How we are likely to witness crypto financial crisis similar to one seen during 2008 CDO financial crisis

"Only when the tide goes out do you discover who's been swimming naked."

Quote by Warren Buffett. Perhaps applies to novice crypto speculators who have lost most of their so-called conservative stable coin high yield savings investment.

Perhaps this tide is just a beginning. Bank runs are contagious. Anyone with historical understanding of great depression era bank runs (when there was no concept of FDIC insurance) knows it. 

Crypto investing space seems to be crowded by all these saving and loan fintechs involved with unrealistic high-yield saving products (kind of like 1990 era Indian Kuber chit fund paying 24% APR interest). Such kind of lending products are based on irrational assumption that crypto currencies valuation will keep increasing to maintain such high yield.


Also, recent meltdown in bitcoin valuation has suddenly upended correlated risk. Most of highly leveraged (3X leverage like we see in TQQQ is not uncommon in this space) crypto hedge funds are likely to struggle meeting margin calls and hence be forced to liquidate their holding at such worst timing. 

Margin provider brokers (aka crypto exchanges) are likely to get pennies for dollar lent to such borrowers from such liquidation settlements. As these brokers incur huge losses from sour margin debts, they are likely to be sued by their creditors and hence be forced to file for bankruptcy protection themselves. Crypto broker Voyager and Celsius Network recent bankruptcy filing is one such example. 

Put this in a loop and you see full blown crypto financial crisis, similar to what we saw during 2008 CDO financial crisis. Unlike 2008 crisis which affected whole financial systems, luckily this crisis only affects just 16% of adults (which includes my millennial son) involved with speculative crypto gambling.

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