Should You Invest in the Bitcoin Futures ETF? Tread Carefully.

By Daren Fonda and Avi Salzman

Illustration by Steven Wilson


Stock investors may be feeling a tad jealous of their crypto cousins. 

Bitcoin, the largest cryptocurrency, blew past its record high this past week, reaching new heights around $67,000, up 50% since Sept. 30. 

Bulls now see a path to $100,000.

Just a few weeks ago, Bitcoin was in the doghouse—hit by regulatory fears in the U.S., a crackdown in China, and mounting criticism over the carbon footprint of “miners” that process transactions and add new coins to the supply. 

But the fear, uncertainty, and doubt—that’s FUD in cryptospeak—has been swept away, or at least under the rug, as excitement builds over a new milestone: Bitcoin is cracking one of Wall Street’s favorite products, exchange-traded funds, opening a channel into a market worth $9 trillion. 

What’s good for Wall Street, however, isn’t always good for investors.

After years of false starts, a Bitcoin-futures-based exchange-traded fund, the ProShares Bitcoin Strategy ETF (ticker: BITO), debuted Tuesday on the New York Stock Exchange. 

It racked up a record $1.1 billion in assets in two days, but it already has company. 

Another futures ETF, the Valkyrie Bitcoin Strategy (BTF), launched on the Nasdaq on Friday. 

Other futures ETFs that could win approval soon include funds from VanEck, AdvisorShares, and ARK 21Shares.

The flurry of futures ETFs may be a turning point for Bitcoin and the broader crypto investment space. 

Bitcoin came to life as a piece of libertarian digital agitprop—a decentralized money-transfer system aimed at swiping power from central bank fiat money and the broader financial establishment. 

That ethos still prevails in crypto, which remains both threatening and alluring to Wall Street. 

JPMorgan Chase CEO Jamie Dimon recently described Bitcoin as “worthless,” even as the firm’s investment bank and wealth management divisions aim to profit off it.

Love/hate feelings aside, Bitcoin and Wall Street are converging for mutual gain. 

“With a $2 trillion market value and 200 million users, the digital asset universe is too large to ignore,” observed Alkesh Shah, head of crypto strategy at Bank of America, in a recent coverage launch of crypto. 

Venture capital poured $17 billion into digital assets through the first half of the year, up from $5.5 billion in all of 2020, he notes.

ETFs could be the next stage of crypto’s colonization. 

Wall Street is eager to sell, trade, and create derivatives around the product, opening up new revenue streams. 

“What you see Wall Street doing with these ETFs is sucking Bitcoin in with its tractor beam,” says Ben Johnson, head of ETF research at Morningstar.

A true marriage of Bitcoin and ETFs would be funds that own the crypto directly, rather than futures—a market used to price commodities such as oil and wheat. 

ETFs with “physical” ownership of Bitcoin already trade in Canada, racking up $2 billion in assets. 

And they’re far more efficient than futures funds, which come with unique drawbacks. 

While front-month futures tend to track spot prices closely, funds may fall far behind due to cost frictions, taxes, and limits on position sizes.


A physical Bitcoin ETF isn’t expected to be approved soon by U.S. regulators, for both political and practical reasons. 

But the crypto markets are rising on hopes that even futures-based ETFs are a big win for the industry, pushing crypto deeper into the financial heartland. 

Other cryptos are rallying, including the second-largest, Ethereum. 

Coinbase Global (COIN), the largest publicly traded crypto brokerage, is up 32% this month despite the prospect of traders shifting to commission-free Bitcoin ETFs rather than paying up to 4% for a trade through Coinbase.

Filings for more crypto-futures ETFs are almost certain to follow, now that the Securities and Exchange Commission has signed off on the first Bitcoin products. 

Global ETF assets hit $9 trillion globally in August, including $7 trillion in U.S.-based funds. 

If crypto ETFs captured 1% of the global market, they would be worth $90 billion, a little less than 10% of Bitcoin’s recent market cap of $1.1 trillion.

“In theory, that’s your addressable market,” says Johnson. 

“Just the existence of a Bitcoin futures ETF could drive demand among people who view this as a validation of the underlying asset.”

Investors already have plenty of ways to get crypto, of course. 

They can buy it directly through trading apps; buy a closed-end trust that trades over the counter, such as the Grayscale Bitcoin Trust (GBTC) or Bitwise Crypto 10 Index fund (BITW); or even less directly, by owning shares in companies that own Bitcoin, like MicroStrategy (MSTR). 

