- Morgan Stanley believes more scrutiny will follow crypto energy usage.
- Energy costs are rising, and the investment bank believes crypto energy use restrictions are imminent.
- Institutional interest in crypto continues to rise.
In a new report, Morgan Stanley expresses its belief that Bitcoin will face pressure from environmentalists. It says this as institutional interest continues to rise.
ESG Considerations
According to the report titled “ESG Considerations,” short for energy, social, and governance considerations from top investment bank Morgan Stanley, Bitcoin is likely to face more scrutiny from environmentalists. The bank says this is as institutional interest continues to grow, which it believes makes sustainability a pressing concern for the crypto industry.
Cryptocurrency mining, especially Bitcoin and Ethereum, requires a large amount of energy being Proof-of-Work blockchains. Statistics show that the energy required to mine Bitcoin is equivalent to that generated by the Netherlands annually. This data has whipped environmentalists into a heated frenzy as they clamor for improved regulation in the space.
China cited environmental concerns around mining as part of the reasons for the blanket ban on cryptocurrencies. Russia’s apex bank in January also proposed a ban on cryptocurrencies, partially citing energy concerns. Even in the US, environmentalists in cities like New York have raised concern over the activities of Bitcoin miners, with Congress investigating the energy usage of these firms.
Morgan Stanley believes that these mounting pressures may cause regulators around the world to restrict the amount of energy used for crypto mining. It is important to note that, at the moment, energy costs are rising. Bitcoin and Ethereum require more energy than others because their transaction validation systems are based on the proof-of-work system, which requires computers to work hard to solve complex problems for a reward.
While Ethereum plans to move to the more energy-efficient proof-of-stake method by year’s end, a move that is likely to reduce the decentralization of the network, it is not clear if Bitcoin miners will ever throw their weight behind such a migration. Several miners have opted to use renewable sources of energy or purchase carbon credit.
Increased Institutional Interest and Bitcoin Outlook
Over the past year, institutions have invested more heavily in cryptocurrencies. Figures from CoinShares show that institutional inflow rose by 36% last year, totaling over $9.3 billion, and pundits believe that this inflow is bound to continue. JPMorgan set up shop in the metaverse following the release of a whitepaper that expressed belief in the potential of the new digital market.
In January, FTX CEO Sam Bankman-Fried, said, “I’ve talked to every large bank, every large investment bank, pension funds — they’re all eyeing the sector.”
Bitcoin currently trades around the $37,500 range, a far cry from the highs created in November last year.
