WEBVTT - What Ben McKenzie Learned When He Started Investigating Crypto 0:00:10.160 --> 0:00:13.800 Hello, Olins fans. This is a special episode of the 0:00:13.880 --> 0:00:18.040 podcast that was recorded June AIDHS at the Bloomberg In Conference. 0:00:18.160 --> 0:00:21.040 Our guest Ben mackenzie. He's a well known actor. You 0:00:21.120 --> 0:00:23.720 might remember him from the oc and he's the author 0:00:23.760 --> 0:00:27.000 of a forthcoming book called Easy Money about his journey 0:00:27.080 --> 0:00:31.040 into the world of cryptocurrency. Hello, and welcome to another 0:00:31.080 --> 0:00:34.199 episode of the Odd Lots Podcast. I'm Joe Wisenthal and 0:00:34.240 --> 0:00:38.040 I'm Tracy Alloway. Tracy, you know that intro video they showed, 0:00:38.280 --> 0:00:40.760 you know, use our line the perfect guest, But this week, 0:00:40.920 --> 0:00:42.800 of all weeks, we have a really good guest. 0:00:42.840 --> 0:00:45.120 Yeah, this week it's actually true. We're going to be 0:00:45.159 --> 0:00:49.040 talking crypto actually with someone who you wouldn't necessarily expect 0:00:49.120 --> 0:00:51.320 to be the perfect guest to discuss crypto. 0:00:51.520 --> 0:00:52.479 No, but he is. 0:00:52.600 --> 0:00:55.960 So obviously this week we're recording it the same week 0:00:55.960 --> 0:00:59.639 after the SEC filed suits against both coinbase and Binance, 0:01:00.040 --> 0:01:02.720 So we're going to be speaking with Ben McKenzie, a 0:01:02.880 --> 0:01:05.880 well known actor and the author of the forthcoming book 0:01:06.000 --> 0:01:11.160 Easy Money, Cryptocurrency, Casino Capitalism, and the Golden Age of Fraud. Ben, 0:01:11.280 --> 0:01:13.120 thank you so much for joining us. How did you 0:01:13.240 --> 0:01:15.520 arrange that sort of like from a pr standpoint, that 0:01:15.560 --> 0:01:18.280 you got the government to file suits against Coinbase and 0:01:18.319 --> 0:01:20.160 Finance as a lead up to your book. 0:01:20.240 --> 0:01:23.160 That's very well done. Yeah yeah, I had nothing to 0:01:23.160 --> 0:01:24.560 do with it. OK, very grateful. 0:01:24.640 --> 0:01:26.720 And if they could just hold off on any DOJ 0:01:26.959 --> 0:01:28.440 pending action and to just wait. 0:01:28.360 --> 0:01:32.640 Until wonderful, you're going to have to keep rewriting the epilogue. 0:01:32.680 --> 0:01:35.679 I think, well, why don't I ask the obvious question, 0:01:35.840 --> 0:01:40.120 which is how does an actor get into the profession 0:01:40.280 --> 0:01:42.600 or hobby of investigating cryptocurrencies? 0:01:42.760 --> 0:01:44.160 Sure, there's a longer answer. 0:01:44.240 --> 0:01:46.920 The shorter answer is a sort of a mid mini 0:01:46.959 --> 0:01:50.720 midlife crisis, like a just sort of a It was 0:01:50.840 --> 0:01:53.000 the fall of twenty twenty. It was the height of 0:01:53.040 --> 0:01:57.120 the pandemic, and I came down with a serious case 0:01:57.240 --> 0:01:57.760 of fomo. 0:01:58.920 --> 0:02:04.440 I saw all these knuckleheads getting rich, and I thought, hey, 0:02:04.560 --> 0:02:06.800 maybe I should, you know, try to try to get 0:02:06.880 --> 0:02:10.040 rich as well. In a roundabout way. That that led 0:02:10.080 --> 0:02:11.600 me to crypto. 