Michael Bodley

As the price of bitcoin has stabilized in recent weeks, and notched a notable increase in performance terms over the past seven days, a new joint venture designed to capitalize on institutional interest in ESG Bitcoin initiatives is set to hit the market.



Sustainable Bitcoin Protocol (SBP), has teamed up with <a href="https://blockworks.co/tag/bitgo" target="_blank" rel="noreferrer noopener">BitGo</a> — the crypto service provider known for its digital asset custodial solutions — to launch what both companies dubbed “the first sustainable custody solution” in a statement provided to Blockworks exclusively.&nbsp;



It’s called the &#8220;Sustainable Bitcoin Certificate (SBC),” representatives told Blockworks, and it involves an on-chain solution to address problems environmental proponents say have long plagued bitcoin mining: dirty energy.



Non-renewable energy sources still power mining hardware on the original <a href="https://blockworks.co/news/proof-of-work-vs-proof-of-stake-whats-the-difference">proof-of-work</a> blockchain, in many parts of the world, meaning securing the <a href="https://blockworks.co/tag/bitcoin" target="_blank" rel="noreferrer noopener">Bitcoin</a> network adds carbon pollution to the atmosphere.



The crux of BitGo and SBP’s partnership — SBCs — are “on-chain assets that represent sustainable Bitcoin mining and can be added to the holdings of a Bitcoin investor, 1:1, ensuring that they are sustainably holding Bitcoin without disrupting its fungibility.”



Brad van Voorhees, SBP’s chief executive and co-founder, told Blockworks on Thursday that the partnership with BitGo is not a new idea. The CEO and his team have “recognized this opportunity for a couple of years actually,” he said.



“It’s because we’ve had the time to have the right partner join us to fill out the technical structure,” he said. “It’s the right time to leverage bitcoin to help drive the clean-energy transition — and ultimately change the narrative from ‘Bitcoin is a sustainability problem’ [to]…there’s unique potential to drive the clean energy transition [with BTC], and that’s really what we’re trying to unlock.”&nbsp;



<h2>Institutional winds at BTC’s ESG sails?</h2>



The effort is getting off the ground as retail and institutional traders alike are pushing <a href="https://blockworks.co/price/btc" target="_blank" rel="noreferrer noopener">BTC</a>’s price, as well as associated volumes and market capitalization, generally higher over a prolonged period of time.&nbsp;



Its end result is designed to offer a viable on-chain alternative to past and prevalent attempts to mitigate bitcoin’s environmental impacts — including tokenized, off-chain carbon credit models with crypto-native backing.&nbsp;



Carbon credits have been floated and have gathered steam, at least here and there, especially among Wall Street players looking to gain ESG exposure.&nbsp;



The metrics defining <a href="https://blockworks.co/news/upstart-crypto-carbon-credits-platform-raises-2b-to-tap-internet-of-energy">how ESG relates to crypto carbon credits</a> have resulted in a mixed bag, according to previous Blockworks reporting, but the sentiment did not altogether stop those efforts from moving forward last year.&nbsp;



Though bitcoin was roughly flat over the last 24 hours, the asset is up about 12.8% on a seven day-basis and about 16.5% over the past 30 days, marking a notable stabilization and ensuing recovery from the 49.5% price plummet of 2022.



Macro headwinds, including the Fed’s shifting stance on interest rates and the <a href="https://blockworks.co/tag/sec">SEC</a>’s moves to reign in what the US regulator alleged as bad crypto actors buffeted digital and traditional financial markets.



&#8220;We are excited to partner with SBP to offer our clients a solution that addresses their concerns around Bitcoin&#8217;s environmental impact while incentivizing verified clean energy use in bitcoin mining,&#8221; said Steve Scott, a director at BitGo, in the statement, a novel solution he calls “a key differentiator” in the custody space.



&#8220;This collaboration allows us to offer the most secure and sustainable Bitcoin custody solution on the market, providing our clients with a way to hold Bitcoin that aligns with their investment strategies and values,&#8221; Scott said.&nbsp;



A “proof of sustainability API” is in the works, which is designed to allow investors to show they hold a 1:1 ratio to BTC and SBC, the on-chain token under BitGo custody. 