Futures-based ETFs are another derivative, and now another artery into the market.

But the ETF packaging is coveted since it opens up a channel for advisors, human or digital, to add crypto in managed accounts. 

Bitcoin ETFs can slide seamlessly into a portfolio, working within existing tax-reporting and rebalancing software. 

Robo-advisors like Betterment could add it to automated accounts. 

The company is looking at how to offer crypto “responsibly,” a spokesperson tells Barron’s. 

Crucially, advisors can charge management fees on Bitcoin ETFs far more easily than if Bitcoin were held outside a managed portfolio.

More than 20% of advisory clients own Bitcoin, but only 3.5% keep it with an advisor, according to a survey conducted this year for the crypto investment firm NYDIG. 

Moreover, 73% of clients would move their crypto to an advisor if possible, the survey found. 

“It’s a step in the right direction—allowing advisors to access Bitcoin through traditional financial-services plumbing,” says Nate Geraci, president of The ETF Store, an advisory firm in Kansas.

Fund companies view a futures product as a bridge to the ultimate prize: an ETF that owns Bitcoin directly, much as gold ETFs own the physical metal. 

Grayscale Investments and Bitwise Asset Management, two of the largest crypto fund sponsors, both filed in the past few weeks for ETFs; Grayscale aims to convert its trust and Bitwise is pushing for a new ETF.

Both filings are packed with research arguing that the futures and spot markets (where actual assets are traded) have matured enough to meet SEC standards for direct ownership. 

Backers also argue that the futures and spot markets are now largely in sync, cutting down the potential for market manipulation or arbitrage from one to the other. 

If Bitcoin futures are good enough to be in an ETF, they argue, so should the coins themselves.

“The futures and spot markets reference the exact same prices,” says Matt Hougan, chief investment officer at Bitwise. 

“From a 30,000-foot view, any market manipulation that would affect futures would be similar to spot. 

We’ll eventually get physical Bitcoin and Ether ETFs and crypto will be a fully normalized asset.”


ProShares CEO Michael Sapir with Douglas Yones, head of NYSE Exchange Traded Products, and other guests at the ringing of the opening bell on the New York Stock Exchange to celebrate the first U.S. Bitcoin-Linked ETF. / NYSE


That view isn’t universally held in Washington. 

The SEC has been clear that the path for crypto ETFs is through futures—a highly regulated U.S. market. 

Spot markets and exchanges, the basis for direct ownership, pose more challenges. 

Spot markets for stocks, such as the NYSE or Nasdaq, are long-established and well regulated by authorities around the world. 

Much of Bitcoin’s trading volume takes place on newer exchanges, many of them abroad and outside the reach of U.S. watchdogs. 

It’s also thriving on automated platforms such as PancakeSwap and Uniswap, which aren’t even registered as money-transfer exchanges like Coinbase is.

For regulators tasked with surveillance, Bitcoin remains something of a cipher. 

Yes, they have had some success tracking illegal activity, notably in recovering payments for ransomware attacks. 

And yes, transactions are all visible on the blockchain. But the movement of cash to crypto and back to cash, especially overseas, runs through a digital labyrinth. 

Crypto can also hop from country to country in wallets that resemble suitcases of cash condensed into thumbnail drives.

Crypto trading, lending, and payments are also expanding on gaming platforms and other decentralized venues beyond regulators’ reach. 

“It will be difficult for regulators to keep playing catch-up,” says Chris Matta, president of 3iQ, an ETF sponsor in Canada.

The crypto industry would love Washington to clear up the patchwork of rules, enforcement actions, and regulatory agencies keeping tabs on the industry—establishing a crypto “czar” to oversee it all. 

But there’s no bipartisan consensus in Congress on how to regulate crypto, and the SEC, under Democratic Chairman Gary Gensler, has been talking tough—arguing that the SEC should exert sweeping authority over many tokens, exchanges, and DEXes, or decentralized exchanges, like Uniswap. 

The SEC recently blocked Coinbase from expanding into lending products. 

If Gensler approves a true Bitcoin ETF, it would be a U-turn from an agenda he has staked out for months.

How did the futures ETFs push through? 

Partly by meeting standards in the Investment Company Act of 1940, the overarching framework for fund-company registrations. For direct ownership of physical assets, ETFs have to go through the Securities Act of 1933, says Hougan. 