0:02:11.639 --> 0:02:16.160 A very good friend of mine who in my twenties 0:02:16.600 --> 0:02:20.400 encouraged encouraged me to invest in an obscure medical device 0:02:20.440 --> 0:02:25.720 company that was going to create synthetic blood and it 0:02:25.760 --> 0:02:28.079 was going to make a ton of money. A random 0:02:28.120 --> 0:02:29.840 guy at a wedding had assured him so, and so 0:02:30.040 --> 0:02:32.359 we definitely needed to invest in this. I put money 0:02:32.400 --> 0:02:34.440 into it and promptly lost almost all of it. Might 0:02:34.480 --> 0:02:37.280 have been a penny penny stock pumping up. Anyway, that 0:02:37.440 --> 0:02:39.840 same friend came back to me in twenty twenty one 0:02:39.840 --> 0:02:41.359 and said, you gotta buy. 0:02:41.240 --> 0:02:45.160 Bitcoin, and I thought, hmm, I wonder what. 0:02:45.120 --> 0:02:48.240 Is this cryptocurrency stuff. So I have a degree in 0:02:48.280 --> 0:02:52.280 economics from the University of Virginia. It's about twenty years old. 0:02:52.639 --> 0:02:55.800 So I dusted that off and I ended up writing 0:02:55.800 --> 0:02:58.640 this book. So as to why I'm here, I would 0:02:58.639 --> 0:03:00.960 say the book is really it's really. 0:03:00.760 --> 0:03:02.920 About money and lying, right. And I know about. 0:03:02.639 --> 0:03:05.880 Money because a little bit because I have an econ 0:03:05.960 --> 0:03:08.560 degree and it made a little bit up two decades 0:03:08.600 --> 0:03:10.840 of show essence. But I know about lying because I'm 0:03:10.840 --> 0:03:13.519 an actor and I do it for a living. And 0:03:13.600 --> 0:03:16.640 so when cryptocurrencies were calling themselves currencies, the first thing 0:03:16.680 --> 0:03:19.240 I bumped up on was the word. You know, as 0:03:19.240 --> 0:03:22.280 an actor and a storyteller, where it's are our tools, 0:03:22.480 --> 0:03:24.640 and they can be used for a variety of purposes. 0:03:24.880 --> 0:03:26.600 Some of them are honorable and some of them not. 0:03:28.000 --> 0:03:30.760 And although bitcoin, of course was intended to be a currency, 0:03:30.800 --> 0:03:36.240 and that was the intention supposedly of Soatoshi Nakamoto, it 0:03:36.360 --> 0:03:38.520 never really functioned that way, right, and it certainly wasn't 0:03:38.560 --> 0:03:41.080 functioning that way in twenty twenty, twenty twenty one, at 0:03:41.080 --> 0:03:41.880 the height of the mania. 0:03:42.040 --> 0:03:44.680 So that's where I started, like, these are our currencies? 0:03:44.680 --> 0:03:45.120 So what are that? 0:03:45.440 --> 0:03:48.080 So the friend came and you already had to be okay, 0:03:48.120 --> 0:03:50.280 this is the guy who lost you a bunch of money. Yeah, 0:03:50.360 --> 0:03:52.200 so rather than because you said you in fomo, so 0:03:52.240 --> 0:03:53.560 a lot of people like they just went out and 0:03:53.560 --> 0:03:55.800 bought when your first instinct was like a brush. 0:03:55.560 --> 0:03:56.960 Off the old economics books. 0:03:57.400 --> 0:03:59.760 Yeah, but what where where did you see? Okay, so 0:03:59.800 --> 0:04:03.920 you like plow your money into crypto at the top. No, 0:04:04.120 --> 0:04:06.600 but that's still like like, how did you sort of 0:04:06.640 --> 0:04:08.840 begin your exploration of this industry? 0:04:08.840 --> 0:04:09.000 Short? 0:04:09.120 --> 0:04:12.040 Well, I read a lot of so first I needed 0:04:12.040 --> 0:04:14.240 to understand, like, okay, where were we in in twenty 0:04:14.280 --> 0:04:17.560 twenty one? I very quickly came to the conclusion we 0:04:17.560 --> 0:04:21.200 were in a bubble, you know, a fairly obvious bubble 0:04:21.240 --> 0:04:24.320 perhaps retrospect, But the book is called easy money, not 0:04:24.480 --> 0:04:28.080 just because of this fake money called cryptocurrency, but also 0:04:28.240 --> 0:04:30.600 because of the easy money policies that have been around 0:04:30.640 --> 0:04:34.200 since the GFC, and that went nuts, you know, during 0:04:34.240 --> 0:04:37.280 the response to the pandemic, trillions of dollars jumped into 0:04:37.320 --> 0:04:40.680 the economy, and by the time I was thinking about 0:04:40.800 --> 0:04:47.599 entering the market, everything had gone crazy. So I took 0:04:47.640 --> 0:04:50.000 Gary Gensler, the head of the set, taught this course 0:04:50.040 --> 0:04:53.479 in MIT on blockchain and crypto, and it was available 0:04:53.520 --> 0:04:55.839 for free online. And again I had a lot of 0:04:55.880 --> 0:04:58.280 time on my hands, so I took that. 0:04:58.600 --> 0:04:59.120 I read a. 0:04:59.080 --> 0:05:03.919 Bunch, and I just I was stuck with the feeling 0:05:04.040 --> 0:05:10.160 that so fraud, historically speaking, runs rampant during easy money times, 0:05:10.240 --> 0:05:13.400 during bubble times for fairly obvious reasons. Right when there's 0:05:13.560 --> 0:05:20.640 access easy access to money and credit, people speculate wildly 0:05:20.800 --> 0:05:24.679 in term in search of high returns. Some of those, 0:05:25.080 --> 0:05:28.960 you know, innovative technologies are truly innovative, and people make 0:05:28.960 --> 0:05:30.520 a ton of money, but some of them are fraud. 0:05:31.600 --> 0:05:35.520 Charles Kendelberger's studied this, you know, extensively, and so I 0:05:35.520 --> 0:05:37.159 felt like there probably was a lot of fraud, and 0:05:37.200 --> 0:05:39.599 that became kind of a pandemic hobby of mine, you know, 0:05:40.400 --> 0:05:43.119 betting against fraudulent companies and stuff like that. And around 0:05:43.160 --> 0:05:45.600 that same time, my friend Dave came to me and said, 0:05:46.080 --> 0:05:51.479 bitcoin is is the Bee's knees. And I was troubled 0:05:51.480 --> 0:05:53.960 by by bitcoin and crypto because it was everywhere and 0:05:54.000 --> 0:05:56.640 the celebrities were selling it, and it was you know, 0:05:56.680 --> 0:06:00.120 this super Bowl was going to feature it heavily. And 0:06:00.160 --> 0:06:03.440 I thought, look, if I'm right, and maybe I wasn't. 0:06:04.839 --> 0:06:07.680 If I'm right, this is something like the biggest Ponzi 0:06:07.720 --> 0:06:14.280 scheme in history. That troubled me. So I was actually 0:06:14.279 --> 0:06:18.560 reading my daughter the Emperor's New Clothes. My daughter is, yeah, 0:06:18.640 --> 0:06:20.839 it sounds made up, and I probably subconscious I was 0:06:20.839 --> 0:06:23.440 probably intending like I was, like, you know, but I 0:06:23.480 --> 0:06:25.680 did see it on this shelf and it did happen organically. 0:06:25.720 --> 0:06:26.760 She was six at the time. 0:06:27.279 --> 0:06:29.919 And I remember the gist of the story, but I 0:06:29.920 --> 0:06:33.520 had forgotten a couple of points. The first, the tailor's 0:06:33.560 --> 0:06:38.800 trick everyone basically an appeal to ego and statush worship. Right, 0:06:39.160 --> 0:06:41.800 only the smartest people can see this, only the people 0:06:41.839 --> 0:06:44.680 of highest station. And the second thing, the thing that 0:06:44.720 --> 0:06:48.080 really stuck with me, was as the at the end 0:06:48.160 --> 0:06:50.680 of the story is the Emperor's gallivanting through town naked, 0:06:50.680 --> 0:06:53.280 and the adults are pretending not to notice. It's a 0:06:53.400 --> 0:06:57.840 child who calls out scam. It's the only person brave 0:06:57.960 --> 0:07:01.360 enough to call truth is he doesn't know he's being brave, 0:07:01.440 --> 0:07:05.640 He's simply speaking the truth. Well, it was hard not 0:07:05.680 --> 0:07:08.200 to see myself as the child in that metaphor, right, Like, 0:07:08.240 --> 0:07:10.440 what the heck do I know? I'm just an actor. 0:07:11.440 --> 0:07:14.080 I have an undergraduate degree in economics twenty years old. 0:07:14.440 --> 0:07:16.320 But I don't know. 0:07:16.640 --> 0:07:19.440 Maybe I'm right right, like like, and how often in 0:07:19.480 --> 0:07:21.120 life do you get a chance to have an adventure? 