Real Vision co-founder: The crypto market is a new, anti-fragile financial system that will not collapse and losses will not be shared with taxpayers

What Doesn't Kill You Makes You Stronger—-What doesn't kill you makes you stronger.

Over the past two weeks, the crypto market has suffered an unprecedented crash, with the price of Bitcoin nearly halved and the market wiping out $1.02 trillion in market value in a liquidation spree with up to 100x leverage. Many tokens have fallen by 70%, including unregulated lending businesses, and the Bitcoin Fear/Greed Index has reached an extreme.

Raoul Pal, a former hedge fund manager and co-founder of Real Vision, summarized in a tweet: In the past two weeks, the crypto market has undergone a major VAR (value at risk pressure) shock test, and nothing happened.

Leveraged liquidations were offset by overcollateralization, no companies failed, the Fed didn’t need to step in, Defi didn’t break down and continued close to normal, there were no daisy chains of collateral loss, no collateral pressure, and stablecoins remained stable. Some exchanges were down for an hour or two, but no exchanges incurred large losses, and no protocols failed. No one suffered endless losses, and the system did not break. It provided zero systemic risk to the wider financial world. Speculators lost money, that’s it.

“This is something I first saw in crypto in 2012,” Pal said. “A new, anti-fragile financial system that doesn’t collapse in times of stress, where ownership of assets is clear and losses aren’t spread out to taxpayers. It’s been a huge two weeks for crypto and the future of the financial system.”

Even if you hate crypto, Pal’s sentiments are valid. The entire crypto market has fallen sharply, but there has not been/is no need for regulators to step in or provide funding to private companies.

In traditional financial crises, ordinary taxpayers are always the last ones to pay the bill.

After the Lehman Brothers bankruptcy in 2008 triggered a financial crisis, the United States did not let companies take on social responsibilities, but instead let society bear the severe losses caused by the financial crisis. Public data shows that the U.S. federal government has purchased bonds on a large scale, injecting a total of $4.5 trillion in six years. The European Union also launched a rescue plan in October 2008, with the total amount of the UK rescue package being nearly $700 billion and the eurozone being more than $2.5 trillion.

What happened in the crypto market in May? A chart released by analyst Plan B shows that Weak Hands bought 1 million Bitcoins at $55,000 to $60,000 in April, and then sold them at $30,000 to $35,000 in the panic in May, with a total loss of up to $20 billion. These Bitcoins are now flowing into the hands of HODLers.

Weak Hands usually refers to investors who lack confidence in their trading strategies or lack the resources to execute their trading strategies. Such investors are easily affected by market news. HODLer is a popular term in the crypto industry, representing firm holders who usually hold their coins for a long time and do not sell them easily.

Weiss Crypto, the crypto arm of Weiss Ratings, said the reason why the recent correction is so great is that it removes weak hands and keeps the bubble away from the cryptocurrency market. There are many signs that the parabolic trajectory of crypto assets is unsustainable, mainly due to the continuous participation of new people. When more and more of the public participates, the market will become fragile. A big correction can solve this problem and bring price action closer to the true fundamentals of the asset.

JPMorgan analyst Josh Younger wrote in his new research note that despite the huge correction, the cryptocurrency market remains "healthy." With the increase in institutional adoption, it should prevent the arrival of another bear market cycle.