That means additional requirements for funds to be approved, notably a surveillance mechanism of underlying markets for regulators to protect against manipulation. 

That could still prove challenging since the spot markets are far more decentralized and freewheeling than regulated futures; Bitcoin, by its nature, subverts national boundaries.

“Every company that has tried to launch a direct ETF has run aground on the ’33 Act reef,” says Hougan. 

Gensler could still use it to keep a direct ETF off the market on his watch.

Illustration by Steven Wilson

While regulators may be comfortable with futures, the ETFs themselves can be murky. 

The ProShares ETF owns a mix of futures and money-market funds. 

It holds 25% of its assets in a Cayman Islands subsidiary, a common structure for futures funds to avoid U.S. federal taxes. 

But because of margin and position limits on futures, it’s unclear how much Bitcoin a fund can actually own without violating regulatory requirements. 

Also unclear is the impact of offshore tax rules on the portfolio.

Perhaps more problematically, futures ETFs may not closely match the spot returns of the crypto over long periods. 

Futures are rolling contracts that a fund must continuously buy as old ones expire—a costly process that becomes more so when contracts for future delivery are priced higher than the front month, a situation known as contango. 

Futures in contango impose “negative roll yields” that erode long-term returns.

Criticism of the “roll effect” is overblown, ProShares CEO Michael Sapir tells Barron’s: “Right now, you’re talking about 20 basis points [0.2%] to roll from the current contract to the next.” 

That’s hardly an overwhelming drag in the context of Bitcoin’s long-term gains. 

Futures are also a deep, liquid market whose nominal volume is 40% greater than the largest U.S. spot exchange. 

And some research indicates that the futures market is a leading indicator of spot.

Still, commodities ETFs can go awry for several reasons. 

A recent standout was the United States Oil fund (USO), which plunged 44% over a few days in April 2020 as crude oil prices briefly went negative. 

That selloff was triggered by collapsing oil demand due to Covid-19 and producers facing an unprecedented storage crunch. 

But Bitcoin isn’t exactly known for orderly trading, and it’s unknown how the futures or ETFs would trade in a massive flight out of crypto—probably not well.

Bitcoin futures have other quirks. 

Starting with the November front-month contract, the CME will limit the amount of Bitcoin futures that a buyer can purchase to 4,000, dropping to 2,000 three days before expiration. 

Moreover, it’s unclear if a fund can own more than 5,000 contracts of any length in total. 

Each contract represents five Bitcoins, capping total ownership at 20,000 Bitcoins. 

At recent prices that represent $1.2 billion worth of Bitcoin, only slightly more than the ProShares fund’s assets. 

ProShares has applied for a waiver from those position limits with CME, which did not have a comment on when it will decide.

If the CME holds the line, the ETF may have to find other mechanisms for exposure. 

Sapir says the fund could shift assets into later-dated contracts, swaps, or structured notes. 

The prospectus indicates another possibility: The ETF could invest in unspecified crypto equities. 

Asked if that might include miners like Riot Blockchain (RIOT), or holders like MicroStrategy, Sapir says, “We’d be looking for equity securities that we think have a high level of correlation to the performance of Bitcoin. 

And if it did, we would consider it.”

For all these reasons, advisors and other professional investors are giving futures ETFs mixed reviews. 

“I suspect this ProShares ETF will have significant dispersion from the actual Bitcoin price,” says Matthew Allain, CEO of advisory firm Leo Wealth and an early crypto adopter. 

He says he has no plans to buy the ETF for clients, preferring direct exposure. 

“It’s not a product that’s appropriate for what we’re trying to achieve in cryptos,” he says.

Others are waiting to see how they perform. 

A vote of confidence would come if the ETFs do a better job of tracking Bitcoin than the Grayscale Trust, which has been a laggard, says Matt Kilgroe, president of Cyndeo Wealth Partners in Florida: “We need time to watch how they unfold.”

Brokerages could win and lose from Bitcoin ETFs. 

Coinbase has rallied as Bitcoin’s price exploded, driving higher volumes and trading fees. 

Piper Sandler analyst Richard Repetto says the ETF brings “more credibility and attention to the crypto space.” 

Another major brokerage, Interactive Brokers (IBKR), is getting into crypto trading, launching a platform this week.

Interactive Chairman Thomas Peterffy doesn’t seem concerned about competition from ETFs, arguing that investors will want to hold actual Bitcoin as a kind of “doomsday protection,” similar to the role that gold has long played. 