0:07:21.640 --> 0:07:29.160 So I got high. I got my medical marijuana card 0:07:30.000 --> 0:07:32.680 over the pandemic because you know, I like alcohol, but 0:07:32.720 --> 0:07:35.920 like there's a limit, you know what I mean? And right, 0:07:36.000 --> 0:07:38.360 and I was definitely over it. And so I got high, 0:07:38.440 --> 0:07:39.760 and I was like, well, I should. 0:07:39.560 --> 0:07:42.440 Write a book about it's really retro that anyone would 0:07:42.440 --> 0:07:45.320 like go to the now that they literally on the street, 0:07:45.800 --> 0:07:47.640 that someone would go to the effort of like getting. 0:07:47.400 --> 0:07:49.360 A g No, I'm such a like goodie two shoes, right, 0:07:49.400 --> 0:07:52.240 I have my card and I like overpay for my marijuana, like, 0:07:53.000 --> 0:07:54.320 but yeah, I got high, and I was I should 0:07:54.320 --> 0:07:56.880 write a book about about crypto, and which sounded like 0:07:57.040 --> 0:08:00.200 it sounds like a really good idea when you're high. 0:08:00.320 --> 0:08:03.560 The next morning, sober, I realized I didn't know how 0:08:03.600 --> 0:08:06.680 to write a book. So I got high again, and 0:08:07.760 --> 0:08:12.240 I realized this journalist Jacob Silverman had written an article 0:08:12.240 --> 0:08:14.040 that that I really found quite funny. It was called 0:08:15.000 --> 0:08:18.040 even Donald Trump knows Bitcoin as a scam, which was 0:08:18.080 --> 0:08:21.000 basically Trump didn't really criticize crypto until he left office, 0:08:21.040 --> 0:08:24.320 and then he was like a scam. It brought together 0:08:24.320 --> 0:08:26.240 a couple things I've been thinking about, Golden Ajor fraud 0:08:26.240 --> 0:08:30.040 and all that. So I summoned the courage to DM 0:08:30.080 --> 0:08:33.120 him on Twitter as you do. I realized he lived 0:08:33.120 --> 0:08:35.040 in Brooklyn and took him to drinks and said, hey, 0:08:35.600 --> 0:08:38.480 what if we write a book that I don't know 0:08:38.520 --> 0:08:41.439 how to write about events that haven't happened yet, And 0:08:41.520 --> 0:08:44.959 he was going on parental leave, and he foolishly agreed. 0:08:45.160 --> 0:08:46.760 So I love that. 0:08:46.880 --> 0:08:49.000 During the debts of the pandemic, while other people were 0:08:49.000 --> 0:08:52.199 getting high and baking soury dough bread or watching Tiger King, 0:08:52.280 --> 0:08:53.840 you were like, I'm going to launch an all out 0:08:53.920 --> 0:08:56.199 investigation into the cryptocurrency market. 0:08:56.679 --> 0:08:57.560 Well, I'm a weird guy. 0:08:57.880 --> 0:09:00.240 You touched on the easy money aspect of it and 0:09:00.280 --> 0:09:02.760 also the fomo, but can you talk a little bit 0:09:02.760 --> 0:09:06.920 more about, like what is it that makes cryptocurrency so 0:09:07.080 --> 0:09:11.840 attractive to so many people, and particularly one segment of 0:09:11.840 --> 0:09:14.200 the population, it seems, which would be young men. Like, 0:09:14.320 --> 0:09:17.400 what is the you know, the attraction there? 0:09:17.480 --> 0:09:20.640 Well, that's a great that's a great question. So I 0:09:20.720 --> 0:09:24.079 kind of look at as a storyteller. I became fascinated 0:09:24.080 --> 0:09:27.200 by Robert Schiller's work, the Nobel Prizeman Economists, who's talked 0:09:27.200 --> 0:09:32.240 about how economic narratives form and their response to real events. Right, 0:09:32.280 --> 0:09:35.000 and so the Bitcoin white paper's release in October of 0:09:35.040 --> 0:09:37.120 two thousand and eight was at the height of the 0:09:37.160 --> 0:09:40.920 sun Prime