New ETF leverages crypto miners and ESG

As thematic investing strategies go, it doesn’t get much narrower than this: an exchange-traded fund concentrating on between 30 and 50 cryptocurrency miners that also pass muster for environmental, social and governance criteria.

That’s the objective of the new Viridi Cleaner Energy Crypto-Mining & Semiconductor ETF (RIGZ), which started trading Tuesday.

 “It’s a thematic niche play within the Bitcoin ecosystem; this is an essential service,” said Wes Fulford, chief executive of Viridi Funds.

While the actively managed ETF doesn't directly own cryptocurrencies, it's designed to operate as a leveraged play on cryptocurrencies including Bitcoin because, as Fulford explained, when the price of Bitcoin goes up by 10%, the operational expenses for miners don’t change, which means the mining stocks could go up 20% or 30%.

In terms of timing, Fulford said the mining companies and other blockchain infrastructure companies, including semiconductor makers, will likely benefit from the upside potential of recently beaten down cryptocurrencies.

After peaking at more than $63,000 in April, Bitcoin has fallen steadily to a recent low of around $30,000. At least some of the pullback was attributed to comments by Tesla Chief Executive Elon Musk about the excessive amount of energy required for crypto mining.

Fulford called Musk’s comments tying crypto mining to fossil fuels “fairly hypocritical when you look at all the materials that would go into a Tesla build and the grid powers required.”

“Elon Musk has quite the following and his news about investment in Bitcoin was a major catalyst to drive the price lower, but his comments were probably due to pressure from his boards,” he said.

“The rationale for owning a mining and infrastructure company is much the same as a senior gold producer: leveraged returns as compared to the underlying commodity,” Fulford said. “We believe that based on recent developments within the Chinese mining sector, North American miners that have access to sustainable low-cost power, large fleets of new-generation rigs and access to capital are well positioned to generate higher returns during the months and years ahead. We are excited to be launching RIGZ at such a pivotal point within the evolution of this market sector, and to be prioritizing investment into sustainable crypto-mining practices through Viridi’s clean energy focus.”

Todd Rosenbluth, director of mutual fund and ETF research at CFRA, said RIGZ joins a growing list of funds offering crypto-related exposure, “but this fund seeks to stand out by tapping into the increased focus on ESG.”

“However, this might be too niche to garner sufficient scale,” Rosenbluth added.

According to Fulford, the ESG screening is part of an internal scoring system measuring the energy consumption of the various crypto infrastructure companies.

“Eighty percent of the companies in the fund have to pass our internal clean-energy filter,” he said.