The ETF is “completely useless for that purpose,” he says.

Still, if investors can trade Bitcoin ETFs for free on apps like Robinhood or Webull, they may be less inclined to pay commissions for direct exposure. 

Coinbase charges a hefty fee for a Bitcoin trade, while Robinhood captures fees in payment for order flow. 

Other brokerages take a spread, or cut, on the price difference between buys and sells. 

Interactive charges 0.12% to 0.18%.

The hype around Bitcoin belies the fact that it still faces tall hurdles to financial legitimacy. 

Real-world uses are expanding—notably in emerging markets as an alternative currency—but it’s still a digital token without tangible value, living on borrowed regulatory time. 

China and other countries view Bitcoin as an imminent threat to their monetary sovereignty; China recently banned all commercial crypto transactions as it expands a digital version of its own currency.

Bitcoin miners are still consuming vast megawatts of electricity, giving it a carbon footprint bigger than some countries. 

While the U.S. is home to more miners using renewable energy, the industry could still be subject to new carbon taxes or other fees. 

ESG investors may balk at Bitcoin’s carbon toll, which grows with its market value.

One other consideration: Bitcoin tends to plunge after a jump pegged to a positive development. 

After shooting up in anticipation of futures in 2017, it tanked shortly after they launched; Bitcoin also fell more than 20% in the days after Coinbase’s stock hit the market in April. 

Three days after the first Bitcoin futures ETF launched, the price of the coin was down 10% from its high, succumbing to profit-taking as the euphoria over ETFs faded.

The west is the author of its own weakness

China presents a threat to the liberal global order but the bigger danger lies in the discrediting of democracy

Philip Stephens 

                   © Efi Chalikopoulou


Call it the age of optimism. 

Twenty-five years ago, when this column first appeared, the world belonged to liberalism. 

Soviet communism had collapsed, the US claimed a unipolar moment, and China had joined the market economy. European integration had banished the demons of nationalism. 

The UK would soon be dubbed “Cool Britannia”.

You did not have to think the wheels of history had stopped turning to judge that the 21st century would be fashioned in the image of advancing democracy and a liberal economic order.

Today’s policymakers grapple with a world shaped by an expected collision between the US and China, by a contest between democracy and authoritarianism and by the clash between globalisation and nationalism. Britain is again the sick man of Europe. 

If this sounds insufficiently bleak, you can add the existential threat of man-made global warming.

The easy explanation is that the west fell prey during the 1990s to hopeless naivete. 

Victory in the cold war went to its head. Living standards were on the up. 

It was still possible, pre-Facebook, to imagine the internet as a global community for good. 

In any event, it is the human instinct to project the present into the future. 

Doesn’t history travel in straight lines?

Europe was no innocent in this respect. 

The continent’s liberal internationalists made common cause with US neoconservatives in promoting a great democratising mission. 

America had guns but the EU had its own “normative” power. 

Large swaths of the world were set to become, well, European.

The great unwinding since has seen the US-led post-cold war order give way to the return of great power rivalry, populists of far right and far left raising the standard of nationalism against European integration, and a mercantilist scramble for national economic sovereignty. 

In an era of authoritarian “strongmen”, headed by China’s Xi Jinping and Russia’s Vladimir Putin, democracy is in a defensive crouch.

And now western policymakers risk another big mistake by identifying China as the most pressing challenge to the ancien regime. 

The US and its allies, we are told, must concentrate their energies on gathering their resources to see off the threat. 

What we need is more submarines in the South China Sea.

Given Beijing’s belligerence, the argument is beguiling.

It is also displacement activity, an excuse not to admit what has really happened since the 1990s. 

Yes, China has grown at a much faster pace than almost anyone imagined. 

But the explanation for the weakening of western democracies lies largely in the west.

America’s wars of choice in Afghanistan and Iraq are part of the story. 

They were intended as a salutary demonstration of US power. 

Instead these vastly costly and unpopular conflicts served to delineate the limits of the Pax Americana. 

The sole superpower promised to remake the Middle East. 

Instead, as we saw last month in the fall of Kabul, Washington has been forced to cut and run. 

The rest of the world notices these things.

The failure in the Middle East, however, pales into insignificance against the damage inflicted by the 2008 global financial crash. 

Historians will record the crash as a momentous geopolitical as much as an economic event — the moment western democracies suffered a potentially lethal blow.