BitGo and van Voorhees’ SBP summed up their team up by saying “the new offering aims to address the increasing demand from ESG and climate-focused institutional investors who want to hold Bitcoin but are concerned about its climate impacts.”



If you take the energy consumption and associated costs of renewable power premiums into account, van Voorhees said the impact of the token SBC would help mitigate bitcoin’s environmental impact.



The end goal, the SBP founder said, is “verifiably ensuring that bitcoin miners are using renewable energy from the grid, ensuring that every single bitcoin [is mined] in a totally transparent way.”



Updated March 23 2023 at 6:55pm ET: A previous version of this article erroneously reported that BitGo had regulatory approval for the product. Figures for the renewability certification market were also updated.



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BitGo, Sustainable Bitcoin Protocol Launch ESG-friendly Bitcoin-backed Token

<div id="highlights-block_6334582d3129b" class="highlights">
 <ul>
 <li>No partnership has raised even close to $2 billion for a series of market-making products that feature both asset classes</li>
 <li>Tokenized carbon credits feature aspects of structured products, commodities and related derivatives</li>
 </ul>
 
</div>



Carbon offset credits, meet crypto.



Digital assets-focused exchange and carbon credit liquidity provider 1GCX and T3 Trading, a proprietary trading firm that invests in the space, have struck a deal, raising a whopping $2 billion and setting up a $100 million liquidity pool to ease carbon credit transactions.



The move, made possible by the unprecedented fundraise for tokenized carbon credits, has been propelled by the <a href="https://cms.blockworks.co/mymetaverse-launches-carbon-sink-nfts-to-further-web3-sustainability/" target="_blank" rel="noreferrer noopener">growing interest</a> of institutional investors in the securities, executives from the firms exclusively told Blockworks. Such securities — proponents say — ease the ability of institutional investors, including pension plans and endowments, to put their money where their mouth is in terms of deriving measurable alpha from ESG investment products.&nbsp;



As an asset class, however, fractionalized carbon credits carry plenty of risk: The financial instruments are quite volatile, and the verdict is still out, according to detractors, on how much good they do in terms of stopping the rampant spread of <a href="https://cms.blockworks.co/blockchain-tech-is-key-to-combating-climate-change-report-says/" target="_blank" rel="noreferrer noopener">global warming</a>. And that’s not to mention a glaring absence of liquidity, considering the offsets trade more like illiquid structured products than anything else in digital assets, despite coming with far steeper ups and downs in terms of price.&nbsp;



Enter 1GCX, which is providing the infrastructure for the ambitious new trading platform.



T3 moves millions of dollars of capital around between a number of major crypto exchanges and also puts money to work in commodities markets. Both firms additionally specialize in equity derivatives and have rolled out a number of related synthetic trading pairs coupling commodities with cryptocurrencies. The exact terms of the deal were not disclosed.&nbsp;



The idea is to set up a series of liquidity pools and associated over-the-counter (OTC) market-making activities that reduce the spreads of such transactions in a bid to attract institutions into the markets, including entities from traditional finance accustomed to carbon assets but still learning when it comes to digital assets.&nbsp;


<div class="wp-block-image">
<figure class="alignright size-thumbnail"><img decoding="async" loading="lazy" width="150" height="150" src="https://blockworks-co.imgix.net/wp-content/uploads/2022/09/1GCX-1-150x150.png" alt="" class="wp-image-32708" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2022/09/1GCX-1-150x150.png?w=150 150w, https://blockworks-co.imgix.net/wp-content/uploads/2022/09/1GCX-1-150x150.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2022/09/1GCX-1-150x150.png?w=257 257w, https://blockworks-co.imgix.net/wp-content/uploads/2022/09/1GCX-1-150x150.png?w=261 261w, https://blockworks-co.imgix.net/wp-content/uploads/2022/09/1GCX-1-150x150.png?w=219 219w, https://blockworks-co.imgix.net/wp-content/uploads/2022/09/1GCX-1-150x150.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2022/09/1GCX-1-150x150.png?w=50 50w, https://blockworks-co.imgix.net/wp-content/uploads/2022/09/1GCX-1-150x150.png?w=400 400w" sizes="(max-width: 150px) 100vw, 150px" /><figcaption>RA Wilson, 1GCX’s chief technology officer</figcaption></figure></div>


RA Wilson, 1GCX’s chief technology officer, told Blockworks the company has been doing due diligence on the feasibility — and the cost of quantitative-driven execution — on the initiative for several years. It was especially driven after finding there were virtually no other market makers that catered to retail and accredited investors alike in terms of pairing digital assets with real-world commodities, plus derivatives.



