December 10, 2024 • 44 mins
On this episode of "Financial Perspectives: Chats", we hear from acclaimed investigative reporter, Zeke Faux, and LinkedIn’s Senior Managing Editor, Devin Banerjee, as they unravel the complex world of crypto, shedding light on its meteoric rise and subsequent challenges. Zeke shares his investigative journey into Tether, a stablecoin cloaked in mystery, and how it led him to question the very substance of the crypto industry. As we explore Bitcoin's symbolic role in El Salvador and the unpredictable fallout from Samuel Bankman-Fried's trial, this conversation underscores the volatile nature of the digital frontier and its implications on global finance.
From the troubling reality of scams to the stagnant value of Bitcoin amidst ambiguous practical applications, Zeke highlights the darker side of digital assets. Despite blockchain technology’s touted potential, skepticism looms large over its revolutionizing promises without clear use cases.
The episode charts a course through the murky waters of crypto, contrasting the speculative nature of these currencies with the enduring stability of traditional monetary systems. Through engaging anecdotes and incisive analysis, we dissect the real-world applications of crypto, offering a critical reflection on past economic crazes while pondering the uncertain future of this volatile industry.
CHATS is a monthly segment, featuring audio recordings from our previous webinars. This month's episode was originally recorded in October 2023.
If you'd like to learn more about the show, have a topic or speaker to suggest, or would like to leave us a comment, email podcast@cfa-sf.org.
This podcast is produced by CFA Society San Francisco, a not-for-profit professional association, providing professional learning and career resources to over 13,000 investment industry professionals worldwide. To learn more about CFA Society San Francisco, visit our website or connect with us on LinkedIn.
The information contained in this podcast does not constitute financial or investment advice. Please consult your own financial advisor for information concerning your specific situation.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:04):
Hello and welcome to this month's chat segment of the
Financial Perspectives podcast.
Our chats episodes featuredynamic conversations between
industry experts from some ofour recent and most popular
webinar recordings.
This month you'll hear fromZeke Fox and Devin Banerjee as
they discuss cryptocurrency'shistoric journey and future
(00:25):
potential.
Speaker 2 (00:29):
Thank you so much for joining us today.
Thank you to CFA Society SanFrancisco for hosting this event
.
I'm Devin Banerjee, I'm asenior managing editor at
LinkedIn and I'm also a memberof CFA Society San Francisco's
Member Programming AdvisoryCouncil, or MPAC, and I'm
(00:50):
delighted to be here today withmy friend and former colleague,
by the way, zeke Fox.
Zeke is an investigativereporter for Bloomberg
Businessweek and Bloomberg News,as well as a national fellow at
the New America Foundation.
He's won multiple high-profilejournalism awards, including the
Gerald Loeb Award, and he's theauthor of the new book that has
(01:12):
been making waves in financeand crypto, entitled Number Go
Up Inside Crypto's Wild Rise andStaggering Fall.
Zeke and I are going to chatfor about 20 to 30 minutes, but
in the meantime, as well asafter that, please do put any
and all questions that you havefor Zeke in the Q&A tab of your
(01:34):
Zoom window.
I'll be taking a look therethroughout the conversation and
then posing your questions toZeke toward the end and, as a
reminder, this webinar is beingrecorded, so please keep that in
mind.
Zeke, welcome and thanks forjoining us on what's a
particularly busy day forcovering the rise and fall of
(01:55):
crypto.
Speaker 3 (01:56):
Yeah, thank you so much for doing this with me,
devin.
Yeah, I'm here at a WeWork downthe street from federal court
in New York where it's theopening day of the Sam Bankman
Freed trial.
So an exciting day, although itwas actually just a bunch of
people bringing in doctor'snotes and saying that they did
(02:16):
not want to serve on the jury.
Speaker 2 (02:18):
Jury selection day.
Yeah, absolutely, but I'll havesome questions for you about
your expectations for the trialand Sam Bankman for its defense,
and all that in a little bit.
But, zeke, the book isfantastic.
I finished it and I've heardother interviewers say this
because it's true.
I think it's so easy to finishin like one or two days because
it's so entertaining and thestories are just endlessly
(02:42):
fascinating.
But I want to ask you to startby taking us back to the start
of this idea, or this project ofyours.
I think it was probably abouttwo years ago.
You did a cover story forBloomberg Businessweek on Tether
, the stable coin.
So each coin is supposed to bebacked and is supposed to be
(03:04):
worth $1 because it's backed byreal dollars.
Why did you start pursuing thatidea and what did you learn
from that initial project?
Speaker 3 (03:14):
So as an investigative reporter, I really
love diving into shadycompanies and trying to
understand how they work, and Iwant to go through their
contracts to see what loopholesthey're trying to exploit, or
look at their balance sheet andsee what doesn't add up.
I resisted looking into cryptobecause so many of the
(03:36):
cryptocurrencies felt like empty, like transparently empty, as
if there was nothing toinvestigate.
Like if Dogecoin goes up and upand up because people say, oh
it's funny, I wasn't really sure.
If there was nothing toinvestigate.
If Dogecoin goes up and up andup because people say, oh, it's
funny, I wasn't really sure whatI was supposed to do about that
.
Then Tether came along and whenI started looking into it two
years ago, like you said, tetherhad grown, so it was supposed
(03:59):
to have about $50 billion andTether played an important role
in crypto.
Every day, some days, $100billion of Tether would change
hands and Tether played animportant role in crypto.
Every day, some days, $100billion of Tether would change
hands and it was supposed tohave this $50 billion backing it
in the bank somewhere, but theywouldn't say where, and this
seemed like the kind of mysterythat I could handle.
I would go look for this moneyand try and figure out if some
(04:22):
of it was missing.
And what made it an even betterthing to investigate was there
was concern about Tether at eventhe highest levels of the US
government.
Janet Yellen had called ameeting of all the top
regulators in the summer of 2021to talk about does Tether have
its money?
What if it doesn't?
Could this crash the cryptomarket?
Could this then cascade intoregulated markets, like when
(04:49):
money market funds broke thebuck during the financial crisis
?
So this felt like a realtraditional.
It was like a traditionalfinance story buried in crypto
world, and as soon as I dug in,I realized that there was so
much fun stuff to investigate incrypto I was wrong to dismiss
it.
Each character I met was likewilder than the next, and I told
(05:10):
my editor this bubble iscrazier than we had thought and
we'll never get through it all.
We'll never investigate allthese great companies, and by
great I mean terrible.
Speaker 2 (05:21):
So one of the central questions that you said you
really wanted, like Uber andWhatsApp, but so few of us and
(05:47):
so few people around us usecrypto still and so, like, what
did you find in terms of as youtravel the globe, by the way, to
to report out the story andwrite this book what did you
find in terms of any legitimateor popular use cases of
cryptocurrency?
Speaker 3 (06:07):
So I am sure there's some good crypto company out
there.
I want to say that.
But whenever I would look intothe ones that everyone was
talking about, I would find thatthere just was nothing there,
and I was just continuallysurprised and disappointed by
how little there was to see.
(06:27):
One example that Bitcoin peoplelove to talk about was El
Salvador.
They would tell me that ElSalvador had adopted Bitcoin as
a legal tender in the countryand that it was doing great
things for poor people there.
And when I went there, it wasactually challenging to write
about because there was solittle going on.
(06:48):
It was just a curiosity fortourists and I actually would
try to use.
I loaded up my Bitcoin walletand whenever I try to use it,
I'd feel kind of ashamed becausethe clerks would be like oh, do
we have to?
Oh, the manager's out, he's theone who knows how to use the
Bitcoin machine.
It was just a.
(07:09):
There was nothing going on.
It was my expectations were lowand they were not met.
I mean another.
As a reporter, you like to writeabout things that are happening
, so I'd always ask these cryptofounders can I see your product
in action?
Can I speak to your users?
And again and again they'd belike oh, there's not actually
(07:29):
anything to see yet, but have wetold you you could earn 15%
interest rates staking our tokenon our native DeFi platform?
So the title of the book NumberGo Up.
It comes from something aBitcoiner said, and he said that
Bitcoin's most powerfultechnology was number go up
technology, which just meant theprice would go up and then, as
(07:53):
it went up, people would noticethat and they'd get excited and
they'd buy Bitcoin, and then itwould go up more and I thought
this is a crazy thing to say.
It sounds like a Ponzi scheme.
That can't be all there is, isit?
But to a very, very largeextent, I think the answer is
yes.
Speaker 2 (08:10):
It was all about just getting in, thinking you were
getting in early and you weregoing to get rich reporting it
out and writing the book, and Ithink what I took away from that
is just how widespread thisidea and this craze became and
(08:31):
it really started involving amassive human element especially
in Cambodia.
Speaker 3 (08:43):
So tell us why you went to Cambodia and what you
discovered there.
So one thing I would hear aboutconsistently was that
cryptocurrency, and inparticular, this coin, tether,
that I set out to investigate,was useful for crime, that it
was popular among moneylaunderers, and I wanted to
figure out how this worked.
But my technique is usually tocall up the bad guy and say, hey
(09:07):
, that's a cool operation yougot going on there.
I like that.
You're, you know you'reinteresting approach.
Maybe we could do an interviewand you could tell me more about
it, but I didn't think that,you know, russian oil traders
would respond well to theseinquiries, respond well to these
(09:29):
inquiries.
