What are the main purposes of money:

1. To pay rent
2. To buy food

What are the main purposes of crypto?

1. Facilitating illicit transactions (crime)
2. Exfiltrating money out of China (crime)
3. Ponzi scheme substrate (investment tool, but also kind of crime)
4. Alternative to corrupted local currency (not quite crime, but crime-y)

Money's purpose is to facilitate business/trade, while crypto's de facto purpose is to circumvent existing power structures, legitimate and not.

It's important to ask how money enters and exits into the crypto-sphere.

I buy crypto -> I exchange crypto for goods -> the person that sold the goods sells their crypto to someone else in exchange for USD.

I buy crypto -> I hope to make money -> I get scared and sell it when it starts to dive to realize my gains in USD.

A Chinese person wants to exfiltrate money -> They buy lots of miners -> they mine coins which are turned into USD.

So crypto itself doesn't have much intrinsic value because there is no anchor to its value. The US government anchors USD to specific values, and at least as long as we are not run by morons, that optimizes for stability.

Crypto is seen much more as an investment (will it go up or down) than as a currency. This is most directly reflected by how crypto is talked about. People talk about the price going up and down, not about crypto inflation or crypto deflation. Because its measure of value is volatile it is not a very good currency.

Systemically if people stop buying crypto, the price will go down. If people stop exchanging goods for crypto it will be harder to sell the currency. If people can't exchange their crypto for something they can pay rent with, then they won't want to accept crypto.

So what's the systemic risk? Every person who is around crypto wants it to be used because then their potential net worth will increase. This creates a rejection of negative news and hype around positive news. People will more willingly accept a reality that 10x's their worth.

Unfortunately, as soon as this reality is pierced and people start to sell, it will create absolute free fall (error correction) to it's "real" value which is roughly the sum of illicit transactions and potentially transactions for those countries who's currencies are failing (although why you would choose crypto and not USD, outside of a high risk high reward bet, I'm not sure).

So now let's say you are a crypto bank. There are two options.

1. A person initiates a trade of `x BTC` for `y USD`. The bank takes ownership of the BTC and directly exchanges for USD based on current value immediately, and then sells the BTC when it wants. (good for the bank when price is going up).

2. A person initiates a sell of `x BTC for USD`. The bank takes ownership of the BTC and sells it on the customers behalf for the best deal that the bank can find. (protects the bank during free-fall/runs on the bank).

So we are in a situation where as long as crypto sentiment is positive everyone benefits, banks, holders, miners, etc, but if crypto sentiment turns negative, it can free fall, and in the processs, destroy the "banking" institutions that are the foundation of non directly criminal crypto uses.

In summary, crypto seems very much like a Ponzi scheme to me.

If I were to guess, I would estimate the "real" value of crypto to be `sum(total_criminal_activity) / num_BTC`. If drugs can be bought through BTC, but not USD, then that creates demand for BTC proportional to drug trade. Where else would direct demand for BTC come from assuming nobody saw it as an investment tool?

Now some of that is likely exaggerated and might seem bad faith, but the above is more or less my good faith understanding. I would be happy to be corrected by someone who knows more or has a good argument on why I should be more bullish on crypto.