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What does the global energy crisis mean for crypto markets?

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It is undeniable that the world is currently facing an energy crisis of unprecedented proportions with soaring oil, gas and electricity prices.

In particular, limited gas supplies resulting from the ongoing Russian-Ukrainian conflict have caused prices of essential commodities such as fertilizer to skyrocket dramatically. I’m here. In Europe alone, coal consumption jumped 14% last year, Another 17% increase By the end of 2022.

To elaborate on this issue, it is worth noting that gas prices in Europe are about 10 times higher than the average level of the last 10 years. arrival In late August, it hit a record high of about $335 per MWh.

Similarly, the U.S. Energy Information Administration’s recently released 2022 Winter Fuel Outlook suggests that the average cost of fuel for Americans will be gain A whopping 28% increase compared to last year, up to a staggering $931.

With such eye-popping data out in the open, it’s hard to imagine how this ongoing energy shortage could affect the cryptocurrency sector, and whether the negative effects will recede soon. It’s worth digging into the issue.

Experts are weighing this issue

Matthijs de Vries, Founder and CTO of AllianceBlock, a blockchain company bridging the gap, said: Decentralized Finance (DeFi) He told Cointelegraph that the global economy is in a bad shape thanks to a number of factors, including a power crisis, a looming recession, rapid inflation, and rising geopolitical tensions. he added:

“These issues are interconnected and primarily lie in the way capital moves in and out of influential industries. This liquidity allows the blockchain incentive mechanism to continue working, so for miners, a lack of liquidity means fewer transactions to confirm, lower fees, and fewer incentives. Become.”

In addition, de Vries said rising energy costs could provide additional incentives for miners to migrate to Ethereum 2.0’s validator ecosystem, which relies on much more energy-efficient proof-of-stake (PoS) mechanisms. I believe there is.

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Yuriy Snigur, CEO of Extrachain, an infrastructure provider for decentralized applications, blockchain and decentralized autonomous organization (DAO) platforms, has somewhat similar sentiments. most.

“They are most dependent on the energy sector. In my opinion, the value of blockchain should not come from the senseless burning of energy, which is why PoW is ultimately doomed.

Worsening macroeconomic conditions will hit cryptocurrencies in the short term

Nero Jay, founder of cryptocurrency YouTube channel Dapp Centre, told Cointelegraph that the challenges witnessed will continue to have a negative impact on the cryptocurrency market as a whole. Speculative and risky, at least for the foreseeable future.

But as a beacon of hope, the aforementioned challenges could serve as an opportunity to increase crypto adoption, especially as many countries such as Venezuela, Turkey, Argentina, Zimbabwe and Sudan continue to be ravaged by hyperinflation and sanctions. I said yes. Provides more usefulness and use cases.

Finally, Jay believes that the worsening energy situation could lead to increased scrutiny of the mining sector. Especially since proponents of zero-carbon campaigns will have more fuel to criticize the field.

“Many people are questioning the environmental impact of cryptocurrency mining. is to be.”

Relationship between Bitcoin price and energy market

From an outside perspective, rising energy prices will raise costs for miners, who may be forced to sell their bitcoin holdings (Bitcoin), which pushes the price down. In addition, increased production will force miners to demand higher prices to cover their daily operating costs, and in some cases even force them to cease operations altogether or sell their equipment. may occur.

Also, even if miners continue to go out of business, the total amount of BTC mined will not change. However, block rewards are distributed among a small number of individuals. This suggests that miners who can stem the bearish pressure caused by rising energy costs are in a position to make huge profits. MEXC vice president Andrew Weiner told Cointelegraph:

“Electricity shortages can lead to higher electricity prices, which can significantly increase the cost of bitcoin mining. In the event of a long-term electricity shortage in the region, relatively cheap electricity tariffs will ensure safety and stability.” Miners will move to other jurisdictions that offer

There is still hope for a trend reversal

Wiener said the energy crisis could put pressure on bitcoin’s price, while the weak global economy could counteract this.

In Weiner’s view, the US Federal Reserve’s monetary policy in the current global economic environment has the greatest impact on the cryptocurrency market, adding:

“Since the Federal Reserve implemented accommodative monetary policy in 2020, financial institutions have digitized their back offices and accelerated bitcoin purchases. to allocate bitcoin as a value-preserving asset.”

He further notes that while the cryptocurrency market, especially Bitcoin, is increasingly correlated with the Nasdaq and S&P 500, correlations with energy, oil, and power suggest that BTC mining could lead to future global power shortages. said it wouldn’t matter unless it was affected by

Additionally, the ongoing energy crisis could lead to more government spending programs so they can “print” more money and get out of trouble. This could lead to a loss of trust in fiat currencies and an increase in demand for digital currencies. This trend has already been witnessed in several third world countries and may permeate certain large economies as well, so it is not beyond the realm of possibility.

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Just a few months ago, Eurozone inflation Scale-up It reached an all-time high of 8.9%. This was also the case in the United States, where inflation reached 8.5% in August, his highest in 40 years. And while many continue to disagree on the positive/negative impact of stimulus on the global economy, fears of rising inflation alone are fueling demand for cryptocurrencies.

So, as we head towards a future plagued by potential energy shortages and soaring prices, how will the future of the digital asset market unfold, especially as rising geopolitical tensions and deteriorating market conditions continue to exacerbate things? It will be interesting to see if it continues to unfold. .