So I found that one of the usesof crypto, one of the criminal
uses, is these scams called pigbutchering scams, and these are
the random text messages thatyou probably get on your phone.
You know like hey, bill, didyou pick up the milk for the cat
today?
And I found out that if you, Iplayed along with one of these
and they eventually they'llstart to flirt with you.
(09:49):
It's usually like a prettywoman.
They'll tell you they'll listento your problems.
Eventually they start to tellyou, they start to drop hits
that they're really good attrading and then eventually
maybe they'll let you try outtheir trading strategies.
When they move in for the kill,they tell you how to buy some
Tether using a regular cryptoapp like Cryptocom or Coinbase,
(10:09):
and they'll ask you to send itto their special app where you
can do the cool trades.
Then they'll even show yougains in that app and try to get
you to send more and more.
Once they figure they've gottenas much as you're going to send
, which in some cases is likehundreds of thousands of dollars
, they just take it all closeoff communication.
So these pig butchering scams.
One crypto tracing expert Italked to estimated that $10
(10:33):
billion had been lost to them.
So it's like a pretty majorcriminal use of crypto.
And the worst part of it is thepeople who send these messages
are often in Cambodia or Myanmarand they're actually victims
themselves.
They're lured to thesecountries with offers of
high-paying jobs and customerservice.
Then, when they get there,they're trapped, they're forced
(10:55):
to scam, they're beaten andtortured.
They can only leave if they paya ransom.
So I went to Cambodia to checkthis out for myself because it
sounded like a conspiracy theory, and what I saw was entire
office parks with giant towersfull of people who are being
forced to scam, truly like eerieplaces.
(11:15):
It's horrible.
It's actually been getting someattention lately at the United
Nations and there's like they.
The one UN report estimatedthat 200,000 people have been
trapped in this way, sohopefully the authorities are
finally taking more seriousaction against it.
Speaker 2 (11:35):
Yeah, that's.
That's some great work you didin the book and some really
disturbing things you uncovered.
Before we get into Sam Bankman,Freed andried and FTX, which we
all know now and have seenmultiple federal counts on a
fraud and those kind of things,I want to just take a step back,
(11:55):
Zeke, and talk about some ofthe largest forms that
cryptocurrency has taken and thetechnology underlying it, and
get your take on it.
So first is Bitcoin.
So I'm just looking at my YahooFinance chart today right now
trading $27,321 in a 52-weekrange of $15,000 to $31,000.
(12:19):
So near the upper end of its52-week trading range.
So Bitcoin in particular, Zeke.
What do you think is supportingthat cryptocurrency?
Fairly well, right now.
Speaker 3 (12:30):
I mean it's truly wild to me to see how well it's
holding up when Bitcoin hasproved to be pretty useless as a
means of payment.
Bitcoin enthusiasts have shiftedto this idea that it's digital
gold, because there can onlyever be 21 million bitcoins.
I think they've done a greatjob selling this story, but that
(12:54):
it actually doesn't really makesense.
There maybe can only be 21million bitcoins, but first of
all, why would there be demandfor those bitcoins if Bitcoin
doesn't do anything?
And second of all, it'sactually very easy to create new
digital currencies whichcompete with Bitcoin, and many
of the new ones are actuallysuperior in pretty much all ways
(13:14):
to Bitcoin.
So I think the Bitcoin peoplehave been able to turn it into
kind of a cult, and if you go totheir conferences, the people
are just so fanatical aboutBitcoin that nothing's going to
change their mind.
These people are dedicatingtheir lives to telling their
friends and family to buyBitcoin too, and so I don't see
(13:37):
that actually crashing to zero.
I don't see any catalyst tochange in their mind, but I do
think if it doesn't findwidespread adoption and doesn't
find like an actual use case,that interest in it is going to
decline over time.
Speaker 2 (13:51):
One really interesting thing I always
notice over this entire threeyear craze that we've been
through is when you ask anytraditional business leader in
an industry like financialservices or like traditional
technology sector probably theCEO of my employer, possibly
Mike Bloomberg, I'm not sure,probably the CEOs of a lot of
(14:14):
the employers of peopleattending they pivot a lot to
this idea that the underlyingtechnology of decentralized,
distributed ledgers, likeblockchain you know that
technology holds a lot ofpromise and maybe some of these
cases like cryptocurrency thatyou know they may be skeptical
or they may be supportive orthey don't know how it will play
(14:37):
out.
In all of your conversations,though, zeke and I know this is
away from the cryptocurrencytopic and use case do you see?
I mean, have you found promiseand like distributed ledger
technology and applications ofthat for other industries and in
a widespread way?
Speaker 3 (14:55):
All of these ideas sound promising and I know a lot
of smart people are working onthem.
So I want to say, you know,never say never, but I always
come back to.
Actually, during the previouscrypto bubble around 2017, I
spent a full day at the officesof a company called ConsenSys.
It was kind of like aconsulting company for crypto
(15:18):
and they were promoting thisidea that blockchain would
revolutionize every industry,and I heard a whole day of
presentations about how propertydeeds would go on the
blockchain and passports wouldgo on the blockchain and even
all the fish in the sea, thingslike that.
I was, and none of it's come topass.
So I feel like this technologyhas gotten more than a fair
(15:40):
trial, and we still see theseannouncements that the crypto
people are great at gettingattention for them, like Visa is
going to do a trial withblockchain, or JP Morgan is
going to try something out andyou almost don't need to
investigate them because, justso consistently, these are just
little tests that don't come toanything.
(16:00):
So I'm not a technologist.
I'm not trying to say there'sno way the blockchain could ever
work.
I just think that we can onlyjudge it by what it's done so
far, which is not much.
Speaker 2 (16:11):
So let's talk about Sam Bankman-Fried.
I mean, he doesn't representall of crypto, but he and FTX
became in many ways the face ofcrypto for a long time and is
now certainly the face of itsdownfall.
But I just want to read a shortpassage a description of yours
(16:34):
of his from your book.
This is in chapter 10.
You say Sam Bankman-Fried wasdeveloping a public profile as
the boy genius of crypto, theman who was going to take the
industry mainstream.
Compared to others and you namea few others, like from the
profits of Tether and Celsius,bankman-fried seemed grounded in
(16:57):
reality when he went on TV totalk about the boom.
He was comfortable discussingnumbers with Wall Street traders
or public policy withcongressional staffers and his
style gave him an air ofauthenticity and I think that
really describes when we allwatched him before the reality
came out, it was like, oh, he'sso authentic, he's so
(17:19):
approachable.
He is, even though he is likeshy and awkward, he is seemingly
comfortable speaking withanybody in any setting.
And I'm just curious, givenwhat we know now, zeke, like
what you've learned about, likehuman psychology, both in SBF's
case as well as all of ourcollective, you know psychology
(17:40):
and awareness of a high profilekind of face of a trend or craze
like this, like we were allkind of caught off guard and so
what have you learned about likehuman psychology, diligence and
human behavior out of that?
Speaker 3 (17:55):
I mean, I think we all sort of had this idea of
what a scammer looked like, howa scammer talked, and especially
in the Bitcoin world.
It was the guys with showingoff their Lamborghinis and
saying Bitcoin to the moon.
And Sam, he was able to speakthe language of Wall Street and,
even though he dressed like acollege kid who'd spent the
(18:18):
night in the library, he cameoff in a weird way as the adult
in the room, and I think thatthose cues really helped him
gain everyone's trust, andreally very few people looked
beyond that.
He just had this amazing storyand he told it over and over
(18:38):
again, including to me.
He just had this amazing storyand he told it over and over
again, including to me, andtelling that story is how he was
able to amass billions ofdollars from venture capitalists
and get to where he was.
So I don't know.
I wish there was some lessonthat we could take from this and
learn how not to be fooled thenext time.
But I think the crypto bubblealso made really crazy things
(19:04):
sound plausible, so when he wassaying things like, oh, I'm
going to buy Goldman Sachs nextand I'm going to be the biggest
source of transactions in theentire financial world.
It sort of seemed like I don'tknow, maybe he will, this crypto
thing keeps going on and on,but you felt kind of boring
being.
I don't know, maybe he will,this crypto thing keeps going on
and on, but you felt kind ofboring being I don't know.
I imagine some of the people inthe audience felt this way,
(19:26):
where you felt sort of annoying,like a scold, to be asking well
, your coin, how will it makemoney?
What are its eventual sourcesof profit?
Will you have any revenue forthis crypto company?
And you felt like, yeah, youfelt like a, an old guy who just
didn't get it.
Um, and I think we learned thatthese fundamentals do matter
(19:51):
and that people should be ableto, should be asked these basic
questions.
Maybe you should be suspiciousof them if they, if they don't
have good answers.
Speaker 2 (20:00):
And we always say follow the money, which is
probably the most importantthing.
But one thing I also like doing, and like seeing when people do
or society does, is likefollowing the talent and looking
at who is actually operatingand running certain businesses
or are behind certain trends.
(20:20):
And you know one thing I youspend a lot of time around FTX
and Sam's team and otheroperations and I think you found
I heard you say recently thatit was like kids running all
these operations.
It was their first job out ofschool.
They were not likesophisticated in any legal sense
(20:40):
or compliance sense or evenjust operating a business sense.
There was a lot of like drugsand alcohol surrounding it, so
like.
But you tell me, like what didyou find about the talent in
this space, in this, in thiscrypto craze?
And like what?
What are some lessons we candraw about?
