Recently, I was thinking about a financial concept that is becoming increasingly relevant in the crypto world: a bank run. You’ve probably heard the term, but what exactly is a bank run?

Basically, it happens when many people try to withdraw their money from a bank at the same time because they lose confidence in that institution. Panic spreads, people believe the bank will go bankrupt, and everyone wants to recover their funds before it’s too late. The problem is that banks don’t have enough cash on hand to cover all those simultaneous withdrawals.

The reasons behind these financial panic situations vary: economic crisis, high inflation, political instability, or simply negative news about the institution’s financial health. When trust collapses, everything else falls apart with it.

Now, the interesting thing is that this concept is not exclusive to the traditional banking system. In the world of cryptocurrencies, we see the exact same thing. In fact, the collapse of FTX is the perfect example of what happens when a run occurs on a cryptocurrency exchange.

I remember when news broke about Alameda Research’s financial irregularities, FTX’s subsidiary. Users started massively withdrawing their funds. We’re talking about over $6 billion in just 72 hours. That’s a full-blown bank run. The exchange simply didn’t have the liquidity to meet such demand and ended up suspending withdrawals. Total collapse eventually followed.

The critical difference is that cryptocurrency exchanges are not regulated like traditional banks and do not offer deposit insurance. If an exchange goes bankrupt, you lose your money. End of story. There’s no safety net.

Bank run scenarios on exchanges happen when doubts arise about the platform’s reliability, when liquidity problems occur, or when rumors circulate about potential insolvency. Users panic, and everyone tries to exit at the same time.

That’s why it’s so important to be careful when choosing where to store your cryptocurrencies. Check the exchange’s reputation, understand its security measures, stay informed. Because even though exchanges like Gate implement transparency standards and maintain adequate reserves, systemic risk always exists in this space.

The lesson from the FTX collapse was clear: in crypto, trust is everything. And when it disappears, it disappears quickly. That’s why due diligence is not optional; it’s mandatory.