Do Crypto Investors Care about Energy Use and Climate Change? Evidence from Ethereum’s Transition to Proof-of-Stake

Abstract

This paper analyses the transition of Ethereum (ETH) from the energy-intensive Proof-of-Work (PoW) to the less energy-intensive Proof-of-Stake (PoS). We analyze returns, volatility, return correlations and volume of ETH, ETC and Bitcoin for all events in the lead-up to the actual change from PoW to PoS also labelled “the merge.” The analysis suggests that some investors value the less energy-intensive mining mechanism and invest in ETH. However, since the overall effect is weak, we conclude that despite all the media attention and the stated concerns about the high energy-intensity of Bitcoin and PoW, most investors do not react to the change with an increased investment in Ethereum.

Keywords: Ethereum, Bitcoin, Proof-of-Stake (PoS), Proof-of-Work (PoW), ESG, carbon emissions, climate change

JEL Classification: G18, O31, O32, O33, Q02