This trade scare proved just how volatile cryptocurrency can be.
Cryptocurrencies suffered tens of billions of dollars in losses last weekend after a statement from Trump rattled high-risk investors with threats of high import tariffs on China, according to CNN.
The result was a “flash crash” — a sudden and extreme decline in assets — that “highlight[ed] the volatility associated with the industry,” per CNN. Investors with money in high-risk assets tend to flee en masse to something more secure, such as gold and silver. It may not even be people — algorithm-run traders can automatically sell to prevent further losses, triggering other algorithm-run traders to follow suit.
“The aggressive crypto selloff was sparked by a risk-off stampede,” said Lukman Otunuga, a senior market analyst at global trading broker FXTM, per CNN.
Cryptocurrencies have skyrocketed in popularity over the past decade, but with an unfortunate side effect: a significant negative impact on the climate.
To create coins, computers must “mine” for them by solving complex calculations. Crypto mining consumes massive amounts of energy, “account[ing] for 2 percent of world electricity demand in 2022,” according to the International Monetary Fund.
Crypto’s electricity usage produces significant carbon air pollution. Making a “single transaction on the former PoW-based Ethereum blockchain required roughly as much energy as the average American household uses on a weekly basis,” according to EY.
This air pollution contributes to a rapidly changing climate, the effects of which include rising average temperatures and extreme weather events.
Some crypto companies are working towards greener, energy-efficient methods of mining, like proof-of-stake consensus, which can slash consumption by extraordinary numbers.
Impacted cryptocurrencies, like Bitcoin, are slowly recovering from the sudden crash but haven’t yet fully recouped their losses.
Samir Kerbage, CIO at Hashdex, explained that this phenomenon isn’t uncommon, per CNN.
“Friday’s move was a textbook example of how leverage can amplify short-term volatility in a 24/7 market. As prices started falling, margin calls and forced liquidations cascaded across venues.”
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