Bitcoin as the world's biggest game of hot potato: prestonbyrne.com/2017/11/26/the… @prestonjbyrne
Liquidity crunch catalyzed by any disruption in the price would cause a bank run.
Bitcoiners think that they're structurally immune to bank runs because they repeat "we are not fractional reserves" as an article of faith. That is almost certainly false.
Most distressing bit in that article, which I cannot verify but which I do not find implausible:
Why is that distressing? Because it suggests that, when the Bitcoin music stops, 1+ real financial institutions will take eight or nine figure credit losses.
I'd like to underline the "When 1+ Bitcoin exchanges looks like it is going to go under, everyone is going to go for the exits in BTC." part of the doomsday scenario. In particular, what happens when any one Bitcoin exchange looks like it is likely to go under.
What will happen is, to avoid their assets being tied up indefinitely (ala Gox), account holders will try to move their BTC off-exchange. The entire Bitcoin network, which is saturated, can only serve ~3 transactions per second worldwide.
This means that an exodus from one exchange, in addition to spooking account holders at every other exchange, will make it pretty difficult to move BTC in or out of another exchange.
Your rational action, as an account-holder of a non-imperiled exchange, is to a) immediately request a wire (yes, a wire) of your USD and b) bid as high as possible for a transaction to exfiltrate your BTC.
This turns non-imperiled exchanges into imperiled exchanges, quickly. The technical term is "contagion" and the way to avoid it is *drumroll* "temporarily freeze withdraws."
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