Like evaluating talent thatgoes into into a certain craze,
and what are some lessons we candraw about evaluating talent
(21:02):
that goes into a certain craze?
Speaker 3 (21:04):
Well with the FTX employees.
They actually really helpedconvince me that FTX was legit,
because they all seemed sosincere.
They were really obsessed witheffective altruism, like Sam.
It was not an act.
It was all these guys that hadspent all their time doing it
and some of these traders andprogrammers who I met, sam's old
(21:29):
friends.
They just seemed so shy andnerdy and so awkward that they
felt they gained my trust thatway.
Many of these people may nothave had any idea of what was
going on, but the company didnot have a CFO or if they did,
the CFO didn't really doanything.
(21:49):
They were using a pretty smallauditing firm.
For a company of that size, theboard of directors was three
people who didn't have very muchexperience.
That size, the board ofdirectors was three people who
didn't have very much experience, and this was true of a lot.
I mean, for a crypto company,that all is actually pretty good
.
They actually had a corporatestructure and a board of
(22:13):
directors.
So I do think when the bubbleis going really the bubble is
blowing up.
Even venture capitalists getFOMO and it's easy to overlook
these basic safeguards.
But I don't know, maybe weshould be more careful, but it's
hard to say, I mean, when thenext bubble gets going.
Do you really want to be theone who misses out because you
insisted that the boy geniusfounder hire a real CFO, right?
Speaker 2 (22:37):
Yeah, it is fascinating how easy it is to
that, or how easy it seeminglyis, for sophisticated investors
and people who regularly inother contexts do talk about the
importance of governance andstructure and regulation and
guardrails, how easy it is forthem to overlook all of those
things when the going is goodand the party is sort of roaring
(22:59):
, if you will.
Speaker 3 (23:01):
It seemed like the venture capitalists actually
liked Sam more the more crazy heseemed, and that his lack of
respect for them made themactually admire him more and
think, oh, this guy is justcrazy enough to do what he says.
Enough to do what he says,similar to how Adam Neumann of
WeWork just the bigger, thecrazier plans that he spun, the
(23:26):
better everyone liked him, untilit all blew up.
Speaker 2 (23:28):
Yeah, and regulators, I think at least.
I mean, it's hard to paint themwith one brush, but take Gary
Gensler of the SEC.
Seems to be more clear-eyedthan venture capital investors
and others who have rushed inhere, but still has been a bit
slow or taken his time puttinginto place regulations around
(23:51):
crypto.
What's your take on where weare right now with crypto
regulation and where thingscould possibly go?
Speaker 3 (23:58):
So the crypto industry really wants Congress
to pass a law that will codifyrules about tokens that are
looser than the existing rulesfor securities, and Gensler's
position I mean oversimplifyingis that these crypto tokens just
because you say it's crypto, itdoesn't mean it's not an
(24:20):
investment and all the rule, thehundred year old rules that
govern investing, should stillapply, and I agree, I think that
in some cases it was reallyclear that these crypto
companies were breaking therules and they're only just now
getting sued by the SEC orgetting criminal charges from
the DOJ.
I think that the regulators werereluctant to be blamed for
(24:43):
popping the bubble and that theydidn't want to go after these
companies early on, when therewould have been a lot of
opposition from the users whowere getting rich when the
number just went up and up.
But in my opinion, that shouldnot be how they look at this.
It's their job to enforce therules impartially and by letting
(25:04):
things go on as long as theydid, they've now opened
themselves up to the objectionfrom the crypto companies, which
is you, let us do this for solong.
Why are you saying it's illegalnow?
You implicitly agreed it wasfine by letting it go on, which
is also not how the law works,but you can see how they got
that impression.
(25:24):
So I think, better late thannever, though.
These investor protection rulesexist for a reason, and they
would have prevented stricterenforcement of them would have
prevented a lot of people fromlosing their money prevented.
Speaker 2 (25:40):
Stricter enforcement of them would have prevented a
lot of people from losing theirmoney Zeke.
I want to incorporate one ofour audience questions, because
it's related to this and alsosomething I was wondering and
going to ask you.
I mean, one of the avenuesright now that regulators are
seriously continuing to considerand huge asset managers like
the biggest in the world, likeBlackRock, are seriously
considering, are Bitcoin ETFs.
I know Bloomberg has been doinga lot of reporting around this.
(26:03):
I don't know if you personallyhave, but what are the prospects
for a true Bitcoin ETF?
Do you think?
Speaker 3 (26:09):
I think that the SEC's arguments against it have
run their course and that theywill have to approve it at some
point.
It's never really made sense tome how they could object to it,
given that they allow investorsto buy Bitcoin in so many other
ways.
The flip side is that I think alot of people who want Bitcoin
have it at this point, and theoption of a Bitcoin ETF might
(26:34):
not lead to some huge upswing inadoption, and I also don't
think it's this big sign of WallStreet adopting Bitcoin.
I think it's more that they seeCoinbase making money by
facilitating Bitcoin trading andthey think, hey, if we had a
Bitcoin product, people mightwant to trade that too, which is
probably true.
(26:55):
Why don't we create our ownBitcoin product and earn the
fees from it?
Speaker 2 (26:59):
Yeah, so at a high level Zeke.
Where do you and I knoweveryone's been asking you this
where do you see crypto goingfrom here?
I mean, was it a zero interestrate phenomenon and it's over
and the reality is back andtrumping a zero interest rate
phenomenon like crypto, or willit continue to be something
(27:22):
we're talking about and is onthe finance industry's mind
going forward?
Speaker 3 (27:29):
I really think that it is over, and it's not that
all the coin prices are going togo to zero tomorrow, but I just
think that this last bubble hasreally discredited crypto.
So many of the companiescollapsed and were revealed to
be frauds.
Why is some normal person goingto send their money to the next
(27:52):
boy genius who says that theircrypto platform is the future of
finance?
Already, there was a lot ofdisdain for crypto in the
mainstream, and I think that thepeople feel like they are
proven right by the collapse ofthis bubble.
All the attention that SamBankman-Fried is getting won't
help, and I'm sure there'll besome people who still are
(28:16):
interested in crypto, but manymore are going to associate it
with get rich quick schemes andscams and ways to lose your
money.
Speaker 2 (28:24):
And so, as you mentioned, today was the opening
day of Sam Begman Freed's trial.
You're across the street fromit.
You were there for the kind ofas we were talking about early
on.
It's kind of jury selection nottoo exciting just yet.
Jury selection, not tooexciting just yet.
What's your sense of what histeam's defense will be?
Speaker 3 (28:51):
So back in November, just before Sam got arrested, I
flew down to the Bahamas andspent the day with him at his
$30 million penthouse and hegave me what I think is a
preview of his defense and it'shonestly, it's a real bank shot.
You have to say that, first ofall, he didn't commit fraud on
purpose.
You have to say that he has toclaim that he just lost track of
what was going on and he arguedto me that he was just paying
(29:15):
no attention to money going inand out and that he did not
notice that his hedge fund,alameda Research, had borrowed
$8 billion of customer moneyfrom FTX.
And the problem with this isthat three of his top
lieutenants have pleaded guilty.
They've said we committed fraudwith Sam.
They're expected to testifyagainst him and now Sam could
(29:39):
say hey, they'll say anything,now they just want to get off
with a light sentence.
New problem is that theprosecutors also have a tape
recording of the head of AlamedaResearch, caroline Ellison, his
ex-girlfriend, from back inNovember.
She had held a staff meeting atthat time in which she'd
essentially confessed to thestaff and she'd said we dipped
(30:02):
into the customer funds, wegambled them away.
We had a big meeting anddecided to do it.
Sam told us to do it.
So even if you argue that she'slying, now you have this tape
from back then to use.
But Sam, he's shown that he'sactually.
He lost his bail because of aneffort to discredit Caroline,
because she's going to be animportant witness.
(30:23):
So he leaked her diaries to theNew York Times in an effort to
paint her as irresponsible, andhe's also claims that because
they had been dating and brokenup, they weren't talking.
So he gave me a version of thisback in November and I was just
I really couldn't believe it.
And I said to him Sam, are youreally, is your defense really
(30:45):
that your ex-girlfriend did it?
Like, is that really what you'retrying to say?
Because that doesn't sound.
I don't think that's going towork.
And he said I think the problemis it's not even clear who did
it.
So I think he's going to haveto work on that if he's going to
convince the jury, because atthe center of it the $8 billion
is gone.
Where did it go?
(31:05):
The government says it's justembezzlement.
They stole it, which is, Ithink, an easier story to sell.
He's going to have to make itseem very complicated in order
to win over the jury.
Speaker 2 (31:17):
Thank you to the audience members for putting
questions in the tab.
Continue to do so.
I'll come to your questions injust a few minutes.
Zeke, just one or two questionsmore for me on this topic of
Sam Bankman-Fried and kind ofwhat he knew and what he didn't
and what his headspace was overthe evolution of FTX.
Your daughter, Margo, said Ilove this part in the book.
(31:39):
Right before you were about tofly down to the Bahamas, for I
think that final time to meetwith Sam, she said why would
someone do bad things if theywere trying to do good things,
which is such a great questionfrom a child, that perfect kind
of innocence.
Do you think Sam Bankman-Friedand others around him and others
like him started out with goodintentions or was it always kind
(32:02):
of a scheme?
Speaker 3 (32:03):
So I'll preface this by saying I look forward to
learning more at the trial.
