The biggest threats for institutional bitcoin investors though are claims the bitcoin mining industry is environmentally toxic given how much energy it consumes. In total it’s been estimated the computer power required to mine the coins means the industry consumes as much electricity as a country the size of Argentina every year.
In response to bitcoin’s climate problem, Square announced on Wednesday it plans to go carbon neutral by 2030 and launch a Bitcoin Clean Energy Investment Initiative involving an initial $US10 million investment in renewable energy companies within the bitcoin ecosystem.
Still the risk for Square, Tesla and others is that governments move to put a price-sinking and politically convenient carbon tax on bitcoin mining, transactions and holdings.
Moreover, Larry Fink, the boss of the world’s largest asset manager BlackRock, has already used his 2021 annual letter to warn asset managers climate and investment risk are now indivisible. Fink said this is a reality that will drive significant reallocations of capital, given the declaration of an existential threat.
BlackRock notes how financial regulators already demand more climate risk disclosure, central banks stress test climate risk, and consumers wear the significant costs of global emissions reduction targets under the Paris Agreement the US has rejoined.
A carbon tax on the grotesque energy costs of mining bitcoin doesn’t seem unreasonable then, especially in the context of electricity blackouts in Texas, which left millions without access to water and 2.7 million homes without power.
Big tech’s arguably unbreakable monopoly power shows the longer governments leave regulation of great new trends in digital innovation to influence it for the wider public benefit, the harder it becomes.
Although nowhere near monopoly powers, Square, Stripe and PayPal are widely touted as the tech giants closest to using software to disrupt the core of the traditional banking payments and ecosystems. For Square and Dorsey, bitcoin as the internet’s native currency hard-coded from the reach of bankers and lawmakers is a perfect fit.
But whether the climate risks disrupt the story is yet to be seen, with central banks already looking at green alternatives to bitcoin as a future of money where two counterparties can exchange wealth without the transaction touching bank accounts.
Fink has also prevaricated over bitcoin’s merits and risks being seen as virtue signalling if he eventually endorses it, given BlackRock’s climate letter is being touted as an institutional epiphany for the asset management industry.
Bitcoin rebounded back above $US50,000 on Wednesday afternoon to trade at $US50,731, according to Fintech Zoom.