Have you ever wondered what a bank run is? This is an extremely important financial concept, especially in the current market environment.

A bank run occurs when a large number of customers simultaneously withdraw their deposits from a bank out of fear of its solvency. The tricky part is that the more people withdraw, the higher the likelihood of default, creating a psychological spiral. Most banks do not keep all their cash on hand; instead, they use it for loans and investments. Therefore, when a bank run happens, they are forced to sell assets at lower prices to obtain cash, which can actually lead to insolvency.

Looking back at history, what exactly is a bank run that causes such major crises? In the 1930s, a small bank run in Tennessee triggered a chain reaction across the country as news spread and people panicked, rushing to withdraw their money. This is why the U.S. government established the FDIC in 1933 to insure deposits up to $250,000, reducing depositors' fears.

The 2008 crisis also saw significant bank runs. Washington Mutual had to close after depositors withdrew over $16.7 billion, and Wachovia faced a similar situation with $15 billion withdrawn in two weeks.

But interestingly, bank runs are not limited to the traditional financial world. In 2022, the cryptocurrency world experienced a similar event when a major exchange collapsed due to liquidity issues. Users panicked and withdrew more than $8 billion from exchanges, including $3.7 billion in Bitcoin, $2.5 billion in Ether, and over $2 billion in stablecoins. This fear spread to other cryptocurrencies, reducing the total market cap by 12%.

This collapse triggered a series of impacts. BlockFi, a crypto lending company, filed for bankruptcy. Genesis Global also paused redemption transactions and new loans at the end of 2022. These successive events resembled a domino effect within the crypto ecosystem.

However, from this chaos, a positive trend has emerged. Users began shifting to decentralized exchanges (DEX) and increasing their use of stablecoins. Capital flowed out of centralized exchanges, reflecting a change in market sentiment. This shows that even after understanding what a bank run is and the risks it entails, the cryptocurrency community continues to adapt and grow.