Crypto swings and the performance of carbon-intensive equity funds in China

Abstract

The massive reliance on the consumption of non-renewable energy resources for bitcoin mining has environmental implications. This paper addresses a critical research gap related to the performance of carbon-intensive equity funds in China – the country with maximum hashrate − during the crypto boom and bust periods between 2013 and 2021. We employ event study methodology and assess funds based on their investment exposure. The findings demonstrate significant abnormal returns for high-emission funds during the price booms. The abnormal returns reduce as we move across categories and are non-existent for the pro-ecological funds. We also report a positive relationship between investment flows and increasing bitcoin prices, and the impact becomes less profound for low-carbon funds. While demonstrating the effects of variation in crypto prices on investment performance and flows, the results indicate possible impediments to a sustainable financial system. Our findings highlight the relevance of using renewable resources to mitigate climatic concerns.