Even now, according to Wilson, liquidity is mostly made up of bulge-bracket banks snapping up large quantities of the carbon securities at discounted prices, then acting as an unofficial marker maker for counterparty trading firms. The banks likely capture a handsome spread for doing so, considering such trades are essentially de facto OTC in nature. 



<h3>The case for tokenization</h3>



Wilson, who has personally invested in crypto since 2011, said he noticed about five years ago that, while carbon credits — promoted by governments, including the US, and featuring tax incentives, in select cases — were gaining momentum, companies see the products as more of a do-good effort, not the “currency” the instruments were designed to become.&nbsp;



“Business development starts with building the right marketplace, making sure there’s liquidity, of higher-quality offsets and nature-based solutions,” Wilson said. “Diverting financial assets from land-based projects can actually benefit us globally.”



1GCX is also in the relatively early stages of developing its own blockchain, featuring a token that draws a parallel between “proof-of-authority” and algorithmic “computational proof-of-authority.”



Proof-of-authority is a method of signing off on transactions that features elements of proof-of-stake consensus mechanisms but relies on validators <a href="https://medium.com/poa-network/proof-of-authority-consensus-model-with-identity-at-stake-d5bd15463256" target="_blank" rel="noreferrer noopener">staking their identity or reputation</a>. It typically features in private, centralized blockchains, rather than public permissionless systems.



The end goal: building a digital assets-based market driven by the burgeoning “green web mixed with the internet of energy.”



The first-of-its-kind setup would, ideally, increase the transparency of price discovery and real-world utility — in terms of combating climate change — two common thorns of institutional investors that until now have had to rely on Wall Street and the commodities hub of Chicago to transact in illiquid carbon credits denominated via the murky pricing of market makers.



Traders using 1GCX already have access to a range of digital assets, such as bitcoin, ether, AVAX and SOL. 



There’s already a “huge demand” from institutions hungry for carbon offset credits, one that’s growing every year, according to Wilson. The launch of the trading platform ought to boost liquidity, transparency and fair pricing — while clamping down on fraud — by adding crypto to the mix, he said.



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Upstart Crypto Carbon Credits Platform Raises $2B to Tap ‘Internet of Energy’

Ben Strack

<div id="highlights-block_6303ee1ada332" class="highlights">
 <ul>
 <li>Institutions and financial companies are nervous about “the ESG black eye” that bitcoin has, Energy Web CEO Jesse Morris said </li>
 <li>The organization’s crypto token is up roughly 105% over the last two weeks</li>
 </ul>
 
</div>



Environmental impacts stemming from the big business of bitcoin mining are getting a dose of transparency that’s welcome to the world’s largest asset manager.&nbsp;



Energy Web, which focuses on mechanisms to decarbonize the global economy, is set to publish “sustainability scores” for miners in the coming months — an effort highlighted by BlackRock.&nbsp;



BlackRock said in a statement earlier this month it’s “encouraged” by <a href="https://medium.com/energy-web-insights/climate-safe-crypto-energy-web-and-rmi-unveil-decarbonization-approach-for-electricity-intensive-bc777183863" target="_blank" rel="noreferrer noopener">programs</a> by Energy Web and others to bring transparency to sustainable energy usage in bitcoin mining. The fund group <a href="https://cms.blockworks.co/blackrock-to-offer-institutional-clients-crypto-via-coinbase/" target="_blank" rel="noreferrer noopener">partnered with Coinbase</a> to offer institutional clients of its <a href="https://www.blackrock.com/aladdin" target="_blank" rel="noreferrer noopener">Aladdin platform</a> access to bitcoin earlier this month and <a href="https://cms.blockworks.co/blackrock-launches-spot-bitcoin-private-trust/" target="_blank" rel="noreferrer noopener">launched a private bitcoin trust</a> a week later. 



