Mergers & Money: As Crypto Valuations Keep Increasing, So Do Environmental Concerns

Editor’s note: Mergers & Money is a monthly column by Senior Reporter Chris Metinko that covers dealmaking and the flow of venture capital in the enterprise tech space.

It is sometimes easy to think everything in the world of crypto is cheery—with new unicorns minted almost weekly and new dedicated venture funds constantly launching.

However, a couple of recent events highlighted one concern—energy consumption—that while unlikely to derail the industry, certainly has the potential to disrupt the digital currency sectors as ESG concerns become more prominent among investors and energy prices continue to spike.

Last Wednesday, U.S. House Rep. Jared Huffman sent a letter to the Environmental Protection Agency to make sure cryptocurrency mining facilities are not violating foundational environmental statutes like the Clean Air Act or the Clean Water Act.

“We have serious concerns regarding reports that cryptocurrency facilities across the country are polluting communities and are having an outsized contribution to greenhouse gas emissions,” reads the letter signed by more than 20 other Democrats in the House.

The next day, Denver-based Crusoe Energy Systems landed a $350 million Series C equity round led by G2 Venture Partners. The company harnesses natural gas that is typically burned during oil extraction—a process called flaring.

While that natural gas can be used to power anything, Crusoe said it planned to use the new funding to “deploy large scale Bitcoin mining and cloud computing infrastructure.” Just last month, Bloomberg reported the U.S.’ biggest oil producer, ExxonMobil, had already been partnering with Crusoe in North Dakota since early 2021 to help slash emissions.

Environmental concerns

While the federal government’s interest in the energy used for crypto mining and Crusoe’s investment are not directly related, they do speak to concerns around the amount of power consumed for crypto mining.

Huffman’s letter cites statistics from a recent research paper out of Europe that shows annual e-waste generated by Bitcoin alone adds up to 30,700 metric tons as of last May. In addition, Bitcoin annually produces carbon emissions comparable to Greece, according to estimates by researchers.

The letter also states that “efforts are currently underway to re-open closed gas and coal facilities to power the cryptocurrency industry and undermine our battle to combat the climate crisis.”

Of course, this is not the first time the federal government has chimed in about crypto’s environmental toll. Huffman’s letter comes a month after President Joe Biden’s executive order on crypto asked for a report in six months that should “address the effect of cryptocurrencies’ consensus mechanisms on energy usage.”

The U.S. is far from alone in watching the environmental effects of crypto. China banned crypto mining last summer—after making crypto transactions illegal—citing its effects on the environment and the country’s pursuit of carbon neutrality.

Investment

With Washington starting to at least threaten a more watchful eye on crypto mining and both energy prices and environmental concerns on the rise, it would logically seem a ripe space for venture dollars.

However, according to Crunchbase data, funding to companies specializing simultaneously in both crypto and renewable energy has not taken off. Only a handful of startups have received funding in the space in the last couple of years, including:

• New York-based BlockFusion, which operates renewable energy data centers, has raised a total of $2.6 million.
• New York-based Digital Power Optimization, an energy-industry services provider offering a cryptocurrency-mini-as-a-service platform, has raised a total of $3 million.
• Greece-based GX Blocks, which offers mining directly at clean energy sources, raised an undisclosed round early last year.

Other companies, such as New York-based XBTO’s mining operation, also claim to be completely powered by renewable energy sources.

However, with Crusoe’s large round—which also included credit facilities of up to $155 million—and reports of other large energy giants, including ConocoPhillips’ diverting natural gas from oil operations to a Bitcoin pilot project, it is fair to wonder when startups that specialize in clean (or at least cleaner) mining will start to receive venture capital love.

Some mining companies like Colorado-based Riot Blockchain and Stronghold Digital Mining have already seen exits to the public market, so investors can envision a liquidity end game regarding the mining industry as a whole.

If government intervention occurs and energy prices continue to rise, clean crypto mining tech may be the next aspect of the sector to explode.

Illustration: Dom Guzman

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