But my theory is that they didhave good intentions the whole
way and that's what actuallymade them do risky things or
even commit crimes, because theywere convinced that they were
the heroes of this movie andthey were going to get so rich
and make so many billions ofdollars that they might have a
(32:27):
chance of saving the world, likeif they funded the right AI
researchers, this might changethe course of human history.
So there was a moment when theyrealized that they'd made some
bad bets and their hedge fund,alameda, was effectively
insolvent.
So I think they were presentedwith this choice, which is the
(32:47):
choice is admit that Alameda isinsolvent and essentially that
would probably do in FTX,because investors would lose
confidence in FTX too.
So they'd lose everything andthey would not be able to give
away these billions of dollarsand save the world.
But they would be honest andthey would not face any
liability.
Or hey, what if we just letAlameda borrow some of the
(33:10):
customer money?
Hey, we're geniuses, we'llprobably make it back anyway.
No one will ever know and we'llstill have a chance to give
away all this money and save theworld and worst case scenario,
if we get caught.
It's sort of the same we just gobroke and we're unable to
donate billions.
And so because in theirutilitarian philosophy you're
(33:30):
not supposed to value your ownlife over the lives of others.
So Sam would say it wasn't thatimportant to him if he ended up
destitute.
He'd say I always want to flipthat coin and take that risk.
But now, I mean, it came uptails.
He's on trial for fraud.
He's facing the possibility ofdecades in prison.
I'd really like to know.
I wish we could have had a realconversation about that,
(33:53):
because I'd really like to knowwhat he does think about that
and what if he'd take thatdecision back.
But he has to say no decisionwas made.
Speaker 2 (34:05):
So one final question for me, zeke, which is related
to this audience of investmentprofessionals, and it is related
to something you mentionedearlier in this conversation
which really resonated with me,which is like, during the
upswing and height and peak of acraze like this, we all kind of
nod along and pretend in manyways that we understand what's
(34:25):
happening and what people aretalking about, because they're
so excited about it and there'sa lot of passion behind what
they're doing.
But an investigative journalistlike yourself and others who
have really like all along andrecently written and found and
discovered you know really uh,meaningful things about the
crypto ecosystem.
(34:45):
Just ask very basic,straightforward questions and
and you repeat, you knowquestions over and over about,
about basic things and how theywork and where does the money
come from, where does the moneygo, what is the source of
revenue, what is the?
You know the money come from?
Where does the money go?
What is the source of revenue?
What is the?
You know very basic questionsis and I find that to be a big
(35:09):
overlap between the journalismprofession and the investment
profession.
What's what's like a lessonthere Zeke as a as a fantastic
investigative journalist.
What's a lesson for an audiencelike this?
About asking questions,understanding the root, you know
causes and forces at work, notworrying about how you look or
how you seem or whether you lookstupid or like the old guy who
doesn't understand something.
Speaker 3 (35:30):
Well, I mean, I would say it's great to get out there
and see these people in person.
I know that you know, if you're, I'd read so so much about
crypto and Bitcoin, but thenwhen I got to my first
conference, bitcoin 2021 inMiami, I realized, oh, I have
this wrong.
These are not serious people.
(35:51):
There's so many weird schemesgoing on and this idea that
there's mainstream adoptionthat's just around the corner is
a pipe dream.
So I feel like you know you canlook at the numbers all day,
and I think that you should, butsometimes there is.
If it's possible, it's great toget out there and to see these
(36:16):
companies in action, to, like,check out their products, try to
talk to the users.
I mean, so much of the stuffthat we do as investigative
reporters is really not thatspecial.
It's just calling people whomight know something, asking
them about it.
You know, because the truth isnot always available on the
internet and a lot of mediacoverage can be superficial, not
(36:41):
due to any fault of thereporters, but just that
investigating something takeslike months and months and
there's not really enough timefor a newspaper to assign a
reporter to spend months digginginto Cardano or some random
token.
So if there's something thatyou really want to find out
about, people like to talk abouttheir jobs, and even if you're
(37:03):
not a reporter, you might beable to just call somebody up
and say hey, I'm curious aboutthis company.
Does your hedge fund like withTether?
I would call up different cryptohedge funds and say do you use
Tether?
Do you interact with thecompany?
What are your interactions like?
Now, I will say a lot of people.
If you're Tether, do youinteract with the company?
What are your interactions like?
(37:23):
Now, I will say a lot of people.
If you're not a reporter, theymay be.
Some of these people are partof expert networks and may try
to send you that way and hit youup for $1,000 so you can talk
to them.
It's nice.
As a reporter, we don'tparticipate, we don't pay
anybody, so people just liketalking to reporters.
So we do have it better in thatsense.
Speaker 2 (37:44):
So we just have a few minutes remaining, zeke, and
I'm going to pose the remainingaudience questions to you, and
the first is do you seeinstitutions investing in
Bitcoin and related cryptoassets as a legit asset class
going forward, or have thesecontroversies made crypto
uninvestable, like including forinstitutions that want to
diversify and kind of put moneyinto every pocket of investable
(38:05):
assets?
Speaker 3 (38:06):
You know, I still hear about institutions buying
in and I think that theirapproach to it is maybe not that
sophisticated and they mightthink about it the same way, you
know, like my uncle might,where he'd say, all right, like
a lot of people are talkingabout Bitcoin, Maybe it's
something, maybe there'ssomething there, Maybe I'll put
in.
What's the harm of putting in,you know, one or 2% of my
(38:28):
portfolio?
But I don't.
I don't see anyone actuallyusing crypto for anything and
that makes me skeptical ofinvesting in it.
I think eventually it's got tobe useful if it's going to be
valuable.
Speaker 2 (38:42):
And then final question for you, zeke, which I
think I know the answer to, soI'll pose the audience question
and then ask you.
I think the question behind thequestion, but the audience
question is do you like USD USdollar currency more than
Bitcoin?
If yes, why?
And then my version of thatquestion, zeke, is there.
You know, you know, currenciesthat are backed and controlled
(39:03):
by governments and orintergovernmental, like
institutions and agreements andthings like that.
Is there a future for acurrency that is decentralized
and something that would appealand be useful for people who do
not trust centralized orgovernment controlled,
government backed currencies?
Speaker 3 (39:24):
I mean.
So, yes, I like using USdollars and I don't know if
we're heading in the inflationdirection, but I got hit with
that a lot during when I wouldtalk to crypto enthusiasts, and
to that I would.
This is I'm going to steal thisjoke from Joe Weisenthal, my
Bloomberg colleague.
(39:45):
Somebody posed that to him andsaid why would you keep your
money in US dollars?
And he said using a crypto term.
Wait, you hold unstaked USdollars.
Who would ever have US dollarswithout staking them, which I
think is true.
Nobody's sitting around with abunch of cash in their mattress
watching its value disappear.
You invested in stocks or, ifyou're like me, I'm actually a
(40:10):
net debtor.
I think that I owe more on myhouse than I have in dollar
assets.
So this inflation the cost ofliving going up faster than my
salary is bad, but I don't havethis problem where I'm sitting
on a big pile of dollars and thevalue of it is slowly eroding.
So, yeah, I think I mean thisis kind of like trollish, but in
(40:33):
terms of Bitcoin as a store ofvalue, there being only 21
million Bitcoins, I spent awhile researching things that
there's 21 million of, andthere's 21 million VHS copies of
Toy Story from the originalprinting.
They can't make any morebecause the VHS factories have
been destroyed, so the supplycan only go down, probably
(40:56):
similar to Bitcoin.
Many of these tapes have beenlost or destroyed, so I bet you
there aren't even 21 millionleft.
So VHS tapes of Toy Story mayactually be harder money than
Bitcoin and could be the.
Maybe that's the future of ourfinancial system.
And, more seriously, we triedout having private money.
(41:17):
We had wildcat banks back inthe 1800s.
There were banks that were justthere was loose regulation and
they could print their owncurrency, and it turned out a
lot of people abused thatprivilege and would print
unbacked paper money and haveled to a lot of bank failures.
I'm not explaining thatparticularly well, but I think
(41:41):
that, yeah, central banks have alot going for them.
They're not a conspiracy theory.
I heard so many conspiracytheories about central banks,
but we used to have many morefinancial crises when we were on
the gold standard.
So the idea that some sort ofBitcoin standard is going to
lead to an improvement in oureconomy I think is far-fetched.
(42:03):
And I also ask you got mestarted on this In the world
where Bitcoin takes over, then,so are the Winklevoss twins.
They'll become the richestpeople in the world.
Maybe they'll be like our kings.
Will they be good kings?
I mean, mean, I saw thatfacebook movie that they seem
kind of tricky, so, like, um, Ithink that there's a lot of
(42:25):
problems with this idea that, uh, that bitcoin could replace the
dollar.
Um, but, yeah, yeah, don't getme started on that one clearly
well, zeke, at minimum.
Speaker 2 (42:36):
I think your book is a lot more than this, but at at
minimum it's like a fascinatingand entertaining read and I
learned a ton.
I think the personalities I'vementioned this a few times in
our conversation just the humanbehavior and psychology and what
makes up talents, that makes upthese business trends that we
all talk about, is really,really valuable to know about
(42:58):
and to learn.
So thanks so much, zeke, forspending this time with us on a
really busy day covering therise and fall of crypto
literally today, and I want tothank all our attendees and
those of you who engaged in theQ&A and those of you who are
watching this as a replay aswell.
