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Comment by pfisch | Hacker News Reader

I mean you could say that about any stock or bank. If everyone tries to cash out it goes to 0.

Stocks have value because they are cash flow generating assets, so if you sell low enough it will make economic sense for someone to buy, except for some liquidity catastrophe.

What about commodities then, like oil?

It was not too long ago that the price for a barrel of oil was negative $40.

Oil is a regular good that is priced according to supply and demand expectations.

Goods can have negative prices due sharp drops in demand (a lot of X was produced, but no one wants to buy x and you are paying to store it).

One thing though is that is unlikely that everyone would cash out below a certain price for a stock can be sold for parts. There would be at least some people realizing that they might as well hold, liquidate the company and make a profit out of it. So in practice there's a floor for the stock price (as long as assets > liabilities or similar).

That's not the case of BTC. Its value is completely depends on confidence. At no price can you be sure that you'll make a profit, you can only guess that it'll go back up, so there's no such floor.

There's substantial difference between a bank run and a Ponzi collapsing.

In both cases current assets < current liabilities. Both require getting a loan to pay out the depositors. Both make no sense to loan money to as they will have no way to afford the payments to be worth loaning to over someone else.

> In both cases current assets < current liabilities.

That there are some things the same does not make them the same. You and I are both humans, but we are not the same person.

In a Ponzi collapse, all assets are typically < even current liabilities, let alone all of them. Unlike a bank run involving temporary liquidity issues, a Ponzi is never going to be able to pay everyone out.

To the customer it's the same. People don't want to be told that they will get their funds in a few years, they want it now. Liquidating all your assets is going to reduce the total value of all of your assets to potentially below your liabilities. If it doesn't good job, that means the bank is safe against bank runs, but if not they aren't.

That’s an absurd assertion. No, to a customer, a bank run is rapidly dealt with via the FDIC; we just had a great example of this with SVB. Madoff’s victims were not so lucky.

>we just had a great example of this with SVB.

They were acquired by another bank. Someone could similarly acquire a Ponzi scheme and pay out the people who wished to withdraw.

The FDIC made that happen. SVB became illiquid which triggered FDIC intervention. The bank was shut down by the FDIC and the assets were sold off to First Citizens bank. Executed without a hitch and no customer assets lost. The only ones who lost money were investors in the bank.

The FDIC would never make someone acquire a Ponzi scheme. Someone could in theory do it, but why would they? It's just throwing away money.

That's not really true, assuming it's a real company/bank with assets and revenue. If the stock is based on something with actual value there will many parties willing to buy the stock even if all of the current shareholders want to sell.

Behind a stock you've got a company with cash flow and assets. If nothing else you can sell off the office furniture. Crypto is backed by ... a prime number written on a piece of paper (minus the paper)?

Banks shouldn't ... in principle.

Fractional reserve banks (which is all modern banks) should in principle.

The whole point of fractional reserve banking is to leverage people's trust in banks to try to generate faster growth and profits.

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