Key areas of due diligence for crypto assets include custody, traceability and regulatory risk, BetaCarbon CEO Guy Dickinson told InvestorDaily.
Speaking ahead of InvestorDaily’s 2022 ESG Summit, where he and a panel of speakers will address common concerns around the ESG risk of crypto, Mr Dickinson explained what a thorough due diligence should explore.
“If we start with governance, I think security and custody are important issues,” Mr Dickinson said.
“You need to do your due diligence around how you want your cryptocurrency stored, whether that’s a centralised or decentralised venue, and assess the risks associated with those options.”
Alongside governance, investors are advised to explore a range of environmental themes, including transparency, pricing, carbon credits and greenwashing.
“As crypto starts to become more mainstream, I think you’ll see more projects that will create a lot more traceability because anything associated with the environment will require a lot more traceability,” Mr Dickinson said.
“Also, issues surrounding greenwashing simply can’t be solved through an Excel spreadsheet. Whereas in a distributed ledger that is clean and available to everyone, double counting will get called out straight away. There’s a ledger to go back and check it and they’ll create algorithms over the top of it.
“When data is centralised and available to be extracted, that’s where transparency comes from.”
Cryptocurrency is increasingly gaining attention from the both the government and the corporate regulator, with Federal Treasurer Josh Frydenberg recently outlining the government’s plans to proceed with a tranche of new cryptocurrency asset reforms, while ASIC recently declared crypto and ESG among its top priorities for 2022.
Before dabbling in crypto, Mr Dickinson advised investors to take several key steps. “You want to check who’s behind the team, including the history and form of that team,” he said.
“Is it a bunch of kids in the basement? Maybe that’s okay but who’s funding the kids in the basement?”
Investing in sustainable projects is also critical, as is striking the right balance, Mr Dickinson added.
“If something feels like it’s got too much heat and light around it from day one, it probably does,” he cautioned.
“Something that is built up to a billion-dollar market cap in three weeks is not sustainable. The guy has probably made a lot of money but is that where you want to put your clients? Absolutely not. You want to see where the value lies in a project.”
Mr Dickinson cautioned of the different tax rules regarding cryptocurrency “which can create some asymmetric downside risks”.
“Often, you’re willing to take that risk because the asymmetric upside of some of the capital gains that you may acquire by owning cryptocurrency can compensate for those tax disadvantages,” he said.
To hear more from Mr Dickinson and other speakers about the key ESG considerations of investing in cryptocurrency, make sure you come along to the 2022 ESG Summit in Sydney on Thursday, 17 March.
Click here to book your tickets and make sure you don’t miss out.
For more information about the event including speakers and the agenda, click here.
