The value of Bitcoin has recently soared as tesla and others have invested heavily in the currency.
After Tesla recently announced that it had purchased about $1.5 billion in bitcoin, sending the cryptocurrency’s value soaring, sustainability investors decried “the level of carbon dioxide emissions produced by bitcoin mining.” Of course, “mining” is an undeniable environmental culprit; it is the energy-intensive process by which computers solve complex algorithmic problems to validate blockchain transactions and reward them with digital currency.
But there are also worrisome aspects to Bitcoin. A Barron’s review cautions investors to think twice about considering it as part of an ethical investment strategy.
The article notes that a large amount of bitcoin is coming from the Xinjiang region in the northwest of the continent, where more than a million Uighur Muslims and other minorities are being held in educational camps. According to the Cambridge Bitcoin Power Consumption Index, the continent accounts for 65% of all bitcoin mining as of April 2020. Of that, 36 percent occurred in Xinjiang, the largest regional component.
Talking about the factors behind this, the article explains that cheap coal means cheap energy to power the computers that mine bitcoin. Xinjiang has an abundant supply of coal, and the relative remoteness of the region means that it is cheaper to use the resource locally than to send it to other parts of China. The article notes, however, that the problem is not the Chinese government’s use of forced labor in Xinjiang’s coal mines, as the jury is still out on that aspect of the issue. Rather, any product produced in Xinjiang poses high moral and regulatory risks due to the brutal acts committed against Uighurs and other minorities in the region.
According to the data cited in the article, roughly 20 percent of new bitcoin is mined in Xinjiang, which is Home to some of the world’s worst human rights abuses.
There has been little discussion of Bitcoin’s ties to Xinjiang. That could change, the article says. For public-facing funds considering investing in notoriously volatile assets, there are two other risks to consider. The first is that asset holdings tied to the region run the risk of suffering a public relations disaster as the U.S. public becomes concerned about human rights abuses in Xinjiang.
Some human rights activists have already criticized Olympic sponsors for participating in the “genocide Olympics” – the 2022 Winter Games in Beijing. A campaign to remove Xinjiang from the global supply chain is already underway.
Last July, more than 190 organizations, including the AFL-CIO, called on apparel brands to stop all sourcing from Xinjiang for the next 12 months. (In 2020, about 20 percent of the world’s cotton will come from Xinjiang.)
The article also says that investors should be wary of regulatory action. Bitcoin’s ties to Xinjiang provide ammunition for those in the U.S. government who wish to further monitor or restrict transactions. Analysts expect the Biden administration to keep a close eye on bitcoin.
In addition, Bitcoin’s connection to Xinjiang could bring it under the scrutiny of the Commerce, State and Defense departments. These departments are working to reduce U.S. reliance on physical and digital continental commodities. If this trend intensifies, the U.S. Treasury could sanction bitcoin mining companies with large operations in Xinjiang or issue an advisory saying it is “studying” bitcoin’s ties to the region, implying another risk for global financial institutions holding the cryptocurrency.
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