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BLACKROCK’S BITCOIN-ESG PARADOX: You Can’t Have It All

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By Artem_Graf @ Shutterstock.com

You know that you can’t have it all. You can’t say one thing and do another. That’s the fastest way to break the trust of the people around you. You know BlackRock has been selling environmental, social, and governance (ESG) funds, promising investors they’ll change the world by lowering greenhouse gas emissions. It’s all a game to charge higher fees for funds, and to drive the EGOs of those in charge.

But what you won’t see anything about in the glossy ESG brochures is BlackRock’s investments in bitcoin mining. That’s because mining bitcoin is energy-intensive, generating massive amounts of greenhouse gasses when powered by fossil fuels, and potentially driving up rates for green energy, forcing others to use fossil fuels.

The Wall Street Journal reports on bitcoin miners moving to the U.S. from China, which clamped down on miners partly to conserve energy. Caitlin Ostroff writes:

Bitcoin mining has become a lucrative endeavor with the price of one bitcoin currently worth about $60,000. To harvest fresh bitcoins, powerful computers, many online 24 hours a day, compete to solve a series of math puzzles in the hopes of unlocking new coins.

By design, bitcoin’s network only releases new cryptocurrency every 10 minutes, and the number of coins it releases is set to diminish in the future. This makes the competition to unlock bitcoin energy-intensive, because the only way to boost one’s chance at winning is to put more machines online.

Bit Digital Inc., a Nasdaq-listed miner, has moved its more than 20,000 mining computers out of China. Those machines will join others in New York, Nebraska, Georgia, Texas and Alberta, Canada. Some are currently stuck at U.S. ports due to continuing shipping delays.

Samir Tabar, Bit Digital’s chief strategy officer, called China’s crackdown “an unintentional gift to the U.S.” In America, he said, the regulatory process is transparent and conducted with public input. “The rug will not be pulled out from under you,” he said.

Ultimately, miners will go where they have access to cheap energy and a light, or at least predictable, regulatory touch. After China’s clampdown, many miners also fled to nearby Kazakhstan. Earlier this month, the minister of energy in Kazakhstan, now the second-largest venue for bitcoin mining, said he plans to limit the amount of electricity that new bitcoin miners can use. Other popular spots include Iran, Malaysia and Russia.

It was China’s promise of cheap coal-fired power that made it an early home for crypto miners. Before its near-total ban, the country accounted for almost half of the global computing power dedicated to bitcoin mining.

The U.S. has its own regulatory constraints. Regulators have pursued cryptocurrency companies, and the chairman of the Securities and Exchange Commission, Gary Gensler, has taken a strict stance on the cryptocurrency market. Mr. Gensler has questioned whether many coin issuers and exchanges are flouting investor-protection rules.

Bitcoin mining operations have also raised concerns from locals over climate pollution, as some companies have brought old fossil-fuel plants back online. Legislators in New York state are considering a bill banning the use of fossil fuels to mine bitcoin and are calling for miners to document their carbon footprints. The SEC also is considering measures requiring publicly traded companies to disclose climate data.

As you can see, bitcoin is a dirty business. BlackRock and other fund companies selling the ESG fairytale, but also investing in heavily polluting bitcoin and other crypto mining endeavors need to explain the paradox in their messaging.

Action Line: Managers like BlackRock are just telling investors what they want to hear to sell funds with high fees. If you want to develop a real plan that focuses on your needs as an investor, I would love to talk with you.

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com