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.
“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.”
