[mlac]

When that much money goes “poof”, it’s going to have real world consequences. And the people who are going to get burned are the last ones on the bus - the least technical, the ones who think it will make them rich, the ones who can’t afford it.

[SilasX]

Yes, but the parent's point (and my concern as well) is that "market crash" does not necessarily mean widespread fallout (e.g. Black Monday in '87); that only happens when the losers are tightly coupled to other critical parts of the economy, which isn't necessarily the case here: GS/JP Morgan won't have to default on loans to critical counterparties in a crypto crash, for example.

Any time a big group loses wealth all at once, there's some consequence, but that's not the same as "systemic risk" where it causes catastrophe in areas not directly related.

[mlac]

It’s becoming widespread with all of the apps, super bowl ads, and reduced friction in getting into crypto “investing”.

It used to be people who purchased crypto had to know what they were doing (and know the risk). Now anyone can buy crypto without any understanding of anything after seeing a 30 second commercial about smart investing.

[SilasX]

Again: being widespread is not the same as being a systemic risk. That just means it's a casino everyone wastes money in. Who is defaulting on critically important obligations because of a crypto crash? What creditworthy business isn't getting a loan to cover cash flows for the quarter because BTC fell to 10k?

[mlac]

If it gets bad enough, it will increase the number of consumers who are defaulting on credit cards, mortgages, auto loans, and student loans.

[vietthan]

likely not, the dotcom bubble was a big deal but it wasn't catastrophic like 2008 was and that's because of the greater coupling with financial institutions.

[mlac]

Look at the percentage of retail investors in the dotcom bubble. It’s much easier to make very stupid plays with money today than it was then, and a lot of “average” people are going to get burned.

[xibalba]

I think you're not understanding. While a bunch of people losing money is bad, it wouldn't create another Great Depression, per se. A huge investment bank with millions of counterparties going under absolutely could cause massive, long term damage to both the financial markets and the real economy. For example, people losing their hats in crypto wouldn't cause commercial paper markets to dry up. A big IB going down almost did in 2008. That would have resulted in huge businesses that employed, collectively, millions of people becoming effectively insolvent. Now you're talking about a Great Depression. Big difference. This is where the keyword "systemic" comes into play–as in, this entity is a critical node in the system. Its collapse could jeopardize the system.

[mlac]

Anyone with a smart phone can now spend their life savings on crypto or sports betting with almost zero friction.

We have a trillion each in student loans, auto, and credit card debt. Those (besides student loans) have requirements for credit worthiness. So those people were screened and some weren’t allowed to take on debt.

Not handled well (or ignored because it’s not viewed as a systemic risk), it’s a non-negligible portion of the population that is financially wrecked and unable to meet their debt obligations. And we can’t just make policy that says the idiots that blew their money on gambling and crypto don’t need to pay back their debt… it gets ugly fast.