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I wonder if a crypto contagion could actually help the broader economy by acting as an escape valve. For the past 14 years, the government keeps stepping in to

I wonder if a crypto contagion could actually help the broader economy by acting as an escape valve. For the past 14 years, the government keeps stepping in to bail out bad bets and keep all the scum floating. But with crypto, it was an an area of the economy that government largely kept its distance from and lacked a mandate. So there will be no will to rescue anything and a full on bank run can commence, destroying lots of wealth. When will then take some of the extra money out of the real economy without having to destroy any traditional business.

groestl 4y ago
Well, the money is not gone. It's just that somebody else has it. Interesting idea though.
- NortySpock 4y ago
  Crypto tokens are in one pocket and US Dollars are in someone else's pocket. Which one retains value in a market crash? My money is on US Dollars, but you are free to disagree with me.
- verelo 4y ago
  Isn’t that generally the case?
- crazygringo 4y ago
  That's incorrect. When asset prices fall, wealth is indeed gone. It's not transferred to someone else, it just vanishes. It's true no matter if you're talking about falling stocks or falling crypto.
  - shafyy 4y ago
    Not sure what you mean. If I buy some cryptocurrency coin for $10 somebody received $10 from me. If now the value of the crypto goes $0, I have lost $10 but the who I gave $10 to still has that money. It has not magically disappeared. Or do you mean something else?
    - ceejayoz 4y ago
      If you buy one coin for $10 crypto considers that the value of all of the millions of coins. https://en.wikipedia.org/wiki/Wash_trade https://en.wikipedia.org/wiki/Wash_trade Yes, the $10 exists, but that $10 trade may have inflated the value ("market cap") of the coin by billions.
      - johnvanommen 4y ago
        Exactly. That's the fundamental reason that FTX is just the tip of the iceberg.
      - archontes 4y ago
        This is just a demonstration that this is a naive way of estimating value.
        dougmwne 4y ago
        But this is exactly how all assets are priced and that price signal is good enough to take loans out against the asset collateral and create even more money supply.
    - skeeter2020 4y ago
      You're changing value stores in this scenario, which mitigates the loss but doesn't eliminate it. WHat makes you think that $10 accurately represents some set of physical goods for which it can be exchanged? What about when you start exchanging like-for-like at different agreed rates? If we equate wealth to money, and money is largely based on shared faith and acceptance, then when that agreement shifts wealth most certainly is created and disappears out of and into thin air.
    - kshacker 4y ago
      Gosh. Is this one of those tiktok quizzes? At start you had 10 bucks and he had 10 bucks worth of crypto for total assets of 20 Now you have crypto with value of 0 and he has 10 bucks for total assets of 10 Overall 10 bucks is gone and yes there are winners and losers Edit: TikTok quiz abbreviated: you buy for 50, sell for 60, buy again for 80, sell for 90. How much did you win / lose? ... the confusion for some people being created since they sold at 60 to buy back at 80
  - ttoinou 4y ago
    Both are true, it depends on the value those services provided and crypto provide now
  - loceng 4y ago
    E.g. The last people to buy who haven't sold are left holding the bag.
  - alenrozac 4y ago
    While technically correct, I will point out that during "the crash" many with access to capital are able to secure a net long position either by way of savings or via real options -- LLC is an example of a real option where the capitalist only loses the investment value making the financial leverage an attractive and useful tool. People losing jobs and thinking about their next steps are usually too late with not enough skin in the game to jump on the decade-long bandwagon. That's the "wealth" some of the commenters here seem to be pointing to. Essentially, inequality.
  - y04nn 4y ago
    I think you highlight the problem with crypto speculation, it does not produce any revenue, so the price appreciation is only governed by new speculators bet that a greater fool will buy it. When you trade there must be a seller and buyer, the value of the untraded part is only a potential value and not real value, as soon as you put it for sale, there will be more supply than demand and the price plummet, as it happened with FTT. The total supply may have been valued at billions of dollars even thought only few millions have been bought, so the collapse just transfered the wealth to the ones who sold above the real money that was put into it. I think it is a zero sum game as there is no revenue, only speculation.
