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?
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Yes, the people who participate early in a ponzi scheme make out like bandits. But it’s like 1 person profiting in the end while 100 others lose all their money.
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.
Some of the money is gained by the creators and/or the first few people to buy into what are effectively like pyramid schemes.
So, yes some of the money is indeed “someone/some groups of people get ~~all~~ some of the money that is currently being lost?”
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However, some of the ‘money’ lost is the ‘market capitalisation’ falling.
“Market capitalisation” is an estimate of, hypothetically, if you sold it at the current price, what you would have. It is an estimate of what something is worth.
It appears that many crypto assets were massively overpriced at one point. That high price created a high market capitalistion. If that crypto asset was not overpriced, then people could sell them for that price and get that amount of money from other people.
However, due to how over-priced they were, when a more accurate price is realised, lots of that ‘market-cap’ is ‘lost’.
Its like you have $1 and you borrow $100 from player B. Then player B does the same. Now there’s $200 in the system but in reality there’s only $2 backing this $200 debt. Keep this going and that’s how the trillions of dollars got lost because this money wasn’t real in the first place.
Stocks are not like this.
Imagine you buy a product for £100, you paid £100 right.
You sell the product tomorrow for £10.
Your £90 down, you have lost the £90 it’s disappeared
for the people “making” their own crypto, its just gone. for everyone else: they bought it for real money earlier. so that is where they lost the money.
So the idea of cryptocurrencies are that, unlike central bank backed fiat currencies, they are worth what people are prepared to accept their value is.
In a perfect world, cryptocurrency would not be traded for fiat currency, they would be exchanged directly for goods or services. This worked for the initial run of cryptocurrency, especially on the Dark Web that loves anonymity, cross border trade not regulated by government at any level, and separation from real market forces. There may have been a relationship between the value of a given cryptocurrency and a fiat currency, but it was incidental.
Then they got too big, and some people realised that there is always a market for people to buy stuff if it is in any way a limited resource, regardless of its actual value.
Currently, cryptocurrencies are no longer a way to buy goods or services (I.e. like an actual currency) as few people actually accept them. They are currently being traded like a commodity, like gold or diamonds, and like any commodity they are only worth what people are prepared to pay for them. This is why so few traders accept cryptocurrency for payment, why accept something that will vary wildly in value in a way you have no control over?
So as to the “lost” value, that assumes that 1) cryptocurrencies are in any way a stable commodity, and 2) that the value was there to begin with.
Given that 1 is demonstratively false and 2 is iffy at best, the story of “lost” value is just that, a story.
Also, the analogy of a poker game is wrong.
I am not selling you something that has a set value that you can then sell for the same set value.
Think more like the stock market. I buy it at one price, and hopefully I can sell it later for a better price than I bought it. Say I buy it for 1 and sell it for 1.50. You then want to do the same, but the price goes back down to 1 (or less) because there is a news story that crypto is about to crash.
You can either lose money selling now, or hold on to them in the hope they’ll be valuable again later.
If that was all that was going on.
Remember the big Japanese economic melt down of the 80s. It turned out the various major corporations had a gentlemen’s agreement to loan each other money with their real estate as collateral, and they kept valuing their office buildings downtown ever more and more till the ground of the Emperor’s Palace was valued more than the entire state of California.
FTX had their own coins which they would give to valued customers, Binance does this with their BNC. except FTX made far more than they passed out….and borrowed on those coins, invested that money…lost that money. when someone questioned where the money went, word got out and lots of people pulled their money out. everyone in the know knew ftx was in trouble, Binance offered to buy ftx like banks did when the mortgage securities crashed…but shortly after they saw what a disaster was happening and backed off, that’s when a full on bank run began. FYI that’s why real money in real banks is guaranteed so when the poorly run bank runs out of money the fed steps in and eventually you get up to 50k back on each account.
fun fact. nobody looses money on stocks or other investments. you put your money in to purchase a share of something the market says its worth so much, it says that because that’s what someone is willing to give you money for. if the company goes broke and your value plummets, well that is the current value.
It was potential money, not real money.
Imagine I have a painting, worth 100 million. Well, expected to. It goes in an auction, and it can get 20mil, 50 mil, 100 or even 150. The price depends on the will of the buyers AT THE MOMENT. Which is why bitcoin’s price is volatile.
But I don’t have the money until I sell it. The money is in somebody else’s wallet, the value is potential until I sell.
Now there’s a fire, its gone. Money is still there, what I had to exchange it with is what is gone.
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