The recent spike in the price of bitcoin to more than $7,600 has delighted cryptocurrency speculators and early investors the world over. Many consider the windfalls as vindication of their belief that bitcoin is not just an experimental currency but a viable asset class in its own right.

Adding credence to that view was the decision last week by one of the world’s top derivatives exchanges, CME Group, to launch bitcoin futures in the fourth quarter of 2017.

Yet there is an irony here. The further bitcoin mutates into a price-defying asset class, the less useful it becomes as a medium of exchange and, worse still, the more expensive and energy intensive it becomes to maintain. This is an awkward situation for investors who are supposedly becoming more aware of the implications for environmental, social and corporate governance (ESG) when making allocation decisions.

When I recently asked a room of approximately 50 students how many had heard of bitcoin, almost all raised their hands. Asked how many had bought bitcoin, about a third of them raised their hands. But when I asked how many had used bitcoin actually to buy something, only one raised a hand.

We could end up in a situation within a few years where the electricity consumption of bitcoin mining would be equivalent to a country like the Netherlands or Switzerland

That people would prefer to hang on to their bitcoin than spend it is not surprising given its soaring value. This clingy behaviour is an instance of Gresham’s law, which states that bad money always drives out the good, and that if there are two forms of commodity money in circulation, the more valuable one will disappear as it is hoarded.

But these days there are other reasons to hang on to your bitcoin. The era of costless bitcoin transactions is long gone. For some time, fees have ranged from $3 to $6 per transaction, depending on the network’s available capacity. The situation makes small, day-to-day payments, from coffee purchases to bus ticket sales, increasingly impractical.

In energy terms, meanwhile, a recent analysis by the Motherboard site estimated that a single bitcoin transaction requires 215 kilowatt-hours of electricity to process. That is the equivalent of what an average American household consumes in one week.

Add this energy wastage to the reputation bitcoin already has for opaque governance, cyber crime and dark market trade, and you can see how, from an ESG perspective, bitcoin proves an even more controversial investment than a holding in a developing-world, commodity-extracting company.

In that light, CME’s plans to list bitcoin futures might not be enough to dissuade responsible investment managers from shunning the asset class in ESG-friendly indices in the long term. Remy Briand, head of ESG for index creator MSCI, says: “If we assume that consumption will continue to increase roughly in line with the bitcoin price . . . then we could end up in a situation within a few years where the electricity consumption of bitcoin mining would be equivalent to a country like the Netherlands or Switzerland.”

In Mr Briand’s opinion that would make a lot of the efforts to reduce emissions in the context of the Paris climate agreement entirely pointless.

Bitcoin enthusiasts retort that the energy consumption is justified if it amounts to less than all that of existing processors and banks combined. But for this to be true, incumbents would have to be eliminated by competitive forces — a big ask for a system that already charges well in excess of rivals, implying relative inefficiency.

Moreover, for bitcoin — which is capital intensive, decentralised and opaque by design — to become more sustainable, powerful vested interests who have an incentive in keeping the system inefficient would have to be taken on.

And even if all that were possible, none of it changes the fact that if bitcoin’s primary use is for speculation rather than transaction, the energy wastage serves very little constructive social purpose at all.

izabella.kaminska@ft.com

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