So thanks a lot.
Speaker 3 (43:16):
Yeah, thank you, and I do think the book's a lot of
fun and you'll enjoy it, even ifwe disagree about Bitcoin.
Thank you, zeke.
Speaker 1 (43:26):
Thank you for listening to this month's chat
segment.
Chats is a monthly segmentfeaturing audio from our
recently recorded webinarsairing on the second Tuesday of
the month.
To view the video recording ofthis episode and discover
additional Society webinars.
To view the video recording ofthis episode and discover
additional Society webinars,visit the CFA Society San
Francisco YouTube channel.
Join us next time for ourregularly scheduled Financial
(43:48):
Perspectives podcast episodeairing on the last Tuesday of
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(44:09):
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(44:29):
To learn more about CFA SocietySan Francisco, visit our
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Hello and welcome to this month's chat segment of the
Financial Perspectives podcast.
Our chats episodes featuredynamic conversations between
industry experts from some ofour recent and most popular
webinar recordings.
This month you'll hear fromZeke Fox and Devin Banerjee as
they discuss cryptocurrency'shistoric journey and future
(00:25):
potential.
Speaker 2 (00:29):
Thank you so much for joining us today.
Thank you to CFA Society SanFrancisco for hosting this event
.
I'm Devin Banerjee, I'm asenior managing editor at
LinkedIn and I'm also a memberof CFA Society San Francisco's
Member Programming AdvisoryCouncil, or MPAC, and I'm
(00:50):
delighted to be here today withmy friend and former colleague,
by the way, zeke Fox.
Zeke is an investigativereporter for Bloomberg
Businessweek and Bloomberg News,as well as a national fellow at
the New America Foundation.
He's won multiple high-profilejournalism awards, including the
Gerald Loeb Award, and he's theauthor of the new book that has
(01:12):
been making waves in financeand crypto, entitled Number Go
Up Inside Crypto's Wild Rise andStaggering Fall.
Zeke and I are going to chatfor about 20 to 30 minutes, but
in the meantime, as well asafter that, please do put any
and all questions that you havefor Zeke in the Q&A tab of your
(01:34):
Zoom window.
I'll be taking a look therethroughout the conversation and
then posing your questions toZeke toward the end and, as a
reminder, this webinar is beingrecorded, so please keep that in
mind.
Zeke, welcome and thanks forjoining us on what's a
particularly busy day forcovering the rise and fall of
(01:55):
crypto.
Speaker 3 (01:56):
Yeah, thank you so much for doing this with me,
devin.
Yeah, I'm here at a WeWork downthe street from federal court
in New York where it's theopening day of the Sam Bankman
Freed trial.
So an exciting day, although itwas actually just a bunch of
people bringing in doctor'snotes and saying that they did
(02:16):
not want to serve on the jury.
Speaker 2 (02:18):
Jury selection day.
Yeah, absolutely, but I'll havesome questions for you about
your expectations for the trialand Sam Bankman for its defense,
and all that in a little bit.
But, zeke, the book isfantastic.
I finished it and I've heardother interviewers say this
because it's true.
I think it's so easy to finishin like one or two days because
it's so entertaining and thestories are just endlessly
(02:42):
fascinating.
But I want to ask you to startby taking us back to the start
of this idea, or this project ofyours.
I think it was probably abouttwo years ago.
You did a cover story forBloomberg Businessweek on Tether
, the stable coin.
So each coin is supposed to bebacked and is supposed to be
(03:04):
worth $1 because it's backed byreal dollars.
Why did you start pursuing thatidea and what did you learn
from that initial project?
Speaker 3 (03:14):
So as an investigative reporter, I really
love diving into shadycompanies and trying to
understand how they work, and Iwant to go through their
contracts to see what loopholesthey're trying to exploit, or
look at their balance sheet andsee what doesn't add up.
I resisted looking into cryptobecause so many of the
(03:36):
cryptocurrencies felt like empty, like transparently empty, as
if there was nothing toinvestigate.
Like if Dogecoin goes up and upand up because people say, oh
it's funny, I wasn't really sure.
If there was nothing toinvestigate.
If Dogecoin goes up and up andup because people say, oh, it's
funny, I wasn't really sure whatI was supposed to do about that
.
Then Tether came along and whenI started looking into it two
years ago, like you said, tetherhad grown, so it was supposed
(03:59):
to have about $50 billion andTether played an important role
in crypto.
Every day, some days, $100billion of Tether would change
hands and Tether played animportant role in crypto.
Every day, some days, $100billion of Tether would change
hands and it was supposed tohave this $50 billion backing it
in the bank somewhere, but theywouldn't say where, and this
seemed like the kind of mysterythat I could handle.
I would go look for this moneyand try and figure out if some
(04:22):
of it was missing.
And what made it an even betterthing to investigate was there
was concern about Tether at eventhe highest levels of the US
government.
Janet Yellen had called ameeting of all the top
regulators in the summer of 2021to talk about does Tether have
its money?
What if it doesn't?
Could this crash the cryptomarket?
Could this then cascade intoregulated markets, like when
(04:49):
money market funds broke thebuck during the financial crisis
?
So this felt like a realtraditional.
It was like a traditionalfinance story buried in crypto
world, and as soon as I dug in,I realized that there was so
much fun stuff to investigate incrypto I was wrong to dismiss
it.
Each character I met was likewilder than the next, and I told
(05:10):
my editor this bubble iscrazier than we had thought and
we'll never get through it all.
We'll never investigate allthese great companies, and by
great I mean terrible.
Speaker 2 (05:21):
So one of the central questions that you said you
really wanted, like Uber andWhatsApp, but so few of us and
(05:47):
so few people around us usecrypto still and so, like, what
did you find in terms of as youtravel the globe, by the way, to
to report out the story andwrite this book what did you
find in terms of any legitimateor popular use cases of
cryptocurrency?
Speaker 3 (06:07):
So I am sure there's some good crypto company out
there.
I want to say that.
But whenever I would look intothe ones that everyone was
talking about, I would find thatthere just was nothing there,
and I was just continuallysurprised and disappointed by
how little there was to see.
(06:27):
One example that Bitcoin peoplelove to talk about was El
Salvador.
They would tell me that ElSalvador had adopted Bitcoin as
a legal tender in the countryand that it was doing great
things for poor people there.
And when I went there, it wasactually challenging to write
about because there was solittle going on.
(06:48):
It was just a curiosity fortourists and I actually would
try to use.
I loaded up my Bitcoin walletand whenever I try to use it,
I'd feel kind of ashamed becausethe clerks would be like oh, do
we have to?
Oh, the manager's out, he's theone who knows how to use the
Bitcoin machine.
It was just a.
(07:09):
There was nothing going on.
It was my expectations were lowand they were not met.
I mean another.
As a reporter, you like to writeabout things that are happening
, so I'd always ask these cryptofounders can I see your product
in action?
Can I speak to your users?
And again and again they'd belike oh, there's not actually
(07:29):
anything to see yet, but have wetold you you could earn 15%
interest rates staking our tokenon our native DeFi platform?
So the title of the book NumberGo Up.
It comes from something aBitcoiner said, and he said that
Bitcoin's most powerfultechnology was number go up
technology, which just meant theprice would go up and then, as
(07:53):
it went up, people would noticethat and they'd get excited and
they'd buy Bitcoin, and then itwould go up more and I thought
this is a crazy thing to say.
It sounds like a Ponzi scheme.
That can't be all there is, isit?
But to a very, very largeextent, I think the answer is
yes.
Speaker 2 (08:10):
It was all about just getting in, thinking you were
getting in early and you weregoing to get rich reporting it
out and writing the book, and Ithink what I took away from that
is just how widespread thisidea and this craze became and
(08:31):
it really started involving amassive human element especially
in Cambodia.
Speaker 3 (08:43):
So tell us why you went to Cambodia and what you
discovered there.
So one thing I would hear aboutconsistently was that
cryptocurrency, and inparticular, this coin, tether,
that I set out to investigate,was useful for crime, that it
was popular among moneylaunderers, and I wanted to
figure out how this worked.
But my technique is usually tocall up the bad guy and say, hey
(09:07):
, that's a cool operation yougot going on there.
I like that.
You're, you know you'reinteresting approach.
Maybe we could do an interviewand you could tell me more about
it, but I didn't think that,you know, russian oil traders
would respond well to theseinquiries, respond well to these
(09:29):
inquiries.
So I found that one of the usesof crypto, one of the criminal
uses, is these scams called pigbutchering scams, and these are
the random text messages thatyou probably get on your phone.
You know like hey, bill, didyou pick up the milk for the cat
today?
And I found out that if you, Iplayed along with one of these
and they eventually they'llstart to flirt with you.
(09:49):
It's usually like a prettywoman.
They'll tell you they'll listento your problems.
Eventually they start to tellyou, they start to drop hits
that they're really good attrading and then eventually
maybe they'll let you try outtheir trading strategies.
When they move in for the kill,they tell you how to buy some
Tether using a regular cryptoapp like Cryptocom or Coinbase,
(10:09):
and they'll ask you to send itto their special app where you
can do the cool trades.
Then they'll even show yougains in that app and try to get
you to send more and more.
Once they figure they've gottenas much as you're going to send
, which in some cases is likehundreds of thousands of dollars
, they just take it all closeoff communication.
So these pig butchering scams.