- larryfromtexas 4y ago
  Recommended reading on the topic of wealth destruction by fraud, John Kay "The Bezzle Years." An introductory quote to give you an idea: More than a half-century ago, John Kenneth Galbraith presented a definitive depiction of the Wall Street Crash of 1929 in a slim, elegantly written volume. Embezzlement, Galbraith observed, has the property that “weeks, months, or years elapse between the commission of the crime and its discovery. This is the period, incidentally, when the embezzler has his gain and the man who has been embezzled feels no loss. There is a net increase in psychic wealth.” Galbraith described that increase in wealth as “the bezzle.” Link: https://www.johnkay.com/2021/09/08/the-bezzle-years/ https://www.johnkay.com/2021/09/08/the-bezzle-years/
  - shrikant 4y ago
    Very coincidentally, I also just came across a very nice write-up on the bezzle, written around a similar timeframe: https://carnegieendowment.org/chinafinancialmarkets/85179 https://carnegieendowment.org/chinafinancialmarkets/85179
- metadat 4y ago
  If a digital coin goes from $1/per to $0.01/per, the value is destroyed. Where did it go? In this instance: Poof. Burn baby burn.
  - verelo 4y ago
    Nah, even then someone has the money, you just have less.
    - ceejayoz 4y ago
      Not when the money never existed in the first place. These shitcoins with billion dollar market caps never actually took a billion dollars into any accounts. The volume is fake, the activity is fake, the price is fake.
    - chadash 4y ago
      Yeah, but the "money" is irrelevant. 99% of their buying power (which in a simple sense is what people usually mean when they say wealth) went away.
    - pessimizer 4y ago
      That's silly. If a real coin, in your hand, goes from being worth $1 to 1¢, who made money?
      - alvarezbjm-hn 4y ago
        How can a real physical coin lose 99% of its value? That's inflation How can a crypto coin lose 99% of its value? It was worth nothing to begin with. No wealth created, no wealth destroyed. Plain transference.
        ceejayoz 4y ago
        Better example with coins: If I convince one person to pay $10 for a quarter, are all quarters worth $10? If you answered "yes", you can run https://coinmarketcap.com/ https://coinmarketcap.com/.
- chadash 4y ago
  No, the wealth actually is gone. For example, bitcoin has a market cap of $320B. At its peak it was worth about four times that. Did $960B just disappear? Basically, yes. The coin has no intrinsic value (in the way that a can of corn does, for example). It's worth money because people say it is. And market cap is just a multiple of what it trades for at the margins times the number of shares (coins). To give an example, say that I bought a bitcoin 10 years ago and that it was my only possession. At its peak, I could have sold the bitcoin for ~$64k, so I had a net worth of 64k. If I didn't sell it at that point and still hold it, I'm now worth ~16k. No one made $48K of of me... there were no transactions in that time period. The "wealth" has simply vanished.
  - johnvanommen 4y ago
    Agree 100% What's happening is not great for crypto investors, but it's beneficial for people who want inflation to go down (nearly all of us.)
    - IanDrake 4y ago
  - ddbb33 4y ago
    > I had a net worth of 64k No you didn’t. You had a potential net worth of 64k, but you didn’t take advantage. You can’t just compare to peak, your wealth loss/gain comes from comparing to the price you bought it.
    - 0xCMP 4y ago
      How else would you understand wealth? Are people who have loans against massive stock portfolios but relatively little cash (spent on houses, cars, trips, etc)... poor? Obviously not. OP was worth at least 64k at some point and now is worth at least 16k. The value and total amount of wealth (in US Dollars) has gone down.
    - wongarsu 4y ago
      What's a potential net worth? "Net worth" is already "how much money would you have if you sold all your assets and settled all your debts". Since for most people most of their wealth is in assets, it's totally normal for net worth to swing up and down as the market value of household goods/land/buildings/companies/bitcoins changes.
- bmacho 4y ago
  Actually the wealth is gone. Not because bitcoin was a ponzi scheme (that doesn't destroy wealth or money, that indeed just redistributes it) but because a common way to get bitcoin or other cryptocoins is to destroy equivalent amount of wealth, burn gas, energy, make ASIC silicone to mine, etc. What a madness, really.
  - everybodyknows 4y ago