The failure of laissez-faire economics was visible before the collapse of Lehman Brothers. 

The incomes of the not-so-well-off had long been stagnating under the pressure of technological advance and open markets. 

It was obvious, too, that the rewards of globalisation were being reaped by the rich and super-rich. 

The crash, though, crystallised what had become, in effect, an elaborate shakedown.

Those looking for an explanation for Donald Trump’s presidential victory, for the UK Brexit vote, or for populist insurgencies across Europe need reach no further. 

The excesses of the financial services industry and the decision of governments to heap the costs of the crisis on to the working and lower middle classes have struck at the very heart of democratic legitimacy.

What Trump understood, as did populists elsewhere, is that the voters’ respect for established politics is rooted in a bargain. 

Public faith in democracy — in the rule of law and the institutions of the state — rests on a perception that the system at least nods towards fairness. 

There have been reforms to that end since the crash, but little to suggest they are enough.

There was nothing wrong with the ambition of the post cold war optimists. 

It remains hard to see how the world can work without liberal democracy and a rules-based international system. 

What the optimists missed then, and the China watchers overlook now, is the hollowing out of trust in democracy at home. 

Of course, China is a potential threat. 

A second presidential term for Trump would be a much more dangerous one.

It may be that history will conclude that the excessive optimism of the 1990s is being mirrored today by too much pessimism. 

That’s a judgment I intend to leave to others. 

For a political commentator, 25 years in the same slot is long enough. 

So this is my last column. 

I will continue to write from time to time as an FT contributing editor, but otherwise intend to go in search of a better understanding of, well, history.

Diplomacy by other means

Israel again rattles its sabre at Iran

A military response is readied as hope for a nuclear deal fades


TWO BY TWO they roared into the sky over the Israeli desert—American F-16s, British Typhoons, French Rafales and more—to confront an unseen enemy called “Dragonland”. 

The foes of wargames are fictitious. 

But in the minds of the hosts, the monster is real: Iran. 

Israeli officers were at pains to say the exercise was “generic”. 

Yet Dragonland’s force, with its drones and air-defence missiles, was akin to Iran’s. 

Exercises to defeat it “are part of the capabilities that are needed to face Iran,” noted one general.

The “Blue Flag” exercises at the Ovda air base in the Negev desert are a form of military diplomacy, and a signal that Israel has friends. 

Israel is becoming the hinge of two emerging military groupings: an eastern Mediterranean one to fend off Turkey; and a Middle Eastern one to deter Iran. 

The number of Blue Flag participants has grown—seven countries, including India, exercised with Israel this year. 

The United Arab Emirates’ air-force chief came to watch as an honoured guest.



Whether any of these friends would help Israel in a war with Iran is unclear. 

But the proposition may be tested sooner than some expect. 

Sabre-rattling is growing louder as Iran’s nuclear programme gathers pace and American diplomacy falters. 

America has warned that it would look at “other options” and this month it tested a new bunker-buster bomb. 

The Israeli air force has begun rehearsing attack plans; the government is allocating more money to the armed forces to confront Iran. 

In Manama on October 1st the Israeli and Bahraini foreign ministers posed for pictures in front of an American warship. 

Iran has responded by staging air-defence exercises and warning Israel of a “shocking response” to any attack.

Israel has entered what some call the “dilemma zone”—weighing up the danger of Iran going nuclear against the prospects for diplomacy, the complexity of mounting a military operation, Iran’s likely retaliation, and the response of America and regional partners. 

Israel will not say what its “red lines” are, but Western diplomats think it may take a decision to act by the end of the year.

Israel has been here before, notably in 2009-12, when it threatened to bomb Iran but stayed its hand. 

Now, though, Iran is even closer to having the wherewithal to make atomic bombs. 

That is in part because in 2018 Donald Trump abandoned a nuclear deal, known as the Joint Comprehensive Plan of Action (JCPOA), that limited Iran’s nuclear programme and opened it up to enhanced inspections in return for the partial lifting of international sanctions. 

Iran says it seeks nuclear technology only for civilian purposes, yet its uranium enrichment has advanced to the point that its “breakout time”—the time it would need to make a bomb’s-worth of fissile material—has shrunk from a year to about a month. 

(Making a warhead to fit on a missile might take another 18-24 months.

Iran seems uninterested in America’s call for a return to “mutual compliance” with the JCPOA. 

