So why is it so difficult to bail out crypto firms rather than traditional ones?
The structure of Debt!
It is more explicit about how risky crypto compares to previous years.
I participated in the space in the early days.
With crypto evolving and mainstream adoption with many collapsed projects and trading platforms, the eagerness for crypto has become more prominent and risky.
Crypto has blurred the line between all traditional assets.
It is good and bad.
Good in the sense that crypto can become anything beneficial to own.
We saw its first attempt to become digital money through purchasing a pizza and stock-like trading asset or company shares issued through ICO.
But there is also the downside of such a blurry line: crypto inherent many flaws that traditional assets carry, such as illiquidity and over-leveraging debts.
With the recent FTX collapse, it will be more and more clear on how to handle the debt of crypto rather than money.
The ratio of crypto to cash is not 1:1!
The debt ratio on crypto is not nearly 1:1!
It is more risky to carry crypto lending and it is unsustainable.
Because crypto is not sound money, the loan or debt will be more fluctuate than ever!
In the early crypto days, you lost money on trading platforms due to the market downturn. You were losing the money value. As long as the money exists, you can still claw back.
When you loss money in crypto lending, you loss everything because the third party has leveraged your money, and it is out of your control.
The debt structure of crypto lending is not 1 to 1 ratio of the debt of money structure.