There's no denying that Bitcoin (BTC +0.61%) has been one of the best-performing investments of the past decade. During that time period, Bitcoin is up an astonishing 8,000%.
But there's just one problem: Bitcoin is very energy-inefficient, and it takes vast amounts of energy to mine a single Bitcoin. According to some accounts, the amount of energy used to mine Bitcoin in a single year is more than what's required to power a mid-sized country like Argentina. It's only natural that some investors have started to turn their attention to eco-friendly cryptocurrencies instead.
Eco-friendly cryptocurrencies continue to underperform
In a perfect world, eco-friendly cryptocurrencies would be turning in a record-setting performance. That would encourage more investors to invest in green cryptocurrencies. It would also incentivize more cryptocurrencies to provide tangible proof that they're doing their part to save the environment.
Image source: Getty Images.
But, sadly, that hasn't been the case. For example, take Algorand (ALGO 3.51%), which is generally considered one of the greenest cryptocurrencies. Algorand uses smart contracts to ensure its blockchain is carbon-negative (and not just carbon-neutral). In 2022, Algorand celebrated Earth Day in New York City with a Times Square billboard promotion that was designed to bring attention to its green credentials. But Algorand is down a shocking 37% this year and has dropped out of the list of the top 50 cryptocurrencies (as ranked by market cap).
CRYPTO: ALGO
Key Data Points
And it's much the same story with other green cryptocurrencies. Hedera (HBAR 0.21%) has drawn plaudits for its efforts to create a carbon-negative blockchain. University College London (UCL), for example, determined that Hedera is one of the most energy-efficient blockchain networks in the world. But Hedera is down 33% this year and has never gained much traction with investors. While it ranks No. 40 among all cryptocurrencies in terms of market cap, you've likely never heard of it.
CRYPTO: HBAR
Key Data Points
In short, it's hard to beat Bitcoin. It's not just that eco-friendly cryptocurrencies are underperforming Bitcoin; it's that they are losing money for investors. You could pick just about any cryptocurrency that gets mentioned as an eco-friendly cryptocurrency and check out its performance. Spoiler alert: You'll likely be disappointed. Cardano (ADA 0.25%), for example, is down a stunning 37% this year. Tezos (XTZ 0.39%) is down 26% this year.
The only exception here is Solana (SOL +2.16%), which is generally considered to be one of the greenest of the major cryptocurrencies. Last year, Solana soared in value by more than 900%. This year, Solana is up a robust 55%. But here's the thing: This performance has nothing to do with Solana's green credentials. Instead, it's all about the speed and efficiency of its blockchain and its ability to out-compete Ethereum (ETH 0.35%).
Spot Bitcoin ETFs and the environment
The launch of the new spot Bitcoin ETFs in January led to an interesting question: Is it possible to invest in Bitcoin and still be a climate-conscious investor? According to Greenpeace, the answer is an unequivocal "No." As soon as the SEC approved the new spot Bitcoin ETFs, the environmental group released a statement with an eye-popping headline: "New Bitcoin ETFs Will Make It Easier to Invest in Climate Destruction."
However, according to blockchain experts, some Bitcoin ETFs might be good for the environment. Take, for example, the efforts of ESG-focused crypto asset manager 7RCC. Last December, the firm filed an application with the SEC for a Spot Bitcoin and Carbon Credit Futures ETF. The new product was designed specifically for institutional investors attempting to meet stringent ESG guidelines while investing in Bitcoin.
The ETF will hold 80% in Bitcoin and another 20% in carbon credit futures. That way, any environmental impact of Bitcoin held by the fund will be offset with carbon credits. However, the SEC has held up approval of this ETF, and it's uncertain if other ESG-focused investment firms will attempt to launch similar products.
The conundrum facing crypto investors
You can see the big problem facing investors: The greenest cryptocurrencies are underperforming, while efforts to create green Bitcoin investment products have floundered. Based on this evidence, it's possible to say that eco-friendly cryptocurrencies are not a superior investment.
The good news, from an environmental perspective, is that it's possible to invest in clean energy Bitcoin mining stocks. While all Bitcoin mining companies these days claim that they are using as much renewable energy as possible to power their Bitcoin mining rigs, a few names stand out. One is CleanSpark Inc. (CLSK +0.70%), whose mission is to mine Bitcoin as responsibly as possible. While other Bitcoin miners are down anywhere from 20% to 30% this year, CleanSpark is up a nifty 15%.
That being said, I would avoid any cryptocurrencies that tout themselves as "eco-friendly" for now -- that is, if you don't want to lose money in your portfolio. If you're determined to lose money, your best option for now might just be to give your money to an organization like the Crypto Climate Accord, which is looking for ways to help power crypto with 100% renewable energy.
