEL Classification: Q4; G10; G11; G15