Brevan Howard-Backed Firm Plans Carbon-Neutral Bitcoin Funds
(Bloomberg) -- It takes so much energy to mine Bitcoin that many investors won’t touch it for that reason. One River Asset Management, whose cryptocurrency funds are backed by billionaire Alan Howard, has a plan to remove that stigma: carbon neutrality.
One River, which manages $2.5 billion, developed a system that calculates the carbon cost of crypto mining and buys credits to offset the environmental impact. It’s building carbon neutrality into its existing Bitcoin and Ether funds and also planning to seek regulatory approval for an exchange-traded fund with the same features, Chief Executive Officer Eric Peters said in an interview.
“There’s a lot of talk about the carbon footprint,” Peters said. “We decided it’s time to stop talking and start doing something about it.”
While the U.S. Securities and Exchange Commission has so far rejected all applications for crypto ETFs, many similar investment vehicles such as trusts are available to accredited investors.
The same distributed-ledger technology that makes Bitcoin so impervious to hacking also makes it an energy hog. The University of Cambridge estimates that mining -- the computerized puzzle-solving required to verify all Bitcoin transactions -- consumes about 144 terawatt-hours of electricity annually, more than Argentina. Plus, consumption increases with the price of Bitcoin, which has risen more than seven-fold in the past year to above $60,000.
Because of that energy intensity, Bitcoin has been largely off-limits to investors who prioritize sustainability. Bill Gates is among those who have concerns that mining, much of it fueled by coal power in China, is accelerating climate change.
Bitcoin has critics for other reasons, too. Many central bankers are concerned about its role as a payment system in the unregulated economy and have pooh-poohed its volatility.
One River, based in Greenwich, Connecticut, has become one of the largest players in crypto investing in just a few short months. Peters sold 25% of his firm to Brevan Howard Asset Management in October. Then in November, Brevan co-founder Alan Howard took a stake in One River’s digital-asset business and put money into its Bitcoin and Ether funds.
For its carbon-neutral approach to be credible, One River needed a methodology that would stand up to the scrutiny of institutional investors. It developed an index, BTC.X, based on estimated carbon emissions per Bitcoin and the market price of the required offset.
Right now, that’s equivalent to about $55, or 0.1% of the cost of Bitcoin. One River is buying tokenized carbon credits so they’re validated on a blockchain.
Marcel Kasumovich, who designed the index as head of research, said he expects the cost of carbon offsetting to decline over time as Bitcoin miners seek cheaper sources of energy, such as hydroelectric power, off-peak wind and solar or even natural gas that’s currently being flared by oil producers.
“Those sources of energy will largely be renewable,” he said. “We’re talking about Bitcoin being part of the solution rather than part of the problem.”
Kasumovich has worked as a strategist for Goldman Sachs Group Inc., Merrill Lynch and Soros Fund Management, and helped found two hedge funds. Peters also brought on Sebastian Bea as president of One River Digital Asset Management, drawing on his experience in quantitative investment strategies at BlackRock Inc.
By creating a greener version of Bitcoin, One River may attract investors who ruled it out for environmental reasons -- and copycats, if it’s successful.
“Avoiding an asset class doesn’t solve the problem,” Bea said. “By investing, you can start to mitigate it. That’s a better solution than sheer avoidance.”
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