The UN’s International Atomic Energy Agency says its monitoring of Iran’s activities is no longer “intact” because the regime is refusing to let it replace damaged cameras.

Israel has twice bombed its enemies’ nuclear facilities—striking an Iraqi nuclear reactor in 1981 and a Syrian one in 2007. 

But these were single air raids. Taking out Iran’s nuclear facilities would be far more difficult because they are dispersed and some are buried underground. 

Iran has also acquired Russian-made S-300 air-defence missiles. 

As one Israeli general puts it, an attack plan against Iran is “not just one system, but a system of systems.” Execution is “not something you can prepare in just a month”.

Israel’s operational challenges range from identifying the location of Iranian facilities to their level of fortification and whether anti-aircraft defences must first be destroyed. 

Israel would be operating some 1,500km away from its bases, requiring air-to-air refuelling for many aircraft over potentially hostile territory. 

Some analysts believe it is all beyond Israel’s capabilities. 

Israeli military planners claim otherwise, saying they can do enough damage to set back Iran’s nuclear programme by some years.

Israel’s task would be easier if its new Gulf allies were willing to help by, say, allowing overflights, providing bases or assisting downed pilots. 

But the more Iran’s neighbours get involved, the likelier they are to become targets of retaliation. 

Iran has threatened to close the Strait of Hormuz, through which much of the Gulf’s oil passes, if attacked. 

Its conventional military capacity may be limited—some of its aircraft date back to the Shah’s days before his overthrow in 1979. 

But it has built up a force of ballistic and other missiles, and has resorted to asymmetric tactics, eg, sabotaging ships near its waters.

It also sponsors proxy militias—in Iraq, Syria, Yemen and Lebanon—that give it military reach across the region. 

Hizbullah in Lebanon has thousands of rockets that can be rained down on Israel’s cities. 

More worrying, Hizbullah also has guided missiles and drones that can strike accurately—as Iran demonstrated in 2019 when it attacked Saudi Arabia’s oil-processing facilities at Abqaiq. 

Israel, military officials note, is a “100-target country”—with just a handful of power stations and desalination plants, and a single international airport. 

Hitting these would cause “strategic damage”. 

Many Gulf states are even more vulnerable.

Much will depend on President Joe Biden, who says he will not allow Iran to go nuclear on his watch. 

Military action by America would be more powerful than an Israeli raid, not least because it has larger bunker-busting weapons. 

And even if it just gives Israel the green light to act alone, America might not be able to stay out of the fighting. 

If Iran responds by widening the conflict, as many expect, America would be called upon to keep the sea lanes open, defend allies and even protect itself. 

Its forces in Iraq and Syria are exposed to attack (an American base in Tanf, in Syria, was hit by armed drones on October 20th). 

Having withdrawn from Afghanistan this summer, saying he wanted to end the “forever wars” in the Muslim world, Mr Biden will be loth to get sucked into another one.

Israel’s best hope is that its threat of action, combined with concerted Western diplomatic and economic pressure, will persuade Iran to agree to a diplomatic deal. 

“Iran can be deterred,” insists one Israeli official, “It does not want to be North Korea.” 

The danger is that the mullahs conclude that only nukes will keep their regime safe.

Putting Public Finance on the Right Side of History

With the urgency of the climate crisis becoming clearer by the day, governments and multilateral lenders must end public financing for fossil fuels and increase their support for renewables as soon as possible. This year's United Nations climate-change conference offers the perfect opportunity to lock in such commitments.

Werner Hoyer, John Murton


BRUSSELS – The economics of renewable energy have improved beyond recognition. 

Solar power is now the cheapest form of electricity in history. 

Over 90% of power-generation capacity added around the world last year was in renewables. 

But to stand a chance of limiting global warming to 1.5° Celsius above pre-industrial levels, the world’s energy systems must transform even faster. 

And that requires governments and public financial institutions to stop supporting fossil fuels and instead emphasize international support for the clean-energy transition.

The science is clear. 

To meet the 2015 Paris climate agreement’s 1.5°C target, the global energy transition needs to progress 4-6 times faster than it currently is. 

Fossil fuels still supply 84% of the world’s energy and account for over 75% of global emissions. 

The International Energy Agency’s Net Zero by 2050 roadmap shows that global energy systems must be fossil-fuel-free by 2040. 

Yet since the Paris agreement was concluded, G20 governments have provided more than three times more public finance for fossil fuels ($77 billion) than for renewables every year.