    This is not wrong, physical wealth was indeed destroyed to make tokens of negligible* value to humans, but the meaning of OP's "wealth" is claims on real goods or services -- as in the houses bought by insiders a few weeks ago. Destroying the remainder of such claims is a real benefit to the world economy, reducing inflation of all legit currencies. *negligible not zero, because some tiny slice of crypto transactions actually are done by useful workers in order to shield wages from kleptocratic regimes.
- deleted 4y ago
  [deleted]
- spaceman_2020 4y ago
  Sam Bankman Fried marked his 1 billion Serum (a dex on Solana) tokens at $2.1B on his balance sheet. The last time Serum was worth $2.1+ per token, it was Jan 2022. At current market prices, that same stake is worth less than $250M (given liquidity conditions). Serum was also a dex that SBF's company, Alameda, pretty much made in-house, and then allocated themselves 1 billion tokens. So this "wealth" was created out of thin air. And disappeared into thin air. Ergo, it was not real. It wasn't lost. It never really existed in the first place.
crazymoka 4y ago
They will use this to capture all crypto and regulate it. Problem, Reaction, Solution. I think FTX was only caught because Binance exposed them too early before SBF could bring regulation to the exchange and insulate himself. Him, his family and GF all have ties to people that could have made this happen. Now no matter what the end game is regulation, either by someone like SBF to make it happen or knowing full well it was going to blow up. With regulation they can protect the fox in the hen house like they do with the stock market and keep all the control. If you don't think so, read in depth what Bernie Madoff did and how connected he was. The best part is, stock market still allows PFOF which he invented to help with his Ponzi scheme. Just my take on it all...
- radicalbyte 4y ago
  I don't think that it'll be that long until Binance suffer the same fate. Probably about 6 months.
- majormajor 4y ago
  > before SBF could bring regulation to the exchange and insulate himself. If that was his endgame he would've had better record keeping and books. Regulation and paperwork go hand in hand, he was not set up for existing in a regulatory environment.
anon291 4y ago
Maybe. Unfortunately I think a lot of Americans do have crypto holdings and a lot of investment firms as well. Also, crypto tycoons are heavy contributors to political parties.
pjc50 4y ago
> So there will be no will to rescue anything and a full on bank run can commence, destroying lots of wealth How does this actually benefit anyone? It's not wealth redistribution. > When will then take some of the extra money out of the real economy But it wasn't real money in the real economy, it was fake money in a fake economy. Admittedly some real money went in, and some came out again to buy stadium endorsements and superbowl adverts, but the main effect of this is to wreck the savings of (a) ordinary rubes and (b) over-optimistic VC firms. I can see why people want (b), but you can't separate it from (a).
- johnvanommen 4y ago
  When you take money out of circulation, you reduce inflation. Here's a "real world example:" There's a house near me that's selling for $7,777,777 (get it? Lucky sevens?) The cost of the house is obviously arbitrary, and it's listing has a bunch of references to bitcoin. The owners of the home are obviously trying to "leverage" crypto mania to find a buyer. Now that a bunch of crypto "wealth" has been destroyed by falling prices, the owner of that house will need to re-assess whether $7,777,777 is a realistic price. More than likely, it's not. And by lowering the price of the home they're selling, they're contributing to a reduction in real world inflation rates. Also, yes, I know that inflation stats use a proxy for the cost of housing.
  - clavalle 4y ago
    Just like when you step out of the ocean in wet trunks you reduce ocean levels.
    - coding123 4y ago
      Well, most people pee when in the ocean.
      - wardedVibe 4y ago
        I would never, how dare you
rufusroflpunch 4y ago
Crypto is a tiny, tiny fraction of global ponzi markets like government bonds or real estate. There is not nearly enough liquidity in crypto to make a difference in those.
notUrsMine 4y ago
Yes exactly. The “real economy” stopped producing new things since 2008. Growth has been in ephemeral attention economy output to keep the public distracted and not off building local communities that serve the public, but focused on acting as missionaries for the greatness of US capitalism; how amazing is this free market! SBF lost his customers money and is chilling in the Bahamas playing video games! Freedom.
rightbyte 4y ago
The market value of Super Mario 3 cartridges and similar collector items surely takes a hit from the ponzis coming down?

