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


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

Here’s an explanation

I sell lemonade. It’s a cool day. I sell a glass for $1. It’s a hot day, I sell it for $4. It’s warm, I sell it for $3. The price varies but I can sell it sell for whatever people are willing to pay

*Breaking news*: drinking lemonade causes you to uncontrollably fart blood. Do not drink.

Today, no one bought my lemonade. They probably never will again, because of the whole blood fart stuff. My lemonade is now worth $0

It never existed in the first place.

I print a thousand pieces of paper and call them “blahbucks”. I sell one blah buck for $100 and stuff the rest in my piggybank. Now I can claim that I have 999 blahbucks in my piggybank, which is worth $99,900.

Except I don’t actually have $99,900, I have 999 blahbucks which is not the same thing. And if that one person I sold it to was the only person willing to spend $100 on a blahbuck, I’m not getting $99,900 for the rest of them. If I have to sell the next one for $50, I can now only claim that the rest of them are worth $49,900. $50,000 of “value” disappeared.

The same thing is true for commodities other than Crypto. Jeff Bezos may have “$100 billion in Amazon stock” but if he tried selling it all at once, he wouldn’t get anywhere close to $100 billion for it because there’s not that many people looking to pay that price for Amazon stock.

There are two different but related things happening.

Some crypto exchanges are ponzi schemes. People spend money to buy “crypto”. The website shows them a number that represents how many coins you have. That number keeps going up exponentially, but it’s just fake. They haven’t really invested any coins in the market at all.

Suddenly, it collapses. People get jittery and decide to withdraw all of their crypto as cash. The first few lucky people are able to do so, they come out ahead – for example, one person invested $1 million a year ago, they withdraw $2 million. But then the money runs out. Everyone else is left with nothing.

When this happens, it tends to drag the price of all crypto down, but that’s not quite the same.

The price of one Bitcoin at the beginning of the month was about $20k. The price of one Bitcoin today is around $16k. So if you’re holding a lot of Bitcoin, it’s worth less.

Where did that money go? Well, if you look at it in terms of dollars, you gave your dollars to someone else when you bought a bitcoin for $20k. Now they have $20k and you have one Bitcoin. If you sell a Bitcoin today for $16k, someone else has one Bitcoin and you have $16k. No US dollars were created or destroyed. All that happened is that the value of one Bitcoin changed. It’s no different than buying a car for $20k and it only being worth $16k when you try to sell it later.

What happen is that they created value out of thin air to begin with. They said ‘tell your computer to use up electricity grinding these mathmatical formula and we will pay you in fake dollars, aka bitcoins’

People did it and lots of them amassed tons of bitcoins.

Now people started using bitcoins to buy and sell drugs, to avoid taxes, to send money back home without using normal currency exchanges, and even buying subway sandwiches.

The value of these fake coins started going up, investors saw an opportunity and put real money in, driving the exchange rate on bitcoins and other fake money even higher.

All along they have made it difficult to cash out of bitcoins and because the value kept going up there was little incentive to cash out.

But fundamentally if you look at the total number of coins ever minted and multiply that by the exchange rate you would get a value astronomically higher than the total amount of real dollars that has been invested in bitcoin (applies to all crypto)

So what you have is sort of like a bank that let people earn free digital money vouchers in their accounts but the bank never actually had that money and if/when people start to come to this realization and they all try to get their money out the bank can’t possibly make good on it and everyone trying to withdraw cash from the ATM only gets a tiny fraction of what they thought they had.

Person A mines a coin

Person A sells it to person B for $1. Person A made $1

The price goes up. Person B sells it to person C for $5. Person B made $4.

The price sky rockets. Person C sells it to Person D for $100. Person C makes $95.

The market crashes. Person D sells it to Person E for $0.01. Person D loses 99.99$.

Add up all the money gained and lost (including Person E who is down a cent for buying it), and it totals to 0. No value was created or lost. Just shifted around. This is one of the reasons many people dislike crypto. In order for one person to make it big, someone else needs to lose it big.