Energy Web CEO Jesse Morris told Blockworks that Blackrock’s stance reaffirmed institutional investors looking to dial up crypto exposures will demand greater ESG disclosures.&nbsp;



“Their boards are saying, &#8216;Show us how you’re doing your part to decarbonize the global economy; do not be investing in things that are belching carbon into the atmosphere,’” Morris said. “We have been in conversation with a lot of different institutional investors and also financial organizations that are trying to build products around bitcoin — but are very nervous about the ESG black eye that the asset has.”



<a href="https://www.coingecko.com/en/coins/energy-web" target="_blank" rel="noreferrer noopener">Energy Web’s token (EWT)</a> has seen a big boost since BlackRock’s shout-out. EWT, down 67% in the last 12 months, is up roughly 105% from two weeks ago.



Interest in ESG investments — made with environmental, social and governance issues in mind — have grown in recent years within traditional finance.&nbsp;



England-based financial services company Hargreaves Lansdown reported Monday that its clients holding ESG ETFs had grown nearly 708% between January 2017 to June 2022&nbsp; —&nbsp; from 0.13% to 1.05%.



ESG ETFs represented 42% of total European ETF flows during the second quarter, according to the firm.



Morgan Stanley said<a href="https://www.sec.gov/Archives/edgar/data/1676326/000113322822005398/msetft-html5298_n1a.htm#pro1_005" target="_blank" rel="noreferrer noopener"> last week in a filing</a> its first ETFs would be ESG-focused.



<a href="https://bitcoinminingcouncil.com/bitcoin-mining-electricity-mix-increased-to-59-5-sustainable-in-q2-2022/" target="_blank" rel="noreferrer noopener">The Bitcoin Mining Council said last month</a> that respondents to its latest survey, representing more than half of the global bitcoin network, used electricity with a 66.8% sustainable power mix, as of June 30. It is estimated that the mining industry’s sustainable electricity mix is now roughly 60%, the organization said — about a 6% year-over-year increase.



Proving miners are as sustainable as they say&nbsp;



Energy Web’s <a href="https://www.energyweb.org/case-studies/greenproofsforbtc/" target="_blank" rel="noreferrer noopener">Green Proofs for Bitcoin program</a> is a way for bitcoin miners to prove they are using renewable electricity.



Marathon Digital, for example, said in April it was moving bitcoin miners from its facility in Montana to new locations with more sustainable sources of power. The company expects its mining operations to be carbon neutral by the end of this year.



“They’ll have Powerpoints and PDFs that they issue that say, ‘Don’t worry, we are 60% renewable,’ or, ‘Don’t worry, we are 100% renewable,’” Morris said of miners. “What we’re trying to do with this Green Proofs for Bitcoin initiative is actually help people verify those claims.”



Energy Web has completed its initial certification criteria draft and is currently applying that to roughly a dozen hosting companies, publicly traded bitcoin miners, as well as smaller miners, Morris said.&nbsp;&nbsp;



Through the certification process, bitcoin miners share data on their location, electricity use, the number of renewables they’ve purchased, and how they purchased them — such as if they bought unbundled certificates or invested directly in a renewable energy facility. The information is then used to create a net-impact score.



After making the initial batch of certifications public in the fall, Energy Web will look to rate more miners.



“Ideally institutions like BlackRock can use those credentials how they see fit, but also any other institutional investor and any other company seeking to understand how green these different miners are,” Morris said.



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Transparency Is Coming to Bitcoin Mining as Institutions Eyeball ESG

Casey Wagner

<div id="highlights-block_6138db62af5ae" class="highlights">
 <ul>
 <li>ARK Investment Management leans into their transparency promise with new ESG-like fund </li>
 <li>The filing follows the launch of the first cryptocurrency clean mining investment vehicle </li>
 </ul>
 
</div>



Cathie Wood’s ARK Investment Management has proposed an exchange-traded fund (ETF) to the Securities and Exchange Commission (SEC) that promises “transparency.” The fund appears to be Wood’s take on a product in the highly-debated environmental, social and governance (ESG) category.&nbsp;



The ARK Transparency ETF seeks to follow an index “designed to track the price movements of stocks of approximately 100 companies that receive high scores for transparency,” the company said in its SEC <a href="https://www.sec.gov/Archives/edgar/data/0001579982/000110465921111628/tm2126418d1_485apos.htm" target="_blank" rel="noreferrer noopener">filing</a>. 