groestl 4y ago

Well, the money is not gone. It's just that somebody else has it. Interesting idea though.

NortySpock 4y ago
Crypto tokens are in one pocket and US Dollars are in someone else's pocket. Which one retains value in a market crash? My money is on US Dollars, but you are free to disagree with me.
verelo 4y ago
Isn’t that generally the case?
crazygringo 4y ago
That's incorrect. When asset prices fall, wealth is indeed gone. It's not transferred to someone else, it just vanishes. It's true no matter if you're talking about falling stocks or falling crypto.
- shafyy 4y ago
  Not sure what you mean. If I buy some cryptocurrency coin for $10 somebody received $10 from me. If now the value of the crypto goes $0, I have lost $10 but the who I gave $10 to still has that money. It has not magically disappeared. Or do you mean something else?
  - ceejayoz 4y ago
    If you buy one coin for $10 crypto considers that the value of all of the millions of coins. https://en.wikipedia.org/wiki/Wash_trade https://en.wikipedia.org/wiki/Wash_trade Yes, the $10 exists, but that $10 trade may have inflated the value ("market cap") of the coin by billions.
    - johnvanommen 4y ago
      Exactly. That's the fundamental reason that FTX is just the tip of the iceberg.
    - archontes 4y ago
      This is just a demonstration that this is a naive way of estimating value.
      - dougmwne 4y ago
        But this is exactly how all assets are priced and that price signal is good enough to take loans out against the asset collateral and create even more money supply.
  - skeeter2020 4y ago
    You're changing value stores in this scenario, which mitigates the loss but doesn't eliminate it. WHat makes you think that $10 accurately represents some set of physical goods for which it can be exchanged? What about when you start exchanging like-for-like at different agreed rates? If we equate wealth to money, and money is largely based on shared faith and acceptance, then when that agreement shifts wealth most certainly is created and disappears out of and into thin air.
  - kshacker 4y ago
    Gosh. Is this one of those tiktok quizzes? At start you had 10 bucks and he had 10 bucks worth of crypto for total assets of 20 Now you have crypto with value of 0 and he has 10 bucks for total assets of 10 Overall 10 bucks is gone and yes there are winners and losers Edit: TikTok quiz abbreviated: you buy for 50, sell for 60, buy again for 80, sell for 90. How much did you win / lose? ... the confusion for some people being created since they sold at 60 to buy back at 80
- ttoinou 4y ago
  Both are true, it depends on the value those services provided and crypto provide now
- loceng 4y ago
  E.g. The last people to buy who haven't sold are left holding the bag.
- alenrozac 4y ago
  While technically correct, I will point out that during "the crash" many with access to capital are able to secure a net long position either by way of savings or via real options -- LLC is an example of a real option where the capitalist only loses the investment value making the financial leverage an attractive and useful tool. People losing jobs and thinking about their next steps are usually too late with not enough skin in the game to jump on the decade-long bandwagon. That's the "wealth" some of the commenters here seem to be pointing to. Essentially, inequality.
- y04nn 4y ago
  I think you highlight the problem with crypto speculation, it does not produce any revenue, so the price appreciation is only governed by new speculators bet that a greater fool will buy it. When you trade there must be a seller and buyer, the value of the untraded part is only a potential value and not real value, as soon as you put it for sale, there will be more supply than demand and the price plummet, as it happened with FTT. The total supply may have been valued at billions of dollars even thought only few millions have been bought, so the collapse just transfered the wealth to the ones who sold above the real money that was put into it. I think it is a zero sum game as there is no revenue, only speculation.
larryfromtexas 4y ago
Recommended reading on the topic of wealth destruction by fraud, John Kay "The Bezzle Years." An introductory quote to give you an idea: More than a half-century ago, John Kenneth Galbraith presented a definitive depiction of the Wall Street Crash of 1929 in a slim, elegantly written volume. Embezzlement, Galbraith observed, has the property that “weeks, months, or years elapse between the commission of the crime and its discovery. This is the period, incidentally, when the embezzler has his gain and the man who has been embezzled feels no loss. There is a net increase in psychic wealth.” Galbraith described that increase in wealth as “the bezzle.” Link: https://www.johnkay.com/2021/09/08/the-bezzle-years/ https://www.johnkay.com/2021/09/08/the-bezzle-years/
