• An Eco-friendly portfolio optimization model is developed in cryptocurrency market • A new measure of portfolio hash rate is proposed as the ESG score of the portfolios • The MVH model is evaluated using both green and non-green cryptocurrencies • Proposed portfolios produced higher diversification ratio than benchmark portfolios • The results show up to 2.5–3 times lower energy consumption and carbon footprint In this paper, a novel mean–variance–hash (MVH) model is proposed for constructing eco-friendly portfolios in the cryptocurrency market. In addition to the traditional risk–return objectives of portfolio optimization, a sustainability dimension is incorporated into the proposed MVH model by minimizing a newly developed measure of portfolio hash rate, which represents the energy consumption and carbon emissions associated with cryptocurrency mining. This approach reflects investors’ social responsibility preferences and captures the behavioral tendency known as affinity bias, in which assets that are aligned with investors’ moral or environmental values are preferred. In the empirical analysis, the performance of the proposed model is evaluated using portfolios composed of sixteen cryptocurrencies, including both green and non-green assets. The results indicate that the proposed MVH model performs better than conventional benchmark models. Although slightly lower expected returns are obtained, a stronger alignment with the principles of socially responsible investing is achieved, as a balance is established between the financial inclusion benefits associated with the tenth sustainable development goa1 (SDG) on reduced inequalities and the environmental objectives of SDG 7 on affordable and clean energy and SDG 13 on climate action. As the intensity of social responsibility increases, both portfolio risk and expected return decrease. In return, the gap between the expected efficient frontier and the realized efficient frontier narrows, creating closer alignment. Additionally, the resulting portfolios maintain higher diversification compared to benchmark portfolios and demonstrate approximately 2.5–3 times lower energy consumption and carbon footprint based on hash rates.
Taheri et al. (Wed,) studied this question.