Wealth and asset managers investing in crypto exchange-traded products (ETPs) are “neglecting” the poor sustainability credentials of digital assets, Christian Katz, CEO of Swiss ETP issuer Helveteq, has warned.
Speaking to ETF Stream, former CEO of Six Swiss Exchange Katz (pictured) said the ‘E’ in ESG is by far the most “troubling component” of the crypto space and is being overlooked by investors who are solely focused on positive returns for their clients.
His comments come after Helveteq launched its first products in April, the Helveteq Bitcoin Zero ETP (BTCO2) and the Helveteq Ether Zero ETP (ETH2O), which aim to offset the carbon-intensive exercise of crypto mining through carbon offsetting projects.
The environmental impact of mining cryptocurrencies has been well documented but Katz believes investors have not been paying it enough attention when selecting their investments.
According to the University of Cambridge, bitcoin mining generates 132.5 terawatt-hours (TWh) annually, more than most mid-sized countries, while coal power accounts for two-thirds of the energy used in the ‘proof of work’ process central to bitcoin’s production.
“Governance is not necessarily a problem,” Katz said. “The industry has proof-of-work systems which are extremely democratic, decentralised and distributed in terms of power. The social issues of the blockchain are negligible but that is not to say non-existent.
“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.”
“What we offer is very innovative and it is suited for people who do care. People who take control and invest responsibly. It is 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.”
BTCO2 and ETH2O are listed on the Six Swiss Exchange – with total expense ratios (TER) of 1.69% – and despite only debuting three months ago, have built up impressive assets under management (AUM).
The Helveteq Bitcoin Zero ETP currently has $214m AUM while ETH2O has $121m AUM, according to data from ETFLogic.
Issuers have implemented similar carbon offsetting initiatives on their crypto ETPs over the past year, including the Iconic Fund Physical Bitcoin ETP (XBTI) last November and Europe’s largest bitcoin ETP, the BTCetc Bitcoin Exchange Traded Cryptocurrency (BTCE), which houses $334m AUM.
“We are not only part of the solution, but we want to be the ones that make the step forward for investors in the crypto space,” Katz said. “We are looking to capture the rise of two separate megatrends. One is the adoption of digital assets worldwide and the other is the fight against global warming.”
When researching the impact of crypto mining on the environment, Katz said it found current research on the topic “weak and not coherent” so the firm took it on itself – through a partnership with Zurich University – to calculate the energy and carbon impact off all blockchains.
The subsequent findings allow Helveteq to decide how much it needs to compensate via carbon offsetting projects, certified under approved global standards, on behalf of its investors. These include clean water projects in Rwanda, the building of wind farms in India and clean hydropower in Laos.
“Our ambition from the start is to ensure we are enabling investors to get access to digital assets while at the same time compensating for the negative effects of these digital assets, such as the excessive energy consumption and carbon emissions,” Katz said.
He added that Helveteq, which was founded in 2021 by former Vontobel investment bank head Roger Studer and Vontobel managing director Remigio Luongo, is also curating events with the University of Zurich professors to educate institutional asset managers and leadership teams from banks.
Despite recent market volatility, Katz said the company has a strong pipeline of ETPs and non-listed products lined up with the issuer looking to launch “traditional assets” alongside crypto products lower down the market cap.
Bitcoin has lost over half its value year to date and last month briefly dipped below a significant price milestone of $20,000, its lowest point for 18 months.
He has fewer concerns around the recent crash in crypto markets though, noting that Helveteq’s focus was offering “good solutions to clients” and said long-term and fundamental investors are adding to their positions.
Katz added the firm has seen demand from both private and institutional investors for the products.
“The key is that for private investors, the ease of investing through an ETP is overwhelming,” he said. “This appeals to institutional investors too, who can build meaningful sized investments through exchange regulated instruments.”