An index of cryptocurrency environmental attention (ICEA)

Abstract

Purpose(1) A concern often expressed in relation to cryptocurrencies is the environmental impact associated with increasing energy consumption and mining pollution. Controversy remains regarding how environmental attention and public concerns adversely affect cryptocurrency prices. Therefore, the paper aims to introduce the index of cryptocurrency environmental attention (ICEA), which aims to capture the relative extent of media discussions surrounding the environmental impact of cryptocurrencies. (2) The impacts of cryptocurrency environmental attention on long-term macro-financial markets and economic development remain part of undeveloped research fields. Based on these factors, the paper will further examine the effects of the ICEA on financial markets or economic developments.Design/methodology/approach(1) The paper introduces a new index to capture cryptocurrency environmental attention in terms of the cryptocurrency response to major related events through gathering a large amount of news stories around cryptocurrency environmental concerns – i.e. >778.2 million news items from the LexisNexis News & Business database, which can be considered as Big Data – and analysing that rich dataset using variety of quantitative techniques. (2) The vector error correction model (VECM) and structural VECM (SVECM) [impulse response function (IRF), forecast error variance decomposition (FEVD) and historical decomposition (HD)] are useful for characterising the dynamic relationships between ICEA and aggregate economic activities.Findings(1) The paper has developed a new measure of attention to sustainability concerns of cryptocurrency markets' growth, ICEA. (2) ICEA has a significantly positive relationship with the UCRY indices, volatility index (VIX), Brent crude oil (BCO) and Bitcoin. (3) ICEA has a significantly negative relationship with the global economic policy uncertainty (GlobalEPU) and global temperature uncertainty (GTU). Moreover, ICEA has a significantly positive relationship with the industrial production (IP) in the short term, whilst having a significantly negative relationship in the long term. (4) The HD of the ICEA displays higher linkages between environmental attention, Bitcoin and UCRY indices around key events that significantly change the prices of digital assets.Research limitations/implicationsThe ICEA is significant in the analysis of whether cryptocurrency markets are sustainable regarding energy consumption requirements and negative contributions to climate change. Understanding of the broader impacts of cryptocurrency environmental concerns on cryptocurrency market volatility, uncertainty and environmental sustainability should be considered and developed. Moreover, the paper aims to point out future research and policy legislation directions. Notably, the paper poses the question of how cryptocurrency can be made more sustainable and environmentally friendly and how governments' cryptocurrency policies can address the cryptocurrency markets.Practical implications(1) The paper develops a cryptocurrency environmental attention index based on news coverage that captures the extent to which environmental sustainability concerns are discussed in conjunction with cryptocurrencies. (2) The paper empirically investigates the impacts of cryptocurrency environmental attention on other financial or economic variables [cryptocurrency uncertainty (UCRY) indices, Bitcoin, VIX, GlobalEPU, BCO, GTU index and the Organisation for Economic Co-operation and Development IP index]. (3) The paper provides insights into making the most effective use of online databases in the development of new indices for financial research.Social implicationsWhilst blockchain technology has a number of useful implications and has great potential to transform several industries, issues of high-energy consumption and CO2 pollution regarding cryptocurrency have become some of the main areas of criticism, raising questions about the sustainability of cryptocurrencies. These results are essential for both policy-makers and for academics, since the results highlight an urgent need for research addressing the key issues, such as the growth of carbon produced in the creation of this new digital currency. The results also are important for investors concerned with the ethical implications and environmental impacts of their investment choices.Originality/value(1) The paper provides an efficient new proxy for cryptocurrency and robust empirical evidence for future research concerning the impact of environmental issues on cryptocurrency markets. (2) The study successfully links cryptocurrency environmental attention to the financial markets, economic developments and other volatility and uncertainty measures, which has certain novel implications for the cryptocurrency literature. (3) The empirical findings of the paper offer useful and up-to-date insights for investors, guiding policy-makers, regulators and media, enabling the ICEA to evolve into a barometer in the cryptocurrency era and play a role in, for example, environmental policy development and investment portfolio optimisation.

The Effects of Central Bank Digital Currencies News on Financial Markets

“…The reasons seem abundantly clear: the uncertainty index fluctuates more than the attention index, and financial markets are also more sensitive to shocks from uncertainty indices. Our findings reconfirm those of [Lucey et al, 2021;Wang et al, 2022]. Secondly, the contributions of the estimated CBDCUI shocks to the evolution of the financial variables' volatilities changed over time, and we found that they tended to be larger between March 2015 to July 2015, February 2017 to December 2018, June 2019 to August 2019, and April 2020 to July 2021.…”

“…One possible reason for this research gap is the lack of a time series proxy that relates to the CBDCs. However, several scholars have shown that an index of news coverage frequency can serve as a proxy to reflect the uncertainty of one economic or financial objective (e.g., economic policy, cryptocurrency policy, or cryptocurrency price) [Baker et al, 2016, Huang andLuk, 2020;Lucey et al, 2021], or draw public attention to an economic or financial objective (e.g., cryptocurrency, cryptocurrency environmental, P2P lending) [He et al, 2021;Smales, 2022;Wang et al, 2022]. These papers further confirm that the uncertainty or attention indices mentioned above can act as validity and efficiency proxies by investigating their impacts on micro or macroeconomic variables.…”

“…Our method of CBDC indices' construction draws from the methods of Baker et al (2016) and Huang and Luk (2020) and is in line with the methods of Lucey et al (2021) and Wang et al (2022), who created the cryptocurrency uncertainty indices and cryptocurrency environmental attention index.…”

“…It is important to assess how the new CBDC indices are related to other indices capture uncertainty of the cryptocurrency markets as a whole. ICEA can capture the public attention and concerns regarding the environment and cryptocurrency (Wang et al, 2022). Both cryptocurrencies and CBDCs are a type of digital currency, and they will lead to environmental issues such as increased energy consumption and carbon emissions during their production and circulation [Chen et al, 2020;Su et al, 2020b].…”

Time‐frequency comovement among green financial assets and cryptocurrency uncertainties

“…In addition, the cryptocurrency market is highly volatile (Mensi et al, 2021). Traditional cryptocurrencies and digital coins are a source of increasing CO 2 emissions, energy consumption, air pollution and climate change (Ghosh & Bouri, 2022; Naeem & Karim, 2021; Pham et al, 2022; Y. Wang et al, 2022a). Therefore, the development of cryptocurrency market is crucial for green financial markets and United Nations Sustainable Development Goals, and so do cryptocurrency uncertainties.…”