Where is the trillions of dollars lost in the crypto market going?

Question

From what understand, money doesn’t just disappear. When you’re at a poker table playing, the sum of money everyone started with is the same at the end(when someone loses $100, other(s) gain $100). If I sell you a crypto for $100 and it drops to $0, I would still have your $100. In this case, wouldn’t someone/some groups of people get all the money that is currently being lost?

In: 6

Answer 1

The exchanges don’t work like banks. In a bank you deposit money and it sits there, the bank lends a portion of it out, but even if there was a bank rush you’d be insured up to the FDIC limit of $250K. So for most people, money in the bank is safe.

On an exchange people are giving the exchange cash and using it to trade for crypto. Their balance might go up or down, but it’s an investment. It might be SPIC (Securities Protection Insurance Corporation, basically the brokerage equivalent of the FDIC) protected but I doubt it since crypto is so fly by night.

Anyway, the exchange takes some custodial duties over the funds but they don’t make money on deposits: they make money on charging fees to trade crypto for cash on the exchange.

So while it is in the interest of the exchange to have the price go up, as they can charge larger commissions, they don’t particularly worry about the money being deposited. They care about transaction volume and price.

What is unique to crypto is that your money just keeps disappearing over and over again. Oops, the bank was robbed. Here’s 25% back that we managed to guilt the “robber” into giving us, maybe you’ll enjoy our new bank, UnstealableCryptoXChange.

Crypto essentially removes the trust from business relationships and purposely tries to undo thousands of years of financial practices and regulations that make society work. But because crypto transfers are essentially irreversible it just takes a bit more effort to steal everything from the bank and move it elsewhere, with zero recourse or protection for the consumer.

I’d also be hesitant to say trillions but lol if that’s anywhere near accurate.