Bitcoin mining has surprising environmental benefits
Apart from the obvious high correlations to bitcoin prices, one of the most frequent criticisms of the bitcoin mining industry is that the group is not environmentally wise and that its core activity is a burden on climate efforts.
In theory, it can be seen as a sign that exchange-traded funds such as e.g Invesco Alerian Galaxy Crypto Economy ETF (SATO) are not credible avenues for investors who want to make use of industries that embrace clean technology and renewable energy. Interestingly, some experts claim the opposite is true.
While there’s no denying that bitcoin mining is an energy-intensive endeavor, some market observers believe related criticism lacks context and misses the mark when it comes to analyzing the industry’s potential to drive increased use of renewable energy sources.
“Allowing governments to crack down on Bitcoin’s energy use or attempt to change how transactions are processed will not only undermine the Bitcoin network, but also hinder energy innovation, positive environmental outcomes and economic opportunity in America.” wrote Dennis Porter for CoinDesk.
As Porter noted, bitcoin can serve as a catalyst for expanding renewable energy because it solves two of the biggest problems associated with traditional renewable energy, like wind and solar: cost and reliability.
“Bitcoin miners stand ready to buy excess energy from wind and solar farms, improve revenues for renewable generation and prevent taxpayers from subsidizing the production of energy. A win-win,” he noted.
That’s relevant to the SATO investment thesis because the ETF, which tracks the Alerian Galaxy Global Cryptocurrency-Focused Blockchain Equity, Trusts and ETPs Index, has a number of bitcoin miners among its 37 holdings.
Due to the strains many of these firms have incurred during the 2022 crypto winter, industry market values are well away from previous highs. As a result, more than 63% of SATO members are classified as small companies.
Bitcoin miners serve other purposes, including the potential to feed excess power back into energy grids, allowing grid operators to improve reliability while reducing customer costs.
“Miners are not only good for renewable energy. They can also make use of stranded methane, a potent greenhouse gas, which is often uneconomical to bring to market. Methane is often vented or flared from landfills, abandoned wells and oil and gas operations, Porter concluded.
Add it all up, and SATO may be more of a renewable energy play than meets the eye.
VettaFi LLC (“VettaFi”) is the index provider for SATO, for which it receives an index license fee. However, SATO is not issued, sponsored, endorsed or sold by VettaFi, and VettaFi has no obligation or responsibility in connection with the issuance, administration, marketing or trading of SATO.
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The opinions and forecasts expressed herein are solely those of Tom Lydon and may not materialize. Information on this website should not be used or construed as an offer to sell, a solicitation of an offer to buy or a recommendation for any product.
