Climate risks and cryptocurrency volatility: evidence from crypto market crisis

Purpose This study aims to examine the impact of climate-related risks on cryptocurrency volatility during crisis periods, focusing on the physical risk index (PRI) and transition risk index (TRI). It investigates how acute and chronic climate events, alongside regulatory and technological changes, influence market dynamics in major cryptocurrencies, including Bitcoin, Ethereum, Litecoin and Ripple. Design/methodology/approach A fuzzy logic model is employed to evaluate the effects of PRI and TRI on cryptocurrency volatility. The model’s accuracy is validated using root mean square error (RMSE) metrics to ensure reliability. Findings The results reveal that acute events (e.g. hurricanes and wildfires) and chronic risks (e.g. long-term environmental disruptions) significantly heighten cryptocurrency volatility. Transition risks, including regulatory and technological shifts, also play a pivotal role. Bitcoin and Ethereum exhibit the highest sensitivities, reflecting the critical influence of climate risks on market stability. Research limitations/implications This study enriches the literature by integrating climate risk factors into cryptocurrency market analysis and advancing fuzzy logic models to assess non-linear interactions in financial markets. It provides a novel framework for evaluating external shocks’ impact on digital assets. Practical implications Investors and market participants can use these findings to incorporate climate risks into their investment strategies, diversify portfolios and anticipate periods of instability. The insights also guide policymakers in developing resilient frameworks that align cryptocurrency regulations with environmental goals. Social implications By linking climate risks to cryptocurrency market behavior, this research emphasizes the need for sustainable investment practices and collaborative policy efforts. It advocates for integrating environmental sustainability into financial systems to mitigate systemic risks and promote economic resilience. Originality/value This research is among the first to apply PRI and TRI within a fuzzy logic framework to cryptocurrency markets, offering new insights into how climate risks drive financial volatility during crisis periods.