A Threshold Approach to Investigating Bitcoin's Environmental Impact

Abstract

The rapid growth of Bitcoin trading has created tension between financial innovation and environmental sustainability. While existing research has focused on mining energy consumption, the environmental consequences of trading activity – a primary economic driver – remain underexplored, particularly across different developmental contexts. This study examines whether Bitcoin trading volume affects progress toward Sustainable Development Goal 7 (SDG7), which mandates affordable and clean energy, and whether this relationship varies by developmental status and trading intensity. Utilising a balanced panel of 21 developed and developing countries from 2014 to 2023, we employ fixed-effects models, two-stage least squares instrumental variable regression, and threshold regression to analyse the relationship between Bitcoin trading activity and energy sustainability outcomes. The results reveal significant developmental asymmetry. In developing economies, high-volume Bitcoin trading regimes—exceeding a critical threshold of approximately $28.4 trillion in annual volume—are associated with a statistically significant deterioration in SDG7 progress (coefficient = -0.0153, p = 0.031). This effect operates through increased reliance on carbon-intensive electricity generation rather than aggregate energy consumption. No significant impact is observed in developed economies. The allocation of trading volume by exchange denomination may introduce measurement bias, and the analysis does not capture subnational variation in mining concentration. Subsequent studies should employ subnational data, extend analysis to other cryptocurrencies, and investigate which specific institutional characteristics most effectively mitigate environmental damage. Bitcoin's environmental impact is neither uniform nor linear but conditional on institutional context and trading intensity, underscoring the need for context-sensitive, volume-dependent regulatory interventions.