The index will exclude alcohol, banking, chemicals, confectionery, fossil fuel transportation, gambling, natural gas, oil and tobacco, ARK revealed. Exclusion of certain industries is a key trait of ESG investment products.&nbsp;



Transparency, for ARK, has become a key pillar of its business and investment strategy, as demonstrated by the <a href="https://research.ark-invest.com/hubfs/1_Download_Files_ARK-Invest/Marketing_Material/ARK%20Invest_082021_Transparency%20Standards.pdf" target="_blank" rel="noreferrer noopener">ARK Transparency Standards</a>, a document released last month that outlines the company’s commitment to investors. 



“ARK is very proud of showing their holdings every day and their trades every day, it&#8217;s like their thing,” said Eric Balchunas, ETF analyst for Bloomberg Intelligence. “If you think about the word ‘transparency,’ versus ESG, transparency is just a very, very favorable word to most people.”&nbsp;



Despite the controversy surrounding the category, ESG ETFs saw a record inflow of $83.04 billion in the first half of 2021, according to ETFGI data. Inflows for the first six months of 2021 came in just shy of the total inflows for 2020, which was $88.95 billion.&nbsp;



There are no guidelines set by the SEC regulating what funds can be labeled ESG, meaning issuers can select any holdings, and investors looking to do good should check under the hood.&nbsp;



<h3>Greenwashing running rampant?</h3>



London-based non-profit IndustryMap conducted a <a href="https://influencemap.org/report/Climate-Funds-Are-They-Paris-Aligned-3eb83347267949847084306dae01c7b0" target="_blank" rel="noreferrer noopener">review</a> of the ESG industry in August and reported that more than 70% of climate-themed investment funds failed to live up to standards set in the Paris Agreement. 



“​​A key finding of the research is the wide spectrum of terms used to describe climate-themed strategies in listed equity funds and the resulting difficulty, even within financial databases, of comparison between them,” the report noted.&nbsp;



Funds are being greenwashed, or presented in a way that exaggerates or misrepresents the investment strategy to be more environmentally conscious than it really is, IndustryMap said. Asset managers that failed to live up to the Paris standards include UBS, BlackRock and Invesco.



The largest ESG ETF is the First Trust Preferred Securities &amp; Income ETF with $7.54B in assets under management, according to data from ETF.com. The fund’s top holdings include US government bonds, US dollars, Wells Fargo and JPMorgan Chase.&nbsp;



The Nuveen ESG International Developed Markets Equity ETF, with $144.46 million in assets, has holdings in Nestle, Sony and L’Oreal.&nbsp;



“ESG is subjective. If you or I opened up an ESG ETF, for example, we may have different views on whether Facebook should be in there,” said Balchunas. “There&#8217;s a lot of hot button stocks that are in many of the ESG ETFs, and then on the flip, there are certain ESG ETFs that exclude stocks that would be considered by many to fit ESG.”



ARK’s fund filing follows the launch of the new Viridi Cleaner Energy Crypto-Mining &amp; Semiconductor ETF, a fund devoted to investing in environmentally friendly cryptocurrency mining efforts. Top holdings include Hut 8 Mining Corp and Marathon Digital.&nbsp;



While Viridi’s clean energy fund got the green light from the SEC, investors and issuers are still awaiting a decision about a cryptocurrency fund. Many analysts believe that a bitcoin futures ETF may receive approval before a spot traded product.&nbsp;



“We think that there will be Bitcoin futures ETFs launched in the middle to later part of October,” said Balchunas. “For spot, I think maybe next year at some point. Again, assuming the futures go well, the market-makers are reporting back that it works and if there&#8217;s some kind of regulatory framework for bitcoin in general, that would also help.” 



Are you a UK or EU reader that cant get enough investor-focused content on digital assets?<a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Join us</a> in London on November 15th and 16th for the Digital Asset Summit (DAS) London. Use code ARTICLE for £75 off your ticket. <a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Buy it now</a>.

