Socially Conscious Investors Know Crypto Is Bad for the Environment. They’re Buying It Anyway
Cryptocurrency is associated with some practices that aren't good for the earth. But that's not stopping many investors who care about social and environmental issues from investing in bitcoin, ether and other digital assets.
A whopping 96% of investors holding ESG — environmental, social and governance factors — assets in their portfolios are aware of the environmental concerns around cryptocurrency, according to a new survey from digital investment advisor Betterment. But that's not stopping them from buying it: 80% of those holding ESG-themed investments also hold crypto, the survey found.
For comparison, only 22% of investors who don't hold ESG investments own crypto. The online survey was conducted in April and included 1,000 U.S. investors.
"Because we believe crypto as an asset class is here to stay, the sustainability concerns around crypto, particularly as it scales, are worth taking seriously," Boris Khentov, senior vice president of product strategy and sustainable investing at Betterment, wrote in a report that accompanied the survey.
In the meantime, ESG investors appear to be trying to have their cake and eat it, too.
Boom in ESG investing and cryptocurrency
ESG investing is a term that describes investments that meet environmental, social and governance factors (a.k.a. non-financial factors that aren't traditionally taken into account when assessing the value of a stock or bond). And it's really popular right now.
Investors poured nearly $70 billion into U.S. sustainable funds in 2021, a 35% jump from 2020, according to Morningstar.
The strategy has attracted many younger investors, who — in the face of daunting issues like climate change — appear to want to support brands and corporations 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 assets, versus 25% of Gen Xers and 42% of baby boomers.
Cryptocurrency investing has also skyrocketed in recent years, with the crypto market's value jumping from $965 billion to as much as $2.6 trillion in 2021. Cryptocurrency has suffered from a massive selloff recently, but these digital assets don't appear to be going anywhere anytime soon.
However, the two types of investments don't exactly go hand in hand. Bitcoin mining, which entails computers solving complicated math problems to create new bitcoins, has especially faced a ton of backlash for its negative environmental impact. The bitcoin network's electricity usage is about the same as Washington State's, the New York Times reported last year.
Why do ESG investors also own cryptocurrency?
There's no definitive answer as to why ESG investors own crypto. But one factor that could be at play is ESG investors aren't just interested in investing with their values. They may also like the idea of exposing their portfolios to innovative asset classes that in some cases are still in development — which is certainly the case with cryptocurrencies, Khentov told Money via email.
Plus, not all crypto assets have the same impact on the environment. Bitcoin mining notoriously uses a lot of energy via a process called proof-of-work. But advocates of proof-of-stake — an alternative process for creating new crypto tokens — say it uses much 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 earth-friendly.
"These ESG investors are educated and intentional about their investments, putting time into making sure they align with their portfolio," Khentov says. "It follows that they would apply this kind of due diligence and a wider lens to other asset classes as well, and be educated about the nuances of the technology."
These investors may also be aware of the sustainability challenges and interested in advancing the space forward, Khentov adds. The survey found that 90% of those invested in crypto said it was important that major cryptocurrencies become more environmentally friendly.