crisis, and there was an understandable mistrust of 0:09:41.200 --> 0:09:44.160 legacy financial institutions banks all that banks were even more 0:09:44.200 --> 0:09:48.880 unpopular than they often are, and so the timing was 0:09:48.920 --> 0:09:54.359 perfect to set in motion the notion of a theoretically 0:09:54.440 --> 0:09:57.920 peer to pure currency. It didn't really work, It never 0:09:58.000 --> 0:10:01.640 didn't take off for a while. I think it's just 0:10:01.679 --> 0:10:04.439 sort of I guess to back up the reason that 0:10:04.559 --> 0:10:08.160 I think crypto appealed to so many people in so 0:10:08.200 --> 0:10:10.640 many different ways and so many different types of people 0:10:10.800 --> 0:10:15.360 forty million Americans about crypto is that they could kind 0:10:15.400 --> 0:10:17.719 of see anything in it that they wanted to right. 0:10:17.800 --> 0:10:19.480 I mean, on one level, it's very simple, it's a 0:10:19.520 --> 0:10:23.360 get rich quick scheme. But on another the technology people 0:10:23.400 --> 0:10:27.120 that were interested in sort of like libertarian politics could 0:10:27.120 --> 0:10:30.079 do that. The people that wanted to build It was 0:10:30.160 --> 0:10:33.719 marketed as generational wealth builder, was marketed as a way 0:10:33.760 --> 0:10:37.120 to unbank the bank bank the unbanked, so. 0:10:37.480 --> 0:10:39.560 Also the next big thing on Wall Street at the 0:10:39.559 --> 0:10:40.040 same time. 0:10:40.160 --> 0:10:42.120 Exactly what it was marketed is the future of money, 0:10:42.160 --> 0:10:44.480 and all you needed to invest in the future of 0:10:44.520 --> 0:10:47.080 money was the willingness to part with the current version 0:10:47.080 --> 0:10:51.120 of it. Yeah, so it had a very broad which 0:10:51.160 --> 0:10:52.960 was also one of the reasons why was so skeptical 0:10:53.000 --> 0:10:55.559 of its authenticity was that how can it be all 0:10:55.559 --> 0:10:58.040 of these different things at the same time, and yet 0:10:58.080 --> 0:10:59.840 of course it wasn't the currency, so then what the 0:10:59.840 --> 0:11:02.800 hell was it? Well, it seemed like an investment, right, 0:11:02.840 --> 0:11:05.640 I mean, people are putting real money into it, hoping 0:11:05.640 --> 0:11:08.000 to make real money off of it. That sounds like 0:11:08.000 --> 0:11:10.839 an investment contract to me. So I had to figure out, 0:11:10.880 --> 0:11:12.920 you know, how did biitclin come to be classified as 0:11:12.920 --> 0:11:14.840 a commodity, which is sort of an interesting, sort of 0:11:15.360 --> 0:11:19.400 dorky story. But and then what the heck were these 0:11:19.400 --> 0:11:20.679 twenty thousand other things? 0:11:21.360 --> 0:11:21.560 You know. 0:11:22.520 --> 0:11:24.840 One of the things that's a little bit surprising or 0:11:24.880 --> 0:11:28.320 sort of interesting is that for as much talk about 0:11:28.400 --> 0:11:31.640 crypto that exists, like, it's not that big, Like the 0:11:31.679 --> 0:11:35.680 total value of all the coins I think is the 0:11:35.760 --> 0:11:38.560 total value of all the coins I think is like 0:11:38.840 --> 0:11:42.800 around a trillion dollars supposedly, supposedly, and then like you know, 0:11:42.840 --> 0:11:45.920 we discover you know, and you've you've reported this out 0:11:45.960 --> 0:11:48.959 like it's it's small. There are a lot of people 0:11:48.960 --> 0:11:50.840 who are just like on a group chat together and 0:11:50.840 --> 0:11:54.679 they're all important industry. Can you talk about like how 0:11:54.720 --> 0:11:56.920 big is this industry? How real is this industry? 