One way to alleviate runs on the bank and similar liquidity crises is to take a bunch of putatively uncorrelated pools and mix them, which theoretica…

One way to alleviate runs on the bank and similar liquidity crises is to take a bunch of putatively uncorrelated pools and mix them, which theoretically makes pool-specific liquidity concerns less likely to draw a pool’s liquidity to zero.

Time will only tell whether the Bitcoin ecosystem successfully implements these countermeasures to late Renaissance banking crises.

The underlying issue is really simple: participants in the ecosystem think they’re richer than they are. Total amount of hard currency in can’t be smaller than total amount of hard currency out. Confidence loss and profit taking has drained the hard currency reserves.

That is the really charitable version.

The less charitable version is “Why do participants believe themselves to be richer than they are? Because they’re in a credit bubble; their assets were bought with assets inflated by loans collateralized by their assets.”