One crypto tracing expert Italked to estimated that $10
(10:33):
billion had been lost to them.
So it's like a pretty majorcriminal use of crypto.
And the worst part of it is thepeople who send these messages
are often in Cambodia or Myanmarand they're actually victims
themselves.
They're lured to thesecountries with offers of
high-paying jobs and customerservice.
Then, when they get there,they're trapped, they're forced
(10:55):
to scam, they're beaten andtortured.
They can only leave if they paya ransom.
So I went to Cambodia to checkthis out for myself because it
sounded like a conspiracy theory, and what I saw was entire
office parks with giant towersfull of people who are being
forced to scam, truly like eerieplaces.
(11:15):
It's horrible.
It's actually been getting someattention lately at the United
Nations and there's like they.
The one UN report estimatedthat 200,000 people have been
trapped in this way, sohopefully the authorities are
finally taking more seriousaction against it.
Speaker 2 (11:35):
Yeah, that's.
That's some great work you didin the book and some really
disturbing things you uncovered.
Before we get into Sam Bankman,Freed andried and FTX, which we
all know now and have seenmultiple federal counts on a
fraud and those kind of things,I want to just take a step back,
(11:55):
Zeke, and talk about some ofthe largest forms that
cryptocurrency has taken and thetechnology underlying it, and
get your take on it.
So first is Bitcoin.
So I'm just looking at my YahooFinance chart today right now
trading $27,321 in a 52-weekrange of $15,000 to $31,000.
(12:19):
So near the upper end of its52-week trading range.
So Bitcoin in particular, Zeke.
What do you think is supportingthat cryptocurrency?
Fairly well, right now.
Speaker 3 (12:30):
I mean it's truly wild to me to see how well it's
holding up when Bitcoin hasproved to be pretty useless as a
means of payment.
Bitcoin enthusiasts have shiftedto this idea that it's digital
gold, because there can onlyever be 21 million bitcoins.
I think they've done a greatjob selling this story, but that
(12:54):
it actually doesn't really makesense.
There maybe can only be 21million bitcoins, but first of
all, why would there be demandfor those bitcoins if Bitcoin
doesn't do anything?
And second of all, it'sactually very easy to create new
digital currencies whichcompete with Bitcoin, and many
of the new ones are actuallysuperior in pretty much all ways
(13:14):
to Bitcoin.
So I think the Bitcoin peoplehave been able to turn it into
kind of a cult, and if you go totheir conferences, the people
are just so fanatical aboutBitcoin that nothing's going to
change their mind.
These people are dedicatingtheir lives to telling their
friends and family to buyBitcoin too, and so I don't see
(13:37):
that actually crashing to zero.
I don't see any catalyst tochange in their mind, but I do
think if it doesn't findwidespread adoption and doesn't
find like an actual use case,that interest in it is going to
decline over time.
Speaker 2 (13:51):
One really interesting thing I always
notice over this entire threeyear craze that we've been
through is when you ask anytraditional business leader in
an industry like financialservices or like traditional
technology sector probably theCEO of my employer, possibly
Mike Bloomberg, I'm not sure,probably the CEOs of a lot of
(14:14):
the employers of peopleattending they pivot a lot to
this idea that the underlyingtechnology of decentralized,
distributed ledgers, likeblockchain you know that
technology holds a lot ofpromise and maybe some of these
cases like cryptocurrency thatyou know they may be skeptical
or they may be supportive orthey don't know how it will play
(14:37):
out.
In all of your conversations,though, zeke and I know this is
away from the cryptocurrencytopic and use case do you see?
I mean, have you found promiseand like distributed ledger
technology and applications ofthat for other industries and in
a widespread way?
Speaker 3 (14:55):
All of these ideas sound promising and I know a lot
of smart people are working onthem.
So I want to say, you know,never say never, but I always
come back to.
Actually, during the previouscrypto bubble around 2017, I
spent a full day at the officesof a company called ConsenSys.
It was kind of like aconsulting company for crypto
(15:18):
and they were promoting thisidea that blockchain would
revolutionize every industry,and I heard a whole day of
presentations about how propertydeeds would go on the
blockchain and passports wouldgo on the blockchain and even
all the fish in the sea, thingslike that.
I was, and none of it's come topass.
So I feel like this technologyhas gotten more than a fair
(15:40):
trial, and we still see theseannouncements that the crypto
people are great at gettingattention for them, like Visa is
going to do a trial withblockchain, or JP Morgan is
going to try something out andyou almost don't need to
investigate them because, justso consistently, these are just
little tests that don't come toanything.
(16:00):
So I'm not a technologist.
I'm not trying to say there'sno way the blockchain could ever
work.
I just think that we can onlyjudge it by what it's done so
far, which is not much.
Speaker 2 (16:11):
So let's talk about Sam Bankman-Fried.
I mean, he doesn't representall of crypto, but he and FTX
became in many ways the face ofcrypto for a long time and is
now certainly the face of itsdownfall.
But I just want to read a shortpassage a description of yours
(16:34):
of his from your book.
This is in chapter 10.
You say Sam Bankman-Fried wasdeveloping a public profile as
the boy genius of crypto, theman who was going to take the
industry mainstream.
Compared to others and you namea few others, like from the
profits of Tether and Celsius,bankman-fried seemed grounded in
(16:57):
reality when he went on TV totalk about the boom.
He was comfortable discussingnumbers with Wall Street traders
or public policy withcongressional staffers and his
style gave him an air ofauthenticity and I think that
really describes when we allwatched him before the reality
came out, it was like, oh, he'sso authentic, he's so
(17:19):
approachable.
He is, even though he is likeshy and awkward, he is seemingly
comfortable speaking withanybody in any setting.
And I'm just curious, givenwhat we know now, zeke, like
what you've learned about, likehuman psychology, both in SBF's
case as well as all of ourcollective, you know psychology
(17:40):
and awareness of a high profilekind of face of a trend or craze
like this, like we were allkind of caught off guard and so
what have you learned about likehuman psychology, diligence and
human behavior out of that?
Speaker 3 (17:55):
I mean, I think we all sort of had this idea of
what a scammer looked like, howa scammer talked, and especially
in the Bitcoin world.
It was the guys with showingoff their Lamborghinis and
saying Bitcoin to the moon.
And Sam, he was able to speakthe language of Wall Street and,
even though he dressed like acollege kid who'd spent the
(18:18):
night in the library, he cameoff in a weird way as the adult
in the room, and I think thatthose cues really helped him
gain everyone's trust, andreally very few people looked
beyond that.
He just had this amazing storyand he told it over and over
(18:38):
again, including to me.
He just had this amazing storyand he told it over and over
again, including to me, andtelling that story is how he was
able to amass billions ofdollars from venture capitalists
and get to where he was.
So I don't know.
I wish there was some lessonthat we could take from this and
learn how not to be fooled thenext time.
But I think the crypto bubblealso made really crazy things
(19:04):
sound plausible, so when he wassaying things like, oh, I'm
going to buy Goldman Sachs nextand I'm going to be the biggest
source of transactions in theentire financial world.
It sort of seemed like I don'tknow, maybe he will, this crypto
thing keeps going on and on,but you felt kind of boring
being.
I don't know, maybe he will,this crypto thing keeps going on
and on, but you felt kind ofboring being I don't know.
I imagine some of the people inthe audience felt this way,
(19:26):
where you felt sort of annoying,like a scold, to be asking well
, your coin, how will it makemoney?
What are its eventual sourcesof profit?
Will you have any revenue forthis crypto company?
And you felt like, yeah, youfelt like a, an old guy who just
didn't get it.
Um, and I think we learned thatthese fundamentals do matter
(19:51):
and that people should be ableto, should be asked these basic
questions.
Maybe you should be suspiciousof them if they, if they don't
have good answers.
Speaker 2 (20:00):
And we always say follow the money, which is
probably the most importantthing.
But one thing I also like doing, and like seeing when people do
or society does, is likefollowing the talent and looking
at who is actually operatingand running certain businesses
or are behind certain trends.
(20:20):
And you know one thing I youspend a lot of time around FTX
and Sam's team and otheroperations and I think you found
I heard you say recently thatit was like kids running all
these operations.
It was their first job out ofschool.
They were not likesophisticated in any legal sense
(20:40):
or compliance sense or evenjust operating a business sense.
There was a lot of like drugsand alcohol surrounding it, so
like.
But you tell me, like what didyou find about the talent in
this space, in this, in thiscrypto craze?
And like what?
What are some lessons we candraw about?
Like evaluating talent thatgoes into into a certain craze,
and what are some lessons we candraw about evaluating talent
(21:02):
that goes into a certain craze?
Speaker 3 (21:04):
Well with the FTX employees.
They actually really helpedconvince me that FTX was legit,
because they all seemed sosincere.
They were really obsessed witheffective altruism, like Sam.
It was not an act.
It was all these guys that hadspent all their time doing it
and some of these traders andprogrammers who I met, sam's old
(21:29):
friends.
They just seemed so shy andnerdy and so awkward that they
felt they gained my trust thatway.
Many of these people may nothave had any idea of what was
going on, but the company didnot have a CFO or if they did,
the CFO didn't really doanything.
(21:49):
They were using a pretty smallauditing firm.
For a company of that size, theboard of directors was three
people who didn't have very muchexperience.
That size, the board ofdirectors was three people who
didn't have very much experience, and this was true of a lot.