- shrikant 4y ago
  Very coincidentally, I also just came across a very nice write-up on the bezzle, written around a similar timeframe: https://carnegieendowment.org/chinafinancialmarkets/85179 https://carnegieendowment.org/chinafinancialmarkets/85179
metadat 4y ago
If a digital coin goes from $1/per to $0.01/per, the value is destroyed. Where did it go? In this instance: Poof. Burn baby burn.
- verelo 4y ago
  Nah, even then someone has the money, you just have less.
  - ceejayoz 4y ago
    Not when the money never existed in the first place. These shitcoins with billion dollar market caps never actually took a billion dollars into any accounts. The volume is fake, the activity is fake, the price is fake.
  - chadash 4y ago
    Yeah, but the "money" is irrelevant. 99% of their buying power (which in a simple sense is what people usually mean when they say wealth) went away.
  - pessimizer 4y ago
    That's silly. If a real coin, in your hand, goes from being worth $1 to 1¢, who made money?
    - alvarezbjm-hn 4y ago
      How can a real physical coin lose 99% of its value? That's inflation How can a crypto coin lose 99% of its value? It was worth nothing to begin with. No wealth created, no wealth destroyed. Plain transference.
      - ceejayoz 4y ago
        Better example with coins: If I convince one person to pay $10 for a quarter, are all quarters worth $10? If you answered "yes", you can run https://coinmarketcap.com/ https://coinmarketcap.com/.
chadash 4y ago
No, the wealth actually is gone. For example, bitcoin has a market cap of $320B. At its peak it was worth about four times that. Did $960B just disappear? Basically, yes. The coin has no intrinsic value (in the way that a can of corn does, for example). It's worth money because people say it is. And market cap is just a multiple of what it trades for at the margins times the number of shares (coins). To give an example, say that I bought a bitcoin 10 years ago and that it was my only possession. At its peak, I could have sold the bitcoin for ~$64k, so I had a net worth of 64k. If I didn't sell it at that point and still hold it, I'm now worth ~16k. No one made $48K of of me... there were no transactions in that time period. The "wealth" has simply vanished.
- johnvanommen 4y ago
  Agree 100% What's happening is not great for crypto investors, but it's beneficial for people who want inflation to go down (nearly all of us.)
  - IanDrake 4y ago
- ddbb33 4y ago
  > I had a net worth of 64k No you didn’t. You had a potential net worth of 64k, but you didn’t take advantage. You can’t just compare to peak, your wealth loss/gain comes from comparing to the price you bought it.
  - 0xCMP 4y ago
    How else would you understand wealth? Are people who have loans against massive stock portfolios but relatively little cash (spent on houses, cars, trips, etc)... poor? Obviously not. OP was worth at least 64k at some point and now is worth at least 16k. The value and total amount of wealth (in US Dollars) has gone down.
  - wongarsu 4y ago
    What's a potential net worth? "Net worth" is already "how much money would you have if you sold all your assets and settled all your debts". Since for most people most of their wealth is in assets, it's totally normal for net worth to swing up and down as the market value of household goods/land/buildings/companies/bitcoins changes.
bmacho 4y ago
Actually the wealth is gone. Not because bitcoin was a ponzi scheme (that doesn't destroy wealth or money, that indeed just redistributes it) but because a common way to get bitcoin or other cryptocoins is to destroy equivalent amount of wealth, burn gas, energy, make ASIC silicone to mine, etc. What a madness, really.
- everybodyknows 4y ago
  This is not wrong, physical wealth was indeed destroyed to make tokens of negligible* value to humans, but the meaning of OP's "wealth" is claims on real goods or services -- as in the houses bought by insiders a few weeks ago. Destroying the remainder of such claims is a real benefit to the world economy, reducing inflation of all legit currencies. *negligible not zero, because some tiny slice of crypto transactions actually are done by useful workers in order to shield wages from kleptocratic regimes.
deleted 4y ago
[deleted]
spaceman_2020 4y ago
Sam Bankman Fried marked his 1 billion Serum (a dex on Solana) tokens at $2.1B on his balance sheet. The last time Serum was worth $2.1+ per token, it was Jan 2022. At current market prices, that same stake is worth less than $250M (given liquidity conditions). Serum was also a dex that SBF's company, Alameda, pretty much made in-house, and then allocated themselves 1 billion tokens. So this "wealth" was created out of thin air. And disappeared into thin air. Ergo, it was not real. It wasn't lost. It never really existed in the first place.

