Knowledge Hub
by Daniel Taylor
March 2024
As ETPs take off, what sort of carbon footprint is attributable to the new wave of mainstream fund products?
This year, Bitcoin exchange traded products (ETPs) have experienced an explosion in popularity, fuelled by the approval of the US Securities and Exchange Commission (SEC) for a new wave of spot Bitcoin exchange-traded funds (ETFs).
With similar products set to land on exchanges in London and Hong Kong, we set out to determine the carbon footprint attributable to the Bitcoin holdings of this fast-growing class of fund products.
What did we find?
By examining public domain records of fund BTC holdings and applying a holdings-based carbon footprint calculation from Zumo data partner CCRI, we were able to estimate the annualised carbon footprint of all physically-backed Bitcoin fund products at 4487.93 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 equivalent to a person flying from London to New York and back over 1.5 million times. Of this, 2056.86 ktCO2 is attributable to the US ETF cohort that went live in January 2024 (excluding the converted Grayscale Bitcoin Trust ETF).
Analysis was conducted in the third week of March 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 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 from Bitcoin holdings as a share of the overall Bitcoin network using CCRI data & methodology, with the annualised figure based on a 7-day average as at 24th March 2024. This calculation relied on holdings only, with no factor for transaction activity. More details of CCRI’s methodologies can be found on its website https://docs.api.carbon-ratings.com/v2/#/.
Analysis was conducted by Zumo in collaboration with CCRI and builds on previous analysis undertaken by CCRI in this area.
The full source data sheet may be found here.
How significant are these developments?
With more than 1,000,000 BTC now held in fund products, roughly 5% (~1M out of 19.6M currently circulating) or 1 in 20 Bitcoin is now held by fund managers.
Since US ETF launch on 11 January this year, aggregate fund AUM has increased at a pace of roughly 200,000 BTC net holdings added year-to-date (an approximately 25% increase in fund BTC AUM within Q1 2024).
Much of this demand comes from the US: counting the converted Grayscale Bitcoin Trust ETF (GBTC), US ETFs as a cohort now account for a dominant 83% of fund market share (and account for 83% of the fund carbon footprint).
All in all, the attributable environmental impact is significant: taking the 4487.93 ktCO2 figure, roughly equivalent to some half a billion euros of emissions trading under the EU’s Emissions Trading System.
Given the long-standing ESG mandates of the types of mainstream providers getting involved in the space, fund managers will need to find ways to tackle this value chain environmental impact problem. Without direct influence over the electricity consumption of the Bitcoin network itself, nor where and how it procures its power, some mechanism of market instrument procurement – whether that be Renewable Energy Certificates (RECs) or strategically sourced carbon offsets – is likely to be the best available solution.