As Greenwashing in ESG Runs Rampant, ARK Promises Transparency

<div class="is-layout-flex wp-container-2 wp-block-columns">
<div class="is-layout-flow wp-block-column" style="flex-basis:100%"><div id="highlights-block_61143ea7c6c68" class="highlights">
 <ul>
 <li>Compliance concerns are holding back institutional engagement in crypto more than volatility or ESG controversy, O’Leary told Blockworks</li>
 <li>O’Leary to be paid for his spokesperson services in a portfolio of crypto assets managed on the FTX platform </li>
 </ul>
 
</div>
</div>
</div>



Entrepreneur and venture capitalist Kevin O’Leary is being paid in crypto to serve as an ambassador for FTX after he made an equity investment in the growing cryptocurrency exchange.&nbsp;&nbsp;



O’Leary, perhaps best known for being a regular investor on ABC’s Shark Tank, said in an interview with Blockworks that the biggest reason many institutional investors hesitate to invest in crypto assets is the uncertainty that they will be fully compliant with regulators and reporting requirements.



“[If] you’re running a billion-dollar mandate and you decide to put 10% into crypto &#8230;. you can’t download an app and put $100 million into it,” he explained. “You have to have an infrastructure in place where your internal compliance department can mark to market on a daily basis your positions … and also you have to be able to comply with external regulators. I couldn’t find a structure where I could do that until I met with FTX.”



O’Leary first met FTX founder and CEO Sam Bankman-Fried while at Bitcoin 2021, a conference held in Miami in June.&nbsp;



After discussions with the FTX team, O’Leary said he grew comfortable that the exchange could integrate with his compliance requirements.



“I don’t put my name on something unless I’m using it. I eat my own cooking,” he told Blockworks. “They have a global compliance platform &#8230; and we are going to be adding to our positions across a wide range of different assets.”



The size of O’Leary’s equity investment in FTX Trading and West Realm Shires Services, which owns and operates FTX, is not being disclosed, a spokesperson said.



&#8220;We speak with institutional investors interested in moving into crypto and using our platform on a daily basis, and many of them have found their way to us through referrals from our existing institutional clients,” Brett Harrison, President of FTX.US, told Blockworks in an email. “When we speak with potential institutional users, our aim is to act as a resource and provide comprehensive information on exchange functionality, custody, regulation, and compliance.”



FTX is exploring partnerships with traditional custodians, augmenting its transaction monitoring capabilities, and integrating tax reporting tools, Harrison noted. It is looking to attract more liquidity to its on-exchange order books and off-exchange OTC portal, he added, and is focused on taking a proactive approach with regulators.



O’Leary will now serve as a spokesperson for FTX and will be paid for his services in a portfolio of crypto assets managed on the FTX platform.



“Here I’ve got the best platform in the world with the best traders, the most liquidity, the best spreads, the lowest fees,” O’Leary said. “I said, ‘Guys, don’t pay me in fiat. I’m just going to turn around and send it back to you.’”



FTX’s partnership with O’Leary comes just weeks after the company announced it had <a href="https://cms.blockworks.co/ftx-closes-900m-series-b-round-valuing-exchange-at-18b/" target="_blank" rel="noreferrer noopener">raised nearly $1 billion</a> for its Series B round, valuing it at $18 billion.



The exchange has taken major steps to boost brand visibility in recent months, such as finalizing a 19-year, $135 million deal with Miami-Dade County in Florida earlier this year to take over naming rights of the Miami Heat’s arena.



FTX also became the <a href="https://www.mlb.com/press-release/press-release-mlb-ftx-cryptocurrency-partnership" target="_blank" rel="noreferrer noopener">official cryptocurrency exchange brand</a> of Major League Baseball in June. The league’s umpires started wearing an FTX patch on their uniforms at the MLB All-Star Game last month, and will continue sporting the patch for future regular season, postseason and spring training games.



Check back at Blockworks.co tomorrow for more on our interview with Kevin O’Leary, including his thoughts on when the SEC could approve a bitcoin ETF and his outlook on non-fungible tokens.







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