> 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.

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

Yes, the $10 exists, but that $10 trade may have inflated the value ("market cap") of the coin by billions.

Exactly. That's the fundamental reason that FTX is just the tip of the iceberg.

This is just a demonstration that this is a naive way of estimating value.

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.

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

When 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.

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.

Yes, $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.

Hasn't total wealth gone down by $10 in your scenario?

It'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.

Actually… 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.