This year’s catastrophic storms, floods, and wildfires have shown why we need climate action now, not later. 

And because future prosperity lies in clean energy investment, there is also a clear economic development case for redoubling our efforts. 

Wind and solar are now cheaper than new coal and gas power plants in two-thirds of the world. 

The dramatic cost reduction over the past decade has transformed global energy options, particularly in the very poorest countries, where renewables-based mini grids offer real opportunities to alleviate energy poverty and provide energy access.

Boosting investment in renewables is also vital to creating jobs, driving economic growth, and reducing air pollution. 

According to the International Renewable Energy Agency, deploying renewables at scale could help create 42 million jobs worldwide by 2050. 

This additional employment will be crucial for delivering a resilient, green recovery from the COVID-19 pandemic, especially in countries with young, fast-growing populations.

But, of course, jobs will also disappear as we abandon fossil fuels. 

We therefore must take steps to ensure that every community benefits from the transition. 

This will require carefully designed policies to support a managed shift away from older forms of energy generation. 

Global solidarity will be critical. 

We must do much more to provide everyone with the necessary technologies, expertise, investment support, and financial strategies.

Fortunately, we already have solutions to the problem. 

At the United Nations Climate Change Conference (COP26) in Glasgow in November, governments and financial institutions must commit to supporting cheaper, cleaner, no-regrets energy, and to ending all international support for fossil-fuel-based power. 

This should not be too difficult, given that many legacy energy investments will inevitably become stranded assets.

We are already starting to see significant progress in this direction. 

In May, G7 member states committed to cease all of their international financing for coal projects by the end of 2021, and to “phase out new direct government support for carbon-intensive international fossil fuel energy.” 

Moreover, South Korea, Japan, and now China – the world’s largest providers of international coal financing – have also agreed to stop funding coal projects overseas.

Equally important, more than 85 countries (plus the European Union) have submitted updated national climate pledges, as outlined in the Paris agreement. 

These show a clear trend toward higher renewable energy use and lower reliance on fossil fuels by 2030. 

But many of these countries will need substantial technical and financial support to hit their targets.

The United Kingdom and the European Investment Bank have both committed to making international support for the clean-energy transition a high priority. 

In 2019, the EIB became the first multilateral bank to announce an end to all financing for fossil-fuel energy projects (by 2021). 

The bank has been increasing its investments in clean energy, including in developing countries to support their transition. 

In Kenya, EIB investments have helped build the largest wind farm in Africa, providing clean and affordable energy to the region.

Similarly, in March, the UK government put an immediate end to new public support for overseas international fossil-fuel energy projects, fully shifting investment into renewables. 

This decision has already started to unlock significant opportunities, building on existing support for clean energy provided by the country’s export credit agency, UK Export Finance. 

This includes over £140 million ($189 million) of financing for UK exports to Ghana, which will help Ghana pursue major national infrastructure projects, including an initiative for solar-powered clean water that will reach more than 225,000 people.

We now must build on this momentum to ensure that COP26 is a success. 

More commitments are needed to align international public support fully with the Paris goals. 

We can achieve the necessary solidarity by bringing governments and public-finance institutions together behind a joint statement proclaiming support for clean energy and a phase-out of fossil fuels.

We invite governments and public-finance leaders to join us in supporting this statement. 

The cost of climate inaction would be catastrophic. 

We have reached a critical juncture for our planet. 

COP26 must be remembered as the moment when we took decisive action to safeguard our shared future.


Werner Hoyer is President of the European Investment Bank.

John Murton is the United Kingdom's COP26 Envoy.

The China Sleepwalking Syndrome

If the Sino-American relationship were a hand of poker, Americans would recognize that they have been dealt a good hand and avoid succumbing to fear or belief in the decline of the US. But even a good hand can lose if it is played badly.

Joseph S. Nye, Jr.


CAMBRIDGE – As US President Joe Biden’s administration implements its strategy of great power competition with China, analysts seek historical metaphors to explain the deepening rivalry. 

But while many invoke the onset of the Cold War, a more worrisome historical metaphor is the start of World War I. 

In 1914, all the great powers expected a short third Balkan War. 

Instead, as the British historian Christopher Clark has shown, they sleepwalked into a conflagration that lasted four years, destroyed four empires, and killed millions.

Back then, leaders paid insufficient attention to the changes in the international order that had once been called the “concert of Europe.” 

An important change was the growing strength of nationalism. 

