I think it’s absolutely correct to say that $x amount of wealth was destroyed when the asset goes down by that much, and some idea that it’s not true because actually people were getting out of it so they dodged the wealth destruction represents a weird understanding of how math works.
That’s why I said it isn’t a 1:1 ratio. People preferred fiat to crypto so they exchanged their crypto for fiat. That made the price drop. The crypto holders who sold some or all now have more fiat they can deploy wherever they want.
But in the same transaction, someone else exchanged fiat for Crypto at that price.
Maybe we aren’t talking about the same thing here. I understand that both sides of the transaction have a buyer and a seller. If I have a rock and it appreciates to $100 and then I sell it to you and it drops to only being worth $50 was $50 in wealth destroyed? I still have the $100 so no, $50 in wealth wasn’t destroyed. As a rock seller I now have $100 in cash that I could buy two rocks with.
At the moment where the rock was sold to me, how much total wealth existed in the system?
When the rock dropped to $50, how much total wealth was in the system?
I mean I see that point of view but it ignores the other side of the transaction where the wealth was “created”. It also ignores all the transactions between it that are the reason why the rock is $50.
That’s kind of my whole point on why talking about wealth destruction using market cap is silly. Not everyone could sell all of their assets for current market price. Once people start selling more than buying capital flows out of the market and the price deflates. That wealth isn’t getting fully destroyed it never really existed in the first place because it wasn’t realizable.
Yeah I mean if your point is that the wealth of the people that sold at the top was not destroyed, then sure.
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Crypto was created out of thin air. How did it come to have value in the first place? More and more fiat being exchanged for it right? This is just the opposite part of that same coin. Is the market cap of all crypto the right metric to use for how much wealth was “created”? Of course not because it could never be sold for that. So yes there was wealth destroyed. But it isn’t a 1:1 ratio with the market cap of a coin.
Yes the bagholders end up being the big losers and the people who sold end up being the big winners (for now) so there is a zero sum aspect to it that i recognize. I don’t disagree with you there.
If I pay someone $10B for 10 shares of Tesla, and that’s the last recorded price, then everyone who owns 1 share of Tesla is now a billionaire and technically Tesla’s market cap is 1 quintillion.
So when the next sale goes through for $650/share, TSLA just lost a little less than $1 quintillion in market cap. Technically a ton of wealth was just destroyed. But in reality that wealth was never really there to begin with.
What would be really interesting is to know how much actual fiat money has been transferred from the losers to the winners.
Ya that’s a good example of what I was trying to say. There is wealth being destroyed here it just isn’t equal to simply adding and subtracting the market caps. It would be interesting to know the last thing that you mention.
well they did call it eth two zero
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Ah the heady days of 2 hours ago.
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Wealth being destroyed by the minute
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Goddamit, I just finished doing my own research!
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Fiat uncle Sam dollars! Criminals still use it for majority of their transactions.
Dollar strengthening vs Bitcoin means the end of inflation right?
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Sorry forgot to Portman meme that.
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Do you have like a good article/authoritative source that gets into this in detail? (Or you could explain it, just don’t expect you to waste too much time on it.)
Would love to read that too.
But that’s what balance sheets are for. Also I hate debt-ridden companies, and I’m starting to consider buying some. There’s a thesis floating around that the Fed can’t take rates above 5% and thus inflation will persist. A bunch of growth companies that aren’t profitable that are debt-fueled are going to be fucked in that environment, but a profitable company that’s saddled with too much debt but that can raise prices in inflation gets its debt load reduced substantially by the inflation.
Yeah I mean let’s say bitcoin goes to $9K, then shoots back up to $20K. A ton of people who won’t touch it right now at $17K will start shoveling money in at $20K there. As much as there’s blood in the streets right now because this could go to zero, there will be serious FOMO when it starts shooting up again.
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won’t be the fomo like before though, unless you get new people in
Not the one I was looking for, but one I found. The one I was looking for was much shorter, but was mostly just point after point and covered a lot more.
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