In March of this year, we published our inaugural analysis of the carbon footprint of Bitcoin exchange traded products (ETPs), hot on the heels of record inflows from the approval of spot Bitcoin exchange-traded funds in the US.

Did the momentum hold up through Q2? We took another snapshot of the ETP landscape as of the end of July 2024, and examined where we’ve come since. The data sheet is available here.

Where did the carbon footprint of Bitcoin funds end up in Q2?

As at the end of July 2024, we estimate the annualised carbon footprint of all physically-backed Bitcoin fund products at 4,281.46 kilotonnes of carbon dioxide (ktCO2).

Applying the UK government’s GHG Conversion Factors for Company Reporting (long-haul, average passenger) based on a return flight distance of 11,172 km, this is still equivalent to a person flying from London to New York and back approaching 1.5 million times. 

Comparing to Q1 (total footprint: 4,487.93 ktCO2), this is a quarter-on-quarter reduction of 4.6% – despite aggregate fund BTC holdings having increased 7.1% over the same time period from 1,016,213.53 to 1,088,375.02.

The reason for this is primarily attributable to a slightly reduced average estimated electricity consumption and carbon intensity for the Bitcoin network over the second quarter and calculation reference period; and which may also be impacted by the lightly tweaked carbon footprint calculation methodology used in the Q2 analysis (see methodology notes).

In general, it is safe to say that Q2 was a flatter period than the exceptional activity of Q1, with the pace of net BTC holdings added slowing from the ~200,000 of Q1 (which was a 25% percentage increase over the quarter) to a more moderate ~70,000 BTC increase.

However, to put the pace of fund accumulation into some sort of perspective, this still amounts to almost 600 BTC a day net inflow, considering the net 72,161.49 BTC inflow over the 122 days of the most recent review period. Post the most recent Bitcoin halving in April 2024, this is more than the daily issuance of miner rewards, which currently stands at some 450 BTC/day. Put another way, post-halving in Q2 2024, funds have been accruing bitcoin at a faster rate than new bitcoin is entering circulation.

This makes funds a significant class of Bitcoin holder, with fund BTC holdings expressed as a % of all circulating BTC increasing slightly over the quarter, from 5.2% at end Q1 to 5.5% at end July 2024. 

The newcomers

In terms of the landscape over the quarter, the range of physically backed Bitcoin ETPs expanded from 33 to 42 tracked products, offered by 30 different asset managers.

New entrants of note included the widely commented cohort of Hong Kong spot ETFs, launched in April 2024, with three new Bitcoin funds from ChinaAMC, Bosera and Harvest closing the review period in places #26, #30 and #34 respectively, giving a combined Hong Kong product holding of 4,519.48 BTC.

Grayscale GBTC, occupier of the Q1 top spot, also spun off a mini-fund – ticker BTC – seeded with 10% of GBTC’s underlying BTC. The new mini-fund offers a much more competitive management fee of 0.15%. Because of its 10% GBTC seeding, BTC immediately started trading as the 8th largest Bitcoin fund. However, even without the split-off, Grayscale could not avoid being replaced at the top of the Q2 table by Blackrock’s IBIT ETF, which on its own now represents approaching a third of all fund BTC holdings. 

Elsewhere, Australia gained a new fund, the Monochrome Bitcoin ETF (position #39), in addition to which Australians now have access to a feeder fund that invests in VanEck’s US HODL ETF. This may have given a tailwind to the HODL fund, which moved up the rankings from #13 in Q1 to #11 in Q2.

Finally, following the UK’s green-lighting of physically backed bitcoin (and ether) ETPs to professional investors in May 2024, the LSE welcomed a number of new UK cross-listings over Q2. The new Bitcoin ETP listings included two funds from 21Shares; in addition to listings of products from WisdomTree, Invesco, Fidelity and Global X. The umbrella AUM for these products, which also trade in other markets, amounts to holdings of nearly 27,000 BTC, and an annualised carbon footprint of 105.92 ktCO2. 

At a global level, provision continues to be extremely top-heavy and consolidated, with the top 3 funds accounting for 70% of all fund assets.

This is coupled with a marked US dominance, with holdings (and therefore carbon footprint) heavily skewed to the North American continent (89.8% of total fund carbon footprint) compared with 9.5% (Europe); 0.4% (Asia); 0.2% (South America); and 0.1% (Oceania).  

Investigating carbon mitigation 

As a new element of the Q2 analysis, we also began to examine the proportion of asset managers engaging in carbon mitigation activity for their bitcoin fund products.

As at Q2 2024, the following asset managers had made some manner of sustainability claim regarding their bitcoin funds: Purpose Investments; ETC Group; 21Shares; Hashdex; Bosera; Virtune; Deutsche Digital Assets; Jacobi Asset Management; and Valour.

While the boundaries of these claims can be tricky to verify and delineate, we estimate that this means approximately 35,219 (or 3.2%) of asset manager bitcoin holding AUM* is covered by sustainability claims of one form or another, with 1,053,156 (96.8%) unmitigated.

At a provider level, this amounts to 9 out of the 30 offering physically backed Bitcoin ETPs: however, as the overall coverage figure shows, this is an indicator of the sharp skew of such actions to smaller-scale providers, the absence of mass take-up where carbon offset fund classes are offered alongside regular fund classes, and the current lack of action from the largest providers where the bulk of holdings are consolidated.

Providers with a publicly stated sustainability claim are marked with an asterisk, and listed separately (‘Funds w/ sustainability claims’) in the Q2 data sheet.

* NB: this is not directly equivalent to the sum of total BTC holdings for providers with a sustainability claim. As one example, Purpose Investments has significant BTC holdings, but it is only the BTCC.J (carbon offset) fund class that appears to bear an environmental claim.

Note on methodology

Analysis was conducted in the final week of July 2024 and included all physically backed Bitcoin fund products – i.e. investment funds where the investment vehicle is backed by Bitcoin in custody – as available at time of data collection. This therefore excludes exchange-traded products based on rolling Bitcoin futures contracts, where the underlying asset itself is never traded and obligations are financially settled.

Bitcoin holdings data was retrieved from providers’ prospectuses and public website disclosures. In the few cases where Bitcoin holdings were undisclosed, holdings estimates (marked in blue) were calculated based on the reported total net assets of the respective fund divided by BTC trading price at the date of retrieval. AuM was approximated on the basis of Bitcoin holdings multiplied by USD Bitcoin closing price at date of data collection.

Annualised CO2 emissions data was calculated using the CCRI ‘hybrid’ method combining holdings and transactions, with the annualised figure based on a 7-day average as at 31st July 2024. Given the difficulties of publicly determining fund transaction activity, a transaction count of zero was entered alongside the holdings data. This was an update from the Q1 analysis, for which the CCRI ‘holdings-based’ methodology was applied. More details of CCRI’s methodologies can be found on its website: https://docs.api.carbon-ratings.com/v2/#/allocation.

Analysis builds on previous work undertaken by CCRI in this area and utilises CCRI’s methods for carbon footprint estimation. The full source data sheet may be found here.