Bitcoin and Carbon Emissions: A Closer Look at their Relationship

Let's dive into the relationship between Bitcoin (BTC) and carbon emissions (CO2) from 2017 to 2022. Recent studies have shown that cryptocurrencies and energy markets are quite volatile. This means the relationship between Bitcoin and carbon emissions might not be straightforward. Using tests from Luukkonen et al. (1988) and Harvey et al. (2008), we found that the relationship between these two factors isn't linear.Since the relationship isn't linear, we used Kapetanios et al. (2006) tests to look deeper. Their tests found that Bitcoin and CO2 have a non-linear long-term relationship. This suggests that the connection between Bitcoin and carbon emissions isn't simple and doesn't follow a direct path. After finding this non-linear relationship, we wondered which way the connection goes. So, we did a Granger causality test. It showed that Bitcoin has a one-way influence on carbon emissions. This finding means that the energy used to produce Bitcoin might not be coming from environmentally friendly sources.