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With Canadians increasingly spoiled for choice when it comes to crypto-focused exchange-traded funds (ETFs), more asset managers are channelling fees into carbon offsets to help ease concerns about energy-hogging digital currencies.
Purpose Investments is set to launch new "carbon neutral" classes of its bitcoin and ether ETFs next week. The Toronto-based firm managing more than $12 billion in assets says the new securities are expected to begin trading on the Toronto Stock Exchange on Nov. 9, under the ticker symbols (BTCC.J) and (ETHH.J), respectively.
In August, Calgary-based Accelerate Financial Technologies announced a carbon-negative ETF that uses up to 10 per cent of the fund's 69 basis point management fee to plant trees. In May, Toronto-based Ninepoint Partners said it would partner with software firm CarbonX to buy carbon credits for its bitcoin ETF using an undisclosed portion of management fees. (BITC.TO)
The new, greener investment options come as crypto-asset firms push back against claims of excessive energy use. The debate is heating up as world leaders gather in Glasgow for the 2021 United Nations Climate Change Conference.
A report released on Monday backed by Coinbase and other crypto companies warns policymakers not to "throw the digital baby out the climate bathwater," touting the value of digital ledger technology for facilitating sustainable and inclusive finance. Its authors call for more transparent sustainability data, and for the industry to partner with "established leaders in carbon accounting and reporting."
The price of bitcoin (BTC-USD) soared to a fresh all-time high last month amid excitement over the first U.S. bitcoin futures ETF (BITO) beginning to trade on the New York Stock Exchange. Rising prices incentivizes more mining, a process that requires increasingly powerful computers solving increasingly challenging mathematical problems.
Crypto mining activity has increased in North America since the Chinese government crackdown on cryptocurrencies earlier this year. In New York, lawmakers are considering a bill that would ban the use of fossil fuels to mine bitcoin.
Analysts at Bank of America recently put bitcoin's energy global consumption on par with American Airlines (AAL), which flies over 200 million passengers in a typical year. However, the pro-crypto report issued Monday by Global Digital Finance takes aim at such comparisons.
"While important for putting things into perspective, they can only provide partial insights at best," wrote two authors from Cambridge Centre for Alternative Finance.
"Electricity consumption is linked to block production, rather than transaction processing. Therefore, this comparison tends to be mainly theoretical and of little practical relevance without additional context."
Purpose has revealed plans for a suite of new crypto-focused funds since launching in February North America's first ETF designed to track the price of bitcoin.
Vlad Tasevski, chief operating officer and head of product, says cryptocurrency held in his firm's new carbon-conscious funds are "fully offset from a carbon perspective."
The firm says it's partnered with Patch Technologies, a San Francisco-based startup that helps companies measure their carbon footprint and finance offset projects. Those can include forest restoration or direct carbon-capture technology. Purpose says it plans to purchase offsets at the beginning of each trading week.
"We believe this is a world-leading way to offset all of the emissions associated with holding bitcoin and ether," Tasevski told Yahoo Finance Canada in a phone interview. "The fees on those classes will be higher. That increased cost will be used to actually purchase carbon credits."
The Purpose Bitcoin ETF (BTCC.TO) and Purpose Ether ETF (ETHH.TO) carry a one per cent management fee, and a management expense ratio capped at 1.5 per cent. Purpose says the additional cost of the carbon-friendly offerings will be reflected in the new class's management expense ratio.
Not everyone is sold. One prominent Canadian clean technology investor calls the use of carbon offsets a waste of scarce resources needed to offset essential, heavy-emitting industries.
Tom Rand, managing partner of the venture capital firm ArcTern Ventures, has been an outspoken critic of crypto emissions, and those who would buy offsets to improve the environmental, social, and governance (ESG) appeal of related investments.
"It seems a waste to use up scarce, quality carbon offsets on stuff like bitcoin, rather than useful industrial activities like aviation, steel or cement. Bitcoin is optional, cement, steel and flying are not," he told Yahoo Finance Canada.
"It will always be an energy hog. You're trading kilowatt hours for bits of bitcoin, and the number of kilowatt hours per bitcoin will always go up, because you have to make it harder and harder to mine the next bitcoin."
Last month, Bank of America Global Research found offsets issued in 2020 worked out to 0.4 per cent of total global emissions. Analysts at the bank described the market as still "relatively small." They forecast it will need to grow as much as 50 times for many companies to hit net-zero by their 2050 commitments.
While Rand would prefer the limited supply of high-quality offsets available today to go towards "real economic activity," he concedes it's "always good to seed the offset market [with investment]."
Tasevski sees more action on emissions coming from within the crypto community. The issue led to the creation of the Crypto Climate Accord (CCA) in April, a voluntary framework that asks cryptocurrency firms to reduce net carbon emissions from electricity to zero by 2030.
"Carbon impact going forward will be one of the key default costs of owning bitcoin. There is a bunch of work to be done to make the mining process more efficient," he said. "The CCA has already engaged a wide range of leading crypto industry stakeholders. We expect it to continue moving the needle in this space, especially as the market drives more attention to the climate crisis."
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.