I mean, for a crypto company,that all is actually pretty good
.
They actually had a corporatestructure and a board of
(22:13):
directors.
So I do think when the bubbleis going really the bubble is
blowing up.
Even venture capitalists getFOMO and it's easy to overlook
these basic safeguards.
But I don't know, maybe weshould be more careful, but it's
hard to say, I mean, when thenext bubble gets going.
Do you really want to be theone who misses out because you
insisted that the boy geniusfounder hire a real CFO, right?
Speaker 2 (22:37):
Yeah, it is fascinating how easy it is to
that, or how easy it seeminglyis, for sophisticated investors
and people who regularly inother contexts do talk about the
importance of governance andstructure and regulation and
guardrails, how easy it is forthem to overlook all of those
things when the going is goodand the party is sort of roaring
(22:59):
, if you will.
Speaker 3 (23:01):
It seemed like the venture capitalists actually
liked Sam more the more crazy heseemed, and that his lack of
respect for them made themactually admire him more and
think, oh, this guy is justcrazy enough to do what he says.
Enough to do what he says,similar to how Adam Neumann of
WeWork just the bigger, thecrazier plans that he spun, the
(23:26):
better everyone liked him, untilit all blew up.
Speaker 2 (23:28):
Yeah, and regulators, I think at least.
I mean, it's hard to paint themwith one brush, but take Gary
Gensler of the SEC.
Seems to be more clear-eyedthan venture capital investors
and others who have rushed inhere, but still has been a bit
slow or taken his time puttinginto place regulations around
(23:51):
crypto.
What's your take on where weare right now with crypto
regulation and where thingscould possibly go?
Speaker 3 (23:58):
So the crypto industry really wants Congress
to pass a law that will codifyrules about tokens that are
looser than the existing rulesfor securities, and Gensler's
position I mean oversimplifyingis that these crypto tokens just
because you say it's crypto, itdoesn't mean it's not an
(24:20):
investment and all the rule, thehundred year old rules that
govern investing, should stillapply, and I agree, I think that
in some cases it was reallyclear that these crypto
companies were breaking therules and they're only just now
getting sued by the SEC orgetting criminal charges from
the DOJ.
I think that the regulators werereluctant to be blamed for
(24:43):
popping the bubble and that theydidn't want to go after these
companies early on, when therewould have been a lot of
opposition from the users whowere getting rich when the
number just went up and up.
But in my opinion, that shouldnot be how they look at this.
It's their job to enforce therules impartially and by letting
(25:04):
things go on as long as theydid, they've now opened
themselves up to the objectionfrom the crypto companies, which
is you, let us do this for solong.
Why are you saying it's illegalnow?
You implicitly agreed it wasfine by letting it go on, which
is also not how the law works,but you can see how they got
that impression.
(25:24):
So I think, better late thannever, though.
These investor protection rulesexist for a reason, and they
would have prevented stricterenforcement of them would have
prevented a lot of people fromlosing their money prevented.
Speaker 2 (25:40):
Stricter enforcement of them would have prevented a
lot of people from losing theirmoney Zeke.
I want to incorporate one ofour audience questions, because
it's related to this and alsosomething I was wondering and
going to ask you.
I mean, one of the avenuesright now that regulators are
seriously continuing to considerand huge asset managers like
the biggest in the world, likeBlackRock, are seriously
considering, are Bitcoin ETFs.
I know Bloomberg has been doinga lot of reporting around this.
(26:03):
I don't know if you personallyhave, but what are the prospects
for a true Bitcoin ETF?
Do you think?
Speaker 3 (26:09):
I think that the SEC's arguments against it have
run their course and that theywill have to approve it at some
point.
It's never really made sense tome how they could object to it,
given that they allow investorsto buy Bitcoin in so many other
ways.
The flip side is that I think alot of people who want Bitcoin
have it at this point, and theoption of a Bitcoin ETF might
(26:34):
not lead to some huge upswing inadoption, and I also don't
think it's this big sign of WallStreet adopting Bitcoin.
I think it's more that they seeCoinbase making money by
facilitating Bitcoin trading andthey think, hey, if we had a
Bitcoin product, people mightwant to trade that too, which is
probably true.
(26:55):
Why don't we create our ownBitcoin product and earn the
fees from it?
Speaker 2 (26:59):
Yeah, so at a high level Zeke.
Where do you and I knoweveryone's been asking you this
where do you see crypto goingfrom here?
I mean, was it a zero interestrate phenomenon and it's over
and the reality is back andtrumping a zero interest rate
phenomenon like crypto, or willit continue to be something
(27:22):
we're talking about and is onthe finance industry's mind
going forward?
Speaker 3 (27:29):
I really think that it is over, and it's not that
all the coin prices are going togo to zero tomorrow, but I just
think that this last bubble hasreally discredited crypto.
So many of the companiescollapsed and were revealed to
be frauds.
Why is some normal person goingto send their money to the next
(27:52):
boy genius who says that theircrypto platform is the future of
finance?
Already, there was a lot ofdisdain for crypto in the
mainstream, and I think that thepeople feel like they are
proven right by the collapse ofthis bubble.
All the attention that SamBankman-Fried is getting won't
help, and I'm sure there'll besome people who still are
(28:16):
interested in crypto, but manymore are going to associate it
with get rich quick schemes andscams and ways to lose your
money.
Speaker 2 (28:24):
And so, as you mentioned, today was the opening
day of Sam Begman Freed's trial.
You're across the street fromit.
You were there for the kind ofas we were talking about early
on.
It's kind of jury selection nottoo exciting just yet.
Jury selection, not tooexciting just yet.
What's your sense of what histeam's defense will be?
Speaker 3 (28:51):
So back in November, just before Sam got arrested, I
flew down to the Bahamas andspent the day with him at his
$30 million penthouse and hegave me what I think is a
preview of his defense and it'shonestly, it's a real bank shot.
You have to say that, first ofall, he didn't commit fraud on
purpose.
You have to say that he has toclaim that he just lost track of
what was going on and he arguedto me that he was just paying
(29:15):
no attention to money going inand out and that he did not
notice that his hedge fund,alameda Research, had borrowed
$8 billion of customer moneyfrom FTX.
And the problem with this isthat three of his top
lieutenants have pleaded guilty.
They've said we committed fraudwith Sam.
They're expected to testifyagainst him and now Sam could
(29:39):
say hey, they'll say anything,now they just want to get off
with a light sentence.
New problem is that theprosecutors also have a tape
recording of the head of AlamedaResearch, caroline Ellison, his
ex-girlfriend, from back inNovember.
She had held a staff meeting atthat time in which she'd
essentially confessed to thestaff and she'd said we dipped
(30:02):
into the customer funds, wegambled them away.
We had a big meeting anddecided to do it.
Sam told us to do it.
So even if you argue that she'slying, now you have this tape
from back then to use.
But Sam, he's shown that he'sactually.
He lost his bail because of aneffort to discredit Caroline,
because she's going to be animportant witness.
(30:23):
So he leaked her diaries to theNew York Times in an effort to
paint her as irresponsible, andhe's also claims that because
they had been dating and brokenup, they weren't talking.
So he gave me a version of thisback in November and I was just
I really couldn't believe it.
And I said to him Sam, are youreally, is your defense really
(30:45):
that your ex-girlfriend did it?
Like, is that really what you'retrying to say?
Because that doesn't sound.
I don't think that's going towork.
And he said I think the problemis it's not even clear who did
it.
So I think he's going to haveto work on that if he's going to
convince the jury, because atthe center of it the $8 billion
is gone.
Where did it go?
(31:05):
The government says it's justembezzlement.
They stole it, which is, Ithink, an easier story to sell.
He's going to have to make itseem very complicated in order
to win over the jury.
Speaker 2 (31:17):
Thank you to the audience members for putting
questions in the tab.
Continue to do so.
I'll come to your questions injust a few minutes.
Zeke, just one or two questionsmore for me on this topic of
Sam Bankman-Fried and kind ofwhat he knew and what he didn't
and what his headspace was overthe evolution of FTX.
Your daughter, Margo, said Ilove this part in the book.
(31:39):
Right before you were about tofly down to the Bahamas, for I
think that final time to meetwith Sam, she said why would
someone do bad things if theywere trying to do good things,
which is such a great questionfrom a child, that perfect kind
of innocence.
Do you think Sam Bankman-Friedand others around him and others
like him started out with goodintentions or was it always kind
(32:02):
of a scheme?
Speaker 3 (32:03):
So I'll preface this by saying I look forward to
learning more at the trial.
But my theory is that they didhave good intentions the whole
way and that's what actuallymade them do risky things or
even commit crimes, because theywere convinced that they were
the heroes of this movie andthey were going to get so rich
and make so many billions ofdollars that they might have a
(32:27):
chance of saving the world, likeif they funded the right AI
researchers, this might changethe course of human history.
So there was a moment when theyrealized that they'd made some
bad bets and their hedge fund,alameda, was effectively
insolvent.
So I think they were presentedwith this choice, which is the
(32:47):
choice is admit that Alameda isinsolvent and essentially that
would probably do in FTX,because investors would lose
confidence in FTX too.
So they'd lose everything andthey would not be able to give
away these billions of dollarsand save the world.
But they would be honest andthey would not face any
liability.
Or hey, what if we just letAlameda borrow some of the
(33:10):
customer money?
Hey, we're geniuses, we'llprobably make it back anyway.
