Industry Updates

ETF Wrap: No more excuses for crypto investors to ignore ESG

Crypto and ESG, new European regulation and Vanguard’s inroads hit the headlines this week

Theo Andrew

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In a week where regulation of cryptocurrencies in Europe took a big leap forward, the question of sustainability among cryptocurrencies reared its head.

The environmental credibility of digital assets has been dragged through the mud in recent years, with the bitcoin mining process alone using more energy a year than most mid-sized countries, according to the University of Cambridge.

However, attempts have been made by crypto ETP issuers to improve crypto’s ESG credentials, a key issue for investors who are becoming increasingly sustainably conscious.

There are now several crypto ETPs on the market that implement carbon offsetting initiatives on their crypto ETPs. These include Europe’s largest bitcoin ETP, the $334m BTCetc Bitcoin Exchange Traded Cryptocurrency (BTCE), the Iconic Funds Physical Bitcoin ETP (XBTI), the Helveteq Bitcoin Zero ETP (BTCO2) and the Helveteq Ether Zero ETP (ETH2O).

Christian Katz, CEO of Helveteq, warned this week that asset and wealth managers investing in crypto were guilty of neglecting the ‘E’ in ESG.

“The primary concern for wealth and asset managers has been to take care of the investments and client money while producing good risk-adjusted performance. Only to a lesser degree have they been worrying about the environment,” he said.

The Swiss-issuer launched BTCO2 and ETH2O in April this year. Through a partnership with Zurich University, Helveteq calculates the energy and carbon impact of all of the blockchains, which then allows it to compensate on behalf of its investors to carbon offsetting projects.

Katz added: “They are suited for investors who love to see the impact being produced when they invest. Those are still the minority, but they are on the rise.”

The next phase will be to service the cryptocurrencies further down the market cap enabling investors to offset these investments as well.

Away from proof-of-work, it is important to remember the sustainability credentials of ‘non-mined’ assets – those which use the proof-of-stake process – such as ripple, stellar and cardano.

These coins select crypto owners to validate a block of transactions, using one processor at random instead of millions doing the same job simultaneously, a far more energy-efficient procedure.

While crypto ETPs continue to innovate, there was an important step forward in the regulatory landscape earlier in the week after the European Commission reached an agreement on how crypto will be regulated.

The European Union’s Regulation on Markets in Crypto Assets (MiCA), an attempt to tame the ‘wild-west’ reputation the industry has developed, has given the continent a headstart against the UK in the battle for Europe’s most important crypto hub.

Commentators believe this now leaves the UK’s future as the go-to crypto-hub uncertain, although some say the UK will bide its time to see what impact MiCA has on the market.

Vanguard makes its move

Away from the crypto landscape and back to the hallowed turf of broad-based ETFs, Vanguard ETFs recorded an impressive quarter of inflows as much of the market suffered.

The issuer saw €3.7bn inflows in Q2 as many investors saw an opportunity to ‘buy-the-dip’ amid the sell-off in equity markets.

The flows show the inroads the world’s second-largest asset manager has made on the European continent, picking up market share to become the fifth-largest ETF issuer in Europe.

Despite this, BlackRock again asserted its dominance with €8.9bn in new assets over the quarter, taking its market share to 43.9% of the European ETF market.

ETF Wrap is a weekly digest of the top stories on ETF Stream

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