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I'd be careful with dismissing the problem as one contained to the stupid.

The subtle genius of the truly stupid, is their unstoppable penchant for making their problems yours as well!

See also: the 2016 US election result and the aftermath that continues to this day.

>The problem with this characterization is when enough people lose their shirts on leveraged crypto purchases, a problem of individual finances becomes one of collective policy. I'd be careful with dismissing the problem as one contained to the stupid.

It's probably worse than that. The collective craze around crypto is likely spurned by social media influence tactics. Most of this is from me just reading the forums as I obviously don't have proof, but along with ICO scams, exchange failures, software vulns, and SEC cautionary notices, there's enough for me to be broadly suspicious that these tactics are at least partly coming from the top owners of bitcoin who are manipulating the price.

You have to make huge efforts to pretend that a currency with virtually no regulation around it that works across borders has only honest actors trading on honest information. And low-dollar investors are certainly not going to band together and run price manipulation schemes.

And this will be utterly dumb if the major banks get involved significantly.

> Korea may already be at the point where a 50% sustained drawdown plunges a significant fraction of the population into hardship. That, in turn, could trigger a recession.

That seems unlikely. Something like 2M of 51M people have any crypto there, and only a small fraction would be overextended significantly. Anyone buying a couple months ago would still be up.

> Something like 2M of 51M people have any crypto there, and only a small fraction would be overextended significantly

How do you know that?

For traditional securities, we have margin and prudential lending rules. These systems aren't perfect. But they incorporate lessons from crises past. One of those lessons is about how system risk can grow exponentially unexpectedly quickly.

Except almost anyone get get authorization to sell naked puts in the US market.

Margin only handles the expected volatility of an instrument, not the tail risk.

> almost anyone get get authorization to sell naked puts in the US market

Your broker is on the hook if you default. This means collateral requirements and risk limits. For example, see TD Ameritrade's rules [1]. These rules are filed with and reviewed by various regulators.

> Margin only handles the expected volatility of an instrument, not the tail risk

This sentence doesn't make sense.

The Federal Reserve's Regulation T limits initial margin to 50% [2]. If you have $10 of cash, you can't buy more than $20 of securities. This limits your losses to twice your principal, which margin lenders are supposed to ensure you can afford (via suitability checks).

This rule is part of why brokers won't accept deposits from credit cards. It's also why they ask you for information on your net worth, income, et cetera. There are further controls in place to make it difficult to e.g. take out a line on your home and use it to buy securities. None of these safeguards exist with cryptos.

[1] https://www.tdameritrade.com/retail-en_us/resources/pdf/AMTD... page 11

[2] https://en.wikipedia.org/wiki/Regulation_T

Yes initial margin on a stock purchase for reg-t will be 50% and then reduce later to around 25%. The broker will be on the hook to their counter party, but you are now required to pay your broker. So a worse case situation is normally 4 to 1 leverage.

That is for stocks, with options the margin call can grow to a value quickly where a retail investor cannot afford it ever.

Edit: Looking at td margin schedule shows they'll require 20% in a reg-t account, so only 5 to 1 leverage at least. Still can risk $5k and owe 20k to your broker.

> How do you know that?

I don't have the hard data of course. It's a guess based on crypto still being up over a 2 month period. I also assume people are roughly the same in Korea as everywhere else so only a fraction are being crazy reckless in their investment.

That's not to say that the losses aren't enormous for the largest margin speculators, but the vast majority can't be hurting too badly.