No one will ever know and we'llstill have a chance to give
away all this money and save theworld and worst case scenario,
if we get caught.
It's sort of the same we just gobroke and we're unable to
donate billions.
And so because in theirutilitarian philosophy you're
(33:30):
not supposed to value your ownlife over the lives of others.
So Sam would say it wasn't thatimportant to him if he ended up
destitute.
He'd say I always want to flipthat coin and take that risk.
But now, I mean, it came uptails.
He's on trial for fraud.
He's facing the possibility ofdecades in prison.
I'd really like to know.
I wish we could have had a realconversation about that,
(33:53):
because I'd really like to knowwhat he does think about that
and what if he'd take thatdecision back.
But he has to say no decisionwas made.
Speaker 2 (34:05):
So one final question for me, zeke, which is related
to this audience of investmentprofessionals, and it is related
to something you mentionedearlier in this conversation
which really resonated with me,which is like, during the
upswing and height and peak of acraze like this, we all kind of
nod along and pretend in manyways that we understand what's
(34:25):
happening and what people aretalking about, because they're
so excited about it and there'sa lot of passion behind what
they're doing.
But an investigative journalistlike yourself and others who
have really like all along andrecently written and found and
discovered you know really uh,meaningful things about the
crypto ecosystem.
(34:45):
Just ask very basic,straightforward questions and
and you repeat, you knowquestions over and over about,
about basic things and how theywork and where does the money
come from, where does the moneygo, what is the source of
revenue, what is the?
You know the money come from?
Where does the money go?
What is the source of revenue?
What is the?
You know very basic questionsis and I find that to be a big
(35:09):
overlap between the journalismprofession and the investment
profession.
What's what's like a lessonthere Zeke as a as a fantastic
investigative journalist.
What's a lesson for an audiencelike this?
About asking questions,understanding the root, you know
causes and forces at work, notworrying about how you look or
how you seem or whether you lookstupid or like the old guy who
doesn't understand something.
Speaker 3 (35:30):
Well, I mean, I would say it's great to get out there
and see these people in person.
I know that you know, if you're, I'd read so so much about
crypto and Bitcoin, but thenwhen I got to my first
conference, bitcoin 2021 inMiami, I realized, oh, I have
this wrong.
These are not serious people.
(35:51):
There's so many weird schemesgoing on and this idea that
there's mainstream adoptionthat's just around the corner is
a pipe dream.
So I feel like you know you canlook at the numbers all day,
and I think that you should, butsometimes there is.
If it's possible, it's great toget out there and to see these
(36:16):
companies in action, to, like,check out their products, try to
talk to the users.
I mean, so much of the stuffthat we do as investigative
reporters is really not thatspecial.
It's just calling people whomight know something, asking
them about it.
You know, because the truth isnot always available on the
internet and a lot of mediacoverage can be superficial, not
(36:41):
due to any fault of thereporters, but just that
investigating something takeslike months and months and
there's not really enough timefor a newspaper to assign a
reporter to spend months digginginto Cardano or some random
token.
So if there's something thatyou really want to find out
about, people like to talk abouttheir jobs, and even if you're
(37:03):
not a reporter, you might beable to just call somebody up
and say hey, I'm curious aboutthis company.
Does your hedge fund like withTether?
I would call up different cryptohedge funds and say do you use
Tether?
Do you interact with thecompany?
What are your interactions like?
Now, I will say a lot of people.
If you're Tether, do youinteract with the company?
What are your interactions like?
(37:23):
Now, I will say a lot of people.
If you're not a reporter, theymay be.
Some of these people are partof expert networks and may try
to send you that way and hit youup for $1,000 so you can talk
to them.
It's nice.
As a reporter, we don'tparticipate, we don't pay
anybody, so people just liketalking to reporters.
So we do have it better in thatsense.
Speaker 2 (37:44):
So we just have a few minutes remaining, zeke, and
I'm going to pose the remainingaudience questions to you, and
the first is do you seeinstitutions investing in
Bitcoin and related cryptoassets as a legit asset class
going forward, or have thesecontroversies made crypto
uninvestable, like including forinstitutions that want to
diversify and kind of put moneyinto every pocket of investable
(38:05):
assets?
Speaker 3 (38:06):
You know, I still hear about institutions buying
in and I think that theirapproach to it is maybe not that
sophisticated and they mightthink about it the same way, you
know, like my uncle might,where he'd say, all right, like
a lot of people are talkingabout Bitcoin, Maybe it's
something, maybe there'ssomething there, Maybe I'll put
in.
What's the harm of putting in,you know, one or 2% of my
(38:28):
portfolio?
But I don't.
I don't see anyone actuallyusing crypto for anything and
that makes me skeptical ofinvesting in it.
I think eventually it's got tobe useful if it's going to be
valuable.
Speaker 2 (38:42):
And then final question for you, zeke, which I
think I know the answer to, soI'll pose the audience question
and then ask you.
I think the question behind thequestion, but the audience
question is do you like USD USdollar currency more than
Bitcoin?
If yes, why?
And then my version of thatquestion, zeke, is there.
You know, you know, currenciesthat are backed and controlled
(39:03):
by governments and orintergovernmental, like
institutions and agreements andthings like that.
Is there a future for acurrency that is decentralized
and something that would appealand be useful for people who do
not trust centralized orgovernment controlled,
government backed currencies?
Speaker 3 (39:24):
I mean.
So, yes, I like using USdollars and I don't know if
we're heading in the inflationdirection, but I got hit with
that a lot during when I wouldtalk to crypto enthusiasts, and
to that I would.
This is I'm going to steal thisjoke from Joe Weisenthal, my
Bloomberg colleague.
(39:45):
Somebody posed that to him andsaid why would you keep your
money in US dollars?
And he said using a crypto term.
Wait, you hold unstaked USdollars.
Who would ever have US dollarswithout staking them, which I
think is true.
Nobody's sitting around with abunch of cash in their mattress
watching its value disappear.
You invested in stocks or, ifyou're like me, I'm actually a
(40:10):
net debtor.
I think that I owe more on myhouse than I have in dollar
assets.
So this inflation the cost ofliving going up faster than my
salary is bad, but I don't havethis problem where I'm sitting
on a big pile of dollars and thevalue of it is slowly eroding.
So, yeah, I think I mean thisis kind of like trollish, but in
(40:33):
terms of Bitcoin as a store ofvalue, there being only 21
million Bitcoins, I spent awhile researching things that
there's 21 million of, andthere's 21 million VHS copies of
Toy Story from the originalprinting.
They can't make any morebecause the VHS factories have
been destroyed, so the supplycan only go down, probably
(40:56):
similar to Bitcoin.
Many of these tapes have beenlost or destroyed, so I bet you
there aren't even 21 millionleft.
So VHS tapes of Toy Story mayactually be harder money than
Bitcoin and could be the.
Maybe that's the future of ourfinancial system.
And, more seriously, we triedout having private money.
(41:17):
We had wildcat banks back inthe 1800s.
There were banks that were justthere was loose regulation and
they could print their owncurrency, and it turned out a
lot of people abused thatprivilege and would print
unbacked paper money and haveled to a lot of bank failures.
I'm not explaining thatparticularly well, but I think
(41:41):
that, yeah, central banks have alot going for them.
They're not a conspiracy theory.
I heard so many conspiracytheories about central banks,
but we used to have many morefinancial crises when we were on
the gold standard.
So the idea that some sort ofBitcoin standard is going to
lead to an improvement in oureconomy I think is far-fetched.
(42:03):
And I also ask you got mestarted on this In the world
where Bitcoin takes over, then,so are the Winklevoss twins.
They'll become the richestpeople in the world.
Maybe they'll be like our kings.
Will they be good kings?
I mean, mean, I saw thatfacebook movie that they seem
kind of tricky, so, like, um, Ithink that there's a lot of
(42:25):
problems with this idea that, uh, that bitcoin could replace the
dollar.
Um, but, yeah, yeah, don't getme started on that one clearly
well, zeke, at minimum.
Speaker 2 (42:36):
I think your book is a lot more than this, but at at
minimum it's like a fascinatingand entertaining read and I
learned a ton.
I think the personalities I'vementioned this a few times in
our conversation just the humanbehavior and psychology and what
makes up talents, that makes upthese business trends that we
all talk about, is really,really valuable to know about
(42:58):
and to learn.
So thanks so much, zeke, forspending this time with us on a
really busy day covering therise and fall of crypto
literally today, and I want tothank all our attendees and
those of you who engaged in theQ&A and those of you who are
watching this as a replay aswell.
So thanks a lot.
Speaker 3 (43:16):
Yeah, thank you, and I do think the book's a lot of
fun and you'll enjoy it, even ifwe disagree about Bitcoin.
Thank you, zeke.
Speaker 1 (43:26):
Thank you for listening to this month's chat
segment.
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recently recorded webinarsairing on the second Tuesday of
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To view the video recording ofthis episode and discover
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Join us next time for ourregularly scheduled Financial
(43:48):
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a link at the top of eachepisode description or by
emailing podcast at cfa-sforg.
We'd love to hear what youthink of our new chat segment or
any suggestions on futuretopics you'd like us to cover.
Thank you for being a dedicatedlistener.
(44:09):
This podcast is produced by CFASociety San Francisco, a
not-for-profit professionalassociation providing
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(44:29):
To learn more about CFA SocietySan Francisco, visit our
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