crazymoka 4y ago

They will use this to capture all crypto and regulate it. Problem, Reaction, Solution. I think FTX was only caught because Binance exposed them too early before SBF could bring regulation to the exchange and insulate himself. Him, his family and GF all have ties to people that could have made this happen. Now no matter what the end game is regulation, either by someone like SBF to make it happen or knowing full well it was going to blow up. With regulation they can protect the fox in the hen house like they do with the stock market and keep all the control. If you don't think so, read in depth what Bernie Madoff did and how connected he was. The best part is, stock market still allows PFOF which he invented to help with his Ponzi scheme. Just my take on it all...

radicalbyte 4y ago
I don't think that it'll be that long until Binance suffer the same fate. Probably about 6 months.
majormajor 4y ago
> before SBF could bring regulation to the exchange and insulate himself. If that was his endgame he would've had better record keeping and books. Regulation and paperwork go hand in hand, he was not set up for existing in a regulatory environment.

anon291 4y ago

Maybe. Unfortunately I think a lot of Americans do have crypto holdings and a lot of investment firms as well. Also, crypto tycoons are heavy contributors to political parties.

pjc50 4y ago

> So there will be no will to rescue anything and a full on bank run can commence, destroying lots of wealth How does this actually benefit anyone? It's not wealth redistribution. > When will then take some of the extra money out of the real economy But it wasn't real money in the real economy, it was fake money in a fake economy. Admittedly some real money went in, and some came out again to buy stadium endorsements and superbowl adverts, but the main effect of this is to wreck the savings of (a) ordinary rubes and (b) over-optimistic VC firms. I can see why people want (b), but you can't separate it from (a).

johnvanommen 4y ago
When you take money out of circulation, you reduce inflation. Here's a "real world example:" There's a house near me that's selling for $7,777,777 (get it? Lucky sevens?) The cost of the house is obviously arbitrary, and it's listing has a bunch of references to bitcoin. The owners of the home are obviously trying to "leverage" crypto mania to find a buyer. Now that a bunch of crypto "wealth" has been destroyed by falling prices, the owner of that house will need to re-assess whether $7,777,777 is a realistic price. More than likely, it's not. And by lowering the price of the home they're selling, they're contributing to a reduction in real world inflation rates. Also, yes, I know that inflation stats use a proxy for the cost of housing.
- clavalle 4y ago
  Just like when you step out of the ocean in wet trunks you reduce ocean levels.
  - coding123 4y ago
    Well, most people pee when in the ocean.
    - wardedVibe 4y ago
      I would never, how dare you

rufusroflpunch 4y ago

Crypto is a tiny, tiny fraction of global ponzi markets like government bonds or real estate. There is not nearly enough liquidity in crypto to make a difference in those.

notUrsMine 4y ago

Yes exactly. The “real economy” stopped producing new things since 2008. Growth has been in ephemeral attention economy output to keep the public distracted and not off building local communities that serve the public, but focused on acting as missionaries for the greatness of US capitalism; how amazing is this free market! SBF lost his customers money and is chilling in the Bahamas playing video games! Freedom.

rightbyte 4y ago

The market value of Super Mario 3 cartridges and similar collector items surely takes a hit from the ponzis coming down?