In Eastern Europe, pan-Slavism threatened both the Ottoman and Austro-Hungarian empires, which had large Slavic populations. 

German authors wrote about the inevitability of Teutonic-Slavic battles, and schoolbooks inflamed nationalist passions. 

Nationalism proved to be a stronger bond than socialism for Europe’s working classes, and a stronger bond than capitalism for Europe’s bankers.

Moreover, there was a rising complacency about peace. 

The great powers had not been involved in a war in Europe for 40 years.

Of course, there had been crises – in Morocco in 1905-06, in Bosnia in 1908, in Morocco again in 1911, and the Balkan wars in 1912-13 – but they had all been manageable. 

The diplomatic compromises that resolved these conflicts, however, stoked frustration and growing support for revisionism. 

Many leaders came to believe that a short decisive war won by the strong would be a welcome change.

A third cause of the loss of flexibility in the early twentieth-century international order was German policy, which was ambitious but vague and confusing. 

There was a terrible clumsiness about Kaiser Wilhelm II’s pursuit of greater power. 

Something similar can be seen with President Xi Jinping’s “China Dream,” his abandonment of Deng Xiaoping’s patient approach, and the excesses of China’s nationalistic “wolf warrior” diplomacy.

Policymakers today must be alert to the rise of nationalism in China as well as populist chauvinism in the United States. 

Combined with China’s aggressive foreign policy, a history of standoffs and unsatisfactory compromises over Taiwan, the prospects of inadvertent escalation between the two powers exist. 

As Clark puts it, once catastrophes like WWI occur, “they impose on us (or seem to do so) a sense of their necessity.” 

But in 1914, Clark concludes, “the future was still open – just. 

For all the hardening of the fronts in both of Europe’s armed camps, there were signs that the moment for a major confrontation might be passing.”

A successful strategy must prevent a sleepwalker syndrome. 

In 1914, Austria was fed up with upstart Serbia’s nationalism. 

The assassination of an Austrian archduke by a Serbian terrorist was a perfect pretext for an ultimatum. 

Before leaving for vacation, the German Kaiser decided to deter a rising Russia and back his Austrian ally by issuing Austria a diplomatic blank check. 

When he returned and learned how Austria had filled it out, he tried to retract it, but it was too late.

The US hopes to deter the use of force by China and preserve the legal limbo of Taiwan, which China regards as a renegade province. 

For years, US policy has been designed to deter Taiwan’s declaration of de jure independence as well as China’s use of force against the island. 

Today, some analysts warn that that this double deterrence policy is outdated, because China’s growing military power may tempt its leaders to act.

Others believe that an outright guarantee to Taiwan or hints that the US is moving in that direction would provoke China to act. 

But even if China eschews a full-scale invasion and merely tries to coerce Taiwan with a blockade or by taking one of its offshore islands, all bets would be off if an incident involving ships or aircraft led to loss of life. 

If the US reacts by freezing assets or invoking the Trading with the Enemy Act, the two countries’ metaphorical war could quickly become real. 

The lessons of 1914 are to be wary of sleepwalking, but they do not provide a solution to managing the Taiwan problem.

A successful US strategy toward China starts at home. 

It requires preserving democratic institutions that attract rather than coerce allies, investing in research and development that maintains America’s technological advantage, and maintaining America’s openness to the world. 

Externally, the US should restructure its legacy military forces to adapt to technological change; strengthen alliance structures, including NATO and arrangements with Japan, Australia, and South Korea; enhance relations with India; strengthen and supplement the international institutions the US helped create after World War II to set standards and manage interdependence; and cooperate with China where possible on transnational issues. 

So far, the Biden administration is following such a strategy, but 1914 is a constant reminder about prudence.

In the near term, given Xi’s assertive policies, the US will probably have to spend more time on the rivalry side of the equation. 

But such a strategy can succeed if the US avoids ideological demonization and misleading Cold War analogies, and maintains its alliances. 

In 1946, George Kennan correctly predicted a decades-long confrontation with the Soviet Union. 

The US cannot contain China, but it can constrain China’s choices by shaping the environment in which it rises.

If the Sino-American relationship were a hand of poker, Americans would recognize that they have been dealt a good hand and avoid succumbing to fear or belief in the decline of the US. But even a good hand can lose if it is played badly.


Joseph S. Nye, Jr. is a professor at Harvard University and author of Do Morals Matter? Presidents and Foreign Policy from FDR to Trump.