I haven't checked the crypto for a few days, but when I just scrolled through Twitter everyone was talking about losing money. So where did all that money go?
I think this is actually quite interesting. Many people view the crypto like a treasure trove, assuming that once the money goes in, it stays there. In reality, the flow of money in the crypto is very dispersed; frankly, it mainly goes to these few places:
1. It became someone else's "profit".
The crypto is essentially a zero-sum game, and even a "negative-sum game" due to various transaction fees.
The opposing side takes it: you buy at a high price, and the money goes into the pockets of those who bought at a low price and sold it to you at a high price.
The short sellers profited: If you open a long position and get liquidated, your margin, after deducting transaction fees, basically becomes the profit of those who short or the counterparty providing liquidity.
2. Don't underestimate the transaction costs that have been drained by "pumping" money; this part of the money is a real outflow from the market.
Exchanges collect fees: Regardless of whether they make a profit or a loss, exchanges charge a fee for every transaction. Add to that withdrawal fees and lending interest, and the exchanges rake in huge profits every year.
Project founders cashing out: In many new projects (also known as various on-chain meme or Altcoin), the founders take the investors' money and eventually exchange it for luxury homes, cars, or other real-world assets. This money then completely disappears from the crypto.
3. The most mysterious aspect is the "vanished" market value: some of the money never actually existed.
Bubble Bursting: For example, a cryptocurrency might be priced at 100 yuan, with a total market capitalization of 100 million yuan. Everyone might feel they have 100 million yuan in assets, but in reality, the actual buy orders in the market might only amount to 1 million yuan. Once someone dumps a large amount of stock, causing the price to drop to 10 yuan, 90% of that "money" isn't actually taken away; it simply evaporates. It's like when your stocks drop in value; before you sell, it's just a number, and as the price falls, the number decreases, but there's no actual transfer of money.
4. Various "accidents"
Hacking: We often hear about protocols being hacked, resulting in the loss of tens of millions of dollars. This money flows into the hacker's anonymous wallet and is unlikely to return to circulation.
If someone transfers money to the wrong address or loses their private key, the coins (and their corresponding value) will be permanently locked on the blockchain, and no one can spend them. This means that all of humanity shares in the loss of this value.
Ultimately, most of the money lost ends up in the savings accounts of smarter, more patient, or more resourceful people, while the rest is used to cover losses from market fluctuations.
Making money is hard, but keeping it is even harder. I hope everyone achieves financial freedom by 2026.
