Climate value at risk and expected shortfall for Bitcoin market

Abstract

The economic risk of the carbon footprint of the Bitcoin network remains unexplored. We develop the real-time artificial price for the carbon footprint of the Bitcoin network and thereby extend the climate value at risk (VaR) into the climate expected shortfall (ES) by employing both parametric and semiparametric models. On the basis of the best-fitted climate VaR and ES estimations, we find that the 95th percentiles (upper bound) of the climate VaR and ES are 8.04 and 10.37 billion euros, respectively, and the 99th percentiles (upper bound) of climate VaR and ES are 11.33 and 14.15 billion euros, respectively. Moreover, given the climate VaR and ES estimations on the basis of similar carbon footprint, the negative environmental externality of the Bitcoin network based on the current carbon price is not sufficient to reflect the environmental cost. Overall, our research provides new insight into the linkage between the Bitcoin network and the environment, which will provide meaningful information for both investors and policymakers.

Keywords

• Climate value at risk
• Climate expected shortfall
• Parametric and semi-parametric models
• Bitcoin network