One bitcoin is one bitcoin, exchangeable for another in a fully fungible manner on global exchanges that operate 24/7, 365 days a year. But in Over the Counter (OTC) markets, there are different flavors of bitcoin with the oldest one being ‘clean’ BTC.
That conceptually arose when the US government auctioned 144,000 bitcoin in 2014 and 2015 after seizing them from the Silk Road market.
The suggestion was that since these bitcoins came from the government, there are no concerns of them having been used for illicit activity, and thus in theory demand for them should be higher than for other coins.
“On the buyer side, ‘clean’ coins are particularly popular,” says Florian Doehnert-Breyer, Managing Partner at the Berlin based F5 Crypto Capital, before adding:
“This refers to cryptocurrency units that have not previously been used for dubious transactions and, in the best case, come directly from a Coinbase transaction.
Some crypto desks have a forensic department that checks to what extent the said crypto currency units have already attracted negative attention in the crypto ecosystem.
The cleanest coins are those that come straight from the miners and have just been recreated. A surcharge is often required on these cryptocurrency units.”
This idea is now being extended to green coins. An institutional fund that has requirements to invest in carbon neutral assets, for example, can source the coins in OTC markets from a miner that uses only renewable energy.
If that creates extra demand, then in OTC markets there may well be a higher price for cleanly mined coins than either coins for which the energy mix can not be traced or coins which did not utilize renewable energy.
One River Asset Management is trying to take this concept in a different direction by applying for an ETF which uses the MVIS One River Carbon Neutral Bitcoin Index that they describe as “constructed using bitcoin price feeds from eligible bitcoin spot markets with adjustments to reflect the current spot price of carbon credits necessary to offset the estimated carbon footprint attributable to each bitcoin.”
In effect this seems to take a somewhat crude approach and a very generalized one where there is no real distinction between green and non green coins, all instead seemingly discounted presumably based on a general formula of something like estimates of global bitcoin network non-renewable energy usage minus carbon credits to offset it.
It may nonetheless meet the requirements of some institutional funds, but there are bitcoin miners that only use renewable energy with DGHI for example stating they’re 90% carbon neutral. There are others at 97% or even higher.
Such coins would have two premium markets merged into one as they are clean in coming directly from miners, and green in using renewable energy, with an ETF potentially buildable upon that.
But the big question is whether otherwise anyone cares about either clean or green once you move to sell it on. Obviously in regards to clean, no one would want an illicit asset, but there isn’t any distinction on exchanges because they handle that aspect before any coin is available to buy or sell, making it the exchange’s problem.
In regards to green, theoretically there could be a specialized market if there’s sufficient demand from institutional funds, but that’s only because they’re limited by their mandates.
It’s not clear the wider market which is not so restricted necessarily cares with the focus more on encouraging all miners to use renewable energy or nowadays even to contribute towards saving the environment by utilizing flared gas for energy, taking out tons and tons of methane that otherwise would have gone into the atmosphere.
Any such green coin therefore would probably be more a temporary method to allow institutional funds restricted by their mandates to participate in the bitcoin market, with OTC desks generally happy to meet any requirement usually for a premium as extra work would be needed.
So whether clean or green or ESG, there’s always specialized markets OTC happy to provide, with there being as good as no barriers for anyone that wants to participate in the crypto market as long as they have sufficient funds....