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Well, the money is not gone. It's just that somebody else has it. Interesting idea though.
by groestl 4y ago
Well, the money is not gone. It's just that somebody else has it. Interesting idea though.
- NortySpock 4y agoCrypto 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 agoIsn’t that generally the case?
- crazygringo 4y agoThat'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 agoNot 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 agoIf 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 agoExactly. That's the fundamental reason that FTX is just the tip of the iceberg.
- archontes 4y agoThis is just a demonstration that this is a naive way of estimating value.
- dougmwne 4y agoBut 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 agoYou'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 agoGosh. 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
- damagednoob 4y agoHasn't total wealth gone down by $10 in your scenario?
- archontes 4y agoIt's more like we have discovered that our estimation that $20 of wealth existed was incorrect, and only $10 existed. Someone speculated incorrectly. It's like a gold mine being revealed as barren. Whether you say wealth was destroyed or wasn't there to begin with is... distinction without a difference.
- dougmwne 4y agoActually… and here’s the really fun part… the wealth was always a social construct. It doesn’t exist physically, only in ideas. It is whatever we collectively say it is. When we think something is worth $20, it is! When we decide it’s worth $10, it is! Things are worth what people will pay for them. The money is all paper anyway.
- johnvanommen 4y ago> 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 Here's an example of how this works: FTX "minted" their own cryptocurrency. They minted billions of dollars of it. When people purchased a tiny fraction of it, that established a price for one coin. Once that happened, FTX could say "we're worth billions of dollars." But keep in mind: * the cryptocurrency was created out of thin air * the value of the crypto crashed by over 90% in the past month On top of all that, there was a "multiplier effect" when the "assets" were used as collateral on loans to counterparties. The net effect is that the "assets" were worth billions at some point, but that value has evaporated. And loans were made on those "assets" which may have multiplied the actual impact several fold. It's a banal comparison, but this is a lot like Beanie Babies in the 1990s. At one point the market was worth millions of dollars, and then it evaporated overnight. That's deflationary, and if there's one thing the world needs right now, it's deflation.
- wppick 4y agoWhen you buy $10 of crypto you are passing that $10 to another person, so the amount of money is unchanged. You receive a promise for $10 for some point in the future essentially. If that goes up, you now have a promise for $12, for example. If there is $1 trillion in crypto that suddenly goes up to $2 trillion then an extra trillion in promises were created that would put extra pressure on the existing amount of dollars in existence if they were all redeemed at once (inflation). If the money supply remains unchanged and crypto prices change, then it can increase/decrease the demand for dollars.
- chadash 4y agoYes, $10 has "magically" disappeared. Consider this case. I buy a used car from you for $10000. You now have $10,000 and I have a car worth $10,000 (let's assume that i got a fair price and would be able to resell it for that amount too). A day later the Russian army hits my car with a mortar. You have $10,000. I have some scrap metal. Rather than $20,000 worth of stuff, there's now $10,000 (plus some scrap metal) total.
- ttoinou 4y agoBoth are true, it depends on the value those services provided and crypto provide now
- loceng 4y agoE.g. The last people to buy who haven't sold are left holding the bag.
- alenrozac 4y agoWhile 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 agoI 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 agoRecommended 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 agoVery 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 agoIf 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 agoNah, even then someone has the money, you just have less.
- ceejayoz 4y agoNot 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 agoYeah, 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 agoThat's silly. If a real coin, in your hand, goes from being worth $1 to 1¢, who made money?
- alvarezbjm-hn 4y agoHow 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 agoBetter 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 agoNo, 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 agoAgree 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 agoHow 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 agoWhat'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 agoActually 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 agoThis 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 agoSam 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.