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Crypto ETF Application Labels Bitcoin Fund as “Fully Decarbonized”

Published August 29, 2023 12:07 PM
Teuta Franjkovic
Published August 29, 2023 12:07 PM
Key Takeaways
  • The issuer company of the Jacobi FT Wilshire Bitcoin ETF has classified it as an Article 8 fund
  • Due to its partial investments in renewable energy certificates (RECs), ETF is “fully decarbonized”
  • According to Jacobi Asset Management, the ETF is a first of this kind

The recent addition of an ESG certification to a Bitcoin exchange-traded fund (ETF) by a London-based money manager has environmental experts scratching their heads.

As an Article 8 fund, according to EU laws, Jacobi Asset Management’s Jacobi FT Wilshire Bitcoin ETF is required to “promote” ESG. It is the most recent addition to the Article 8 fund class, which currently includes assets totaling approximately $6 trillion  spread over an ever-expanding range of financial products.

According to statistics , the EU’s environmental, social, and governance investing criteria have never before been applied to an ETF whose main objective is to allow investors to speculate on the value of Bitcoin. The chief executive of Jacobi, Martin Bednall, a former official at BlackRock Inc., has assured investors that the ETF will be “fully decarbonized .”

Bitcoin decarbonized
Tracking BTC is hard for investors | Credit: Bloomberg

Offsetting Bitcoin’s Energy Impact with RECs Amidst Credibility Concerns

According to Bednall , the ETF qualifies as an ESG product due to investments in renewable energy certificates. The plan is for Jacobi to buy enough renewable energy certificates (RECs) to offset the greenhouse gas emissions from the energy required to mine the Bitcoin that the ETF tracks.

There aren’t many activities that use as much energy as mine for Bitcoin. According to estimates, the computer power required to extract units of the cryptocurrency consumes about 140 terawatt-hours (TWh) a year , or roughly as much as Norway produced  in 2022.

Compared to an industry estimate of roughly 60%, the Cambridge Centre for Alternative Finance believes  that only 38% of Bitcoin mining is carried out using renewable and nuclear energy.

Using RECs to carry out a decarbonization strategy, according to Matthew Brander, senior lecturer in carbon accounting at the University of Edinburgh Business School, “isn’t credible.”

“Buying a REC doesn’t represent any real-world relationship between digital assets and renewable power,” he said .

A Credible Claim?

Anders Bjrn, lead author of a RECs research  published in Nature Climate Change, a peer-reviewed science magazine, claims that’s especially true when the RECs are unbundled, as is the situation with the Jacobi certificates.

The decarbonization claim “is only credible if Jacobi Asset Management can show that their purchasing of RECs causes an equivalent amount of renewable energy to be generated,” Bjrn stated . As the corporation acquires unbundled RECs to match the electricity use from Bitcoin mining, “that seems highly unlikely.”

Bednall claims  that after considering his alternatives, Jacobi chose RECs despite concerns of market tools used to reduce carbon emissions.

“RECs were preferred over offsets, as the most material part of our carbon footprint is in relation to the electricity consumption of the Bitcoin network,” he said.

According to Bednall, Guernsey and Amsterdam were chosen as the ETF’s domicile and listing locations because other countries’ regulatory requirements were too onerous. The Financial Conduct Authority’s limitations have prevented access to the London Stock Exchange, he claimed.

In the meanwhile, according  to Bednall, Jacobi is considering cross-listing the ETF on more European exchanges and is also “having conversations in Asia, Africa, and the Middle East.”

Jacobi ETF Emphasizing Eco-Friendly Approach and ESG Focus

The Jacobi FT Wilshire Bitcoin ETF launched  in more than a year after its initial 2022 debut date. The launch was marketed as the first spot, or physically-backed, Bitcoin fund, giving investors the chance to access a financial service backed by real Bitcoins.

The eco-friendliness  of the ETF was underlined right away by Jacobi Asset Management. The fund determines how much energy the Bitcoin network consumes using external data.

Then, it buys RECs and “retires” them. These certificates are tracked on a blockchain platform that enables investors to verify the fund’s claims about its environmental friendliness.

The ESG Bitcoin ETF has garnered a little over $1 million in investments since going public  in mid-August, while the price of Bitcoin has fallen by more than 10%.

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