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ESG investor client? Avoid cryptocurrency

3 May 2021

ESG investors should give cryptocurrency a wide berth, according to CG Asset Management.

Chris Clothier, fund manager at CG Asset Management, has warned that the cryptocurrency is nothing short of an “environmental catastrophe”, with a carbon footprint equal to New Zealand.

Clothier explains: “As the value of Bitcoin has risen, so the prize for ‘winning’ increases and Bitcoin miners are incentivised to deploy ever greater resources in pursuit of victory. These resources take the form of vast, air conditioned server farms, a significant proportion of which are based in China and rely on coal power.

“Bitcoin is much less efficient than the networks it aims to replace. It is estimated that a single transaction on the Bitcoin network uses as much energy as 500,000 transactions on Visa.”

Clothier also warned that the anonymity afforded by Bitcoin has serious social effects, providing illegal groups including drug traffickers, money launderers and terrorists with a safe space to carry out their transactions.

This also raises the issue of governance, with the decentralised network making manipulation much more probable than in mainstream markets.  With no depositary, central registry or formal governance arrangements, there is also no one investors can turn to when their bitcoin is lost, stolen or their password forgotten.

Clothier said: “Anonymity in financial markets has been in decline for decades.  The benefits of financial anonymity to law abiding individuals are modest, yet the costs to society from criminal exploitation of anonymity are great and take the form of tax evasion, money laundering, and financing of terrorism. By setting itself outside of – and in opposition to – the prevailing trend against financial anonymity Bitcoin could yet attract the attention of regulators and see itself heavily marginalised or even replaced by a “better” digital currency.

“Like any other human institution, Bitcoin is capable of reform but its decentralised nature makes change cumbersome. Whether it is able to reform while retaining its appeal among its proponents remains to be seen. For the time being, investors with any consideration for ESG principles should avoid it.”

Professional Paraplanner