It's also not clear why the loss of $84 billion of BTC market cap would put the financial system at risk, when the Fed removes that much money from the bond markets every month (QT).
What is the $84 billion figure from? I agree with you that $84B seems small compared to the overall financial system. YCharts today asserts BTC market cap is down about $580B since a year ago. Presumably the total including other coins is larger. For discussing systemic risk, wouldn't the right number be the systemic one?
https://ycharts.com/indicators/bitcoin_market_cap#:~:text=Basic%20Info,65.17%25%20from%20one%20year%20ago.
Regardless of the number, personally I've been imagining that the issue is not the dollar amount, but instead one or more of the following (yes, some of them overlap):
1. Normal banks are backstopped by the govt to fully replace losses; if this guarantee were applied to crypto, the resulting increase in confidence might have allowed much larger dollar amounts to be at risk
2. BTC market cap and crypto cap generally are to some extent notional; no one paid full price for all the coins. But if banks were backstopped on the losses, suddenly "real" money in the broader financial system is at stake.
3. On some level, point 2 implies that the non-crypto-buying public would pay for the losses of crypto buyers
4. To the extent that creation and loss of nominal crypto are potentially unlimited, a rational observer could conclude that a crypto collapse would be potentially unlimited, therefore more capable of causing systemic collapse
5. However you slice it, putting the govt on the hook for crypto means potential systemic risk because it's an additional risk factor
6. Any factor can cause a panic, but since crypto is risky, both allowing its spread and putting the govt on the hook to repay it would logically increase the risk of panic
Prior this, prior to buying any crypto, I had considered the question of systemic risk and also how big could crypto get and tried to assess them by comparing crypto "cap" to measurements of other financial quantities, such as dollar value of gold in existence, gold used as bullion (if it's "digital gold", which is bigger?), dollars of paper currency, dollars in bank accounts, notional value of derivative contracts, market cap of stocks in US market, market cap of global stock market. Using $2T as rough peak for crypto, it seemed that the number is large relative to gold, smallish but potentially material compared to US stocks (less than 10%), small compared to total dollars in accounts, very small compared to estimated derivatives.
From the above paragraph's comparisons, I then supposed that if crypto were to crash the system, it would be due to becoming a totem of panic or by triggering a chain of derivative contract defaults, not probably as a direct result of crypto value itself disappearing. It seemed to be that crypto had absorbed speculative energy that might instead have gone to gold or the stock market, but had not created a value amount similar to or larger than the rest of the system, as happened with tulips in the tulip mania if I understand correctly. A 10x increase would put crypto close the US stock market in value and represent a much larger risk, including likely large distortions of investment instead of the relatively small ones to date. So far it mostly was soaking up uninformed speculation, a perpetual part of the system, without expanding the quantity of the system's apparent speculative energy to some extraordinary level. So I figured greed could ramp up another 10x of crypto increases before reaching tulip levels, and maybe 3x or 5x before even being likely to trigger panic except at a symbolic level - unless it triggered chains of derivative defaults, a possibility that I couldn't estimate and which could already be in play.
With all that said, it's the qualitative aspects that seemed powerful in the article, so I quoted it. Personally, I felt the significance wasn't so much about crypto per se as it was to inform readers that a govt agency has been doing its job to limit risks. I don't know if the author's implication that Gensler really saved the system is correct but I think it's important he did the kind of things he was supposed to be doing.