What Is a Bank Run & How Does It Impact Crypto Exchanges?

When it comes to investments, it’s easy to become emotional or fearful. When bad news or rumors begin to circulate, it can easily lead to a financial crisis. Bank runs, in which depositors withdraw large amounts of cash very quickly, still occur today. For cryptocurrency exchanges with no insurance or proper support, this can be a big problem that leads to people losing their investments.

There are several ways to prevent bank runs and protect your investments. Even if you aren’t concerned about a crypto exchange you’re using or an asset you’re invested in, use this guide to learn more about how bank runs affect the financial system and everyone involved.

What Is a Bank Run?

A bank run occurs when large numbers of depositors withdraw their money simultaneously from a bank, typically due to fear that the bank will run out of money.

For cryptocurrency exchanges like FTX and Terra, large numbers of users withdrawing the same asset within a short period led to significant price drops in the asset’s values.