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What does the global energy crisis mean for crypto markets?

What does the global energy crisis mean for crypto markets?


There’s no denying that the world is currently facing an unprecedented energy crisis, one that has compounded severely in the aftermath of the COVID-19 pandemic so much so that countries across the globe — especially across Europe and North America — are witnessing severe shortages and steep spikes in the price of oil, gas and electricity.

Limited gas supplies, in particular, stemming from the ongoing Russia-Ukraine conflict, have caused the price of essential commodities like fertilizer to shoot up dramatically. Not only that, but it has also resulted in the heightened use of coal and other natural resources. Coal consumption within Europe alone surged by 14% last year and is expected to rise by another 17% by the end of 2022.

To expound on the matter further, it is worth noting that European gas prices are now about 10 times higher than their average level over the past decade, reaching a record high of approximately $335 per megawatt-hour during late August.

Similarly, the United States Energy Information Administration’s recently published winter fuel outlook for 2022 suggests that the average cost of fuel for Americans will increase by a whopping 28% as compared to last year, rising up to a staggering $931.

With such eye-opening data out in the open, it is worth delving into the question of how this ongoing energy shortage can potentially affect the crypto sector and whether its adverse effects will recede anytime soon.

The experts weigh in on the matter

Matthijs de Vries, founder and chief technical officer for AllianceBlock — a blockchain firm bridging the gap between decentralized finance (DeFi) and traditional finance — told Cointelegraph that the global economy is in bad shape thanks to a multitude of factors including the power crisis, looming recession, surging inflation and rising geopolitical tensions. He added:

“These issues are interlinked, primarily in the way that capital flows in and out of impactful industries. The worse the macroeconomic climate, the lower the capital (liquidity) that flows in and out of the digital asset industry. This liquidity is what enables the incentivization mechanisms of blockchain to continue working. So, for miners, if there is a shortage of liquidity, this means fewer transactions for them to confirm, lesser fees and decreased incentives.”

Moreover, de Vries believes that rising energy costs could provide additional incentives for miners to move toward the validator ecosystem of Ethereum 2.0…

Click Here to Read the Full Original Article at Cointelegraph.com News…