0:11:56.920 --> 0:12:00.120 In your it's it's much much much smaller than then 0:12:01.559 --> 0:12:04.720 you know that one trillion dollar number for that market cap. 0:12:04.600 --> 0:12:08.360 Number, so and you don't have to take my word 0:12:08.400 --> 0:12:11.040 for it. In March of twenty twenty two, I was 0:12:11.080 --> 0:12:12.120 at south By Southwest. 0:12:12.160 --> 0:12:15.040 It was my first venture into the real world Jacob 0:12:15.040 --> 0:12:16.920 and I had done everything virtually up to that point. 0:12:17.120 --> 0:12:20.319 I ran into a guy named Alex Mashensky. Alex Mashchenski 0:12:20.400 --> 0:12:22.920 was the CEO of a crypto lending firm called Celsius. 0:12:23.200 --> 0:12:29.360 It's now bankrupt. I he agreed to be interviewed. I 0:12:29.400 --> 0:12:32.120 asked him how much real money is in crypto. He 0:12:32.120 --> 0:12:34.800 didn't ask me what real money was. He said ten 0:12:34.840 --> 0:12:37.920 to fifteen percent, said the rest of speculation. Now, in 0:12:37.920 --> 0:12:40.040 March of twenty twenty two, the crypto market cap was 0:12:40.080 --> 0:12:43.559 one point eight trillion dollars, So you know, give or 0:12:43.600 --> 0:12:45.680 take one point five trillion of that. 0:12:47.200 --> 0:12:47.680 Isn't there. 0:12:47.880 --> 0:12:52.200 It's it's speculations, leverage, it's all these other things. At 0:12:52.280 --> 0:12:54.160 Chill ran through my I mean he said, it's sort 0:12:54.160 --> 0:12:57.520 of nonchalantly, but at chill ran through my spine because 0:12:57.960 --> 0:13:00.240 regular people don't understand that. I mean, they think when 0:13:00.280 --> 0:13:02.480 they buy a bitcoin, they had, you know, bitcoins whatever. 0:13:02.240 --> 0:13:04.360 It is twenty six, twenty seven. I had no idea. 0:13:05.160 --> 0:13:07.080 They think they have twenty seven thousand dollars, but in 0:13:07.080 --> 0:13:10.280 a way they actually only have maybe ten or fifteen 0:13:10.320 --> 0:13:10.760 percent of that. 0:13:10.840 --> 0:13:13.559 Maybe if they can get it out, it's not. 0:13:13.720 --> 0:13:16.680 A sorry, sure, explain that if if someone has a 0:13:16.679 --> 0:13:20.640 bitcoin on coinbase or whatever, yeah, what's the twenty eight 0:13:21.040 --> 0:13:23.719 twenty six thousand? True, they could sell that and get 0:13:23.720 --> 0:13:25.440 twenty six thousands. So what do you mean when you 0:13:25.480 --> 0:13:27.679 say there's untill fifteen or twenty. 0:13:27.880 --> 0:13:28.040 Sure. 0:13:28.120 --> 0:13:29.840 Yeah, And that's a very good point, and I do 0:13:29.920 --> 0:13:31.800 want to covey on it. If you're going through a 0:13:31.840 --> 0:13:35.240 licensed exchange, well perhaps not a license exchange, but one 0:13:35.240 --> 0:13:37.480 that's operating as an exchange, and yeah, you're you're, you're, 0:13:37.480 --> 0:13:39.520 You're probably good. And if you're not trying to move 0:13:39.520 --> 0:13:42.240 a lot of money, you're probably good. But the liquidity 0:13:42.240 --> 0:13:45.360 in crypto is very, very low. And Brian Brooks. 0:13:45.000 --> 0:13:47.760 Who was the chief legal officer. 0:13:47.400 --> 0:13:49.840 Of Coinbase and then he was the acting control of 0:13:49.880 --> 0:13:51.880 the currency and then he went to binance US for 0:13:51.960 --> 0:13:55.560 like three months, he testified under oat to Congress about this, 0:13:55.679 --> 0:13:57.520 So you know, you don't have take my word for it. 0:13:57.559 --> 0:14:02.360 Again, like, the liquidity is very little, So how does 0:14:02.400 --> 0:14:02.760 it work? 0:14:02.840 --> 0:14:06.480 Well, most of the volume and crypto runs through the 0:14:06.480 --> 0:14:09.680 overseas exchanges, right, it ran through FTX before it was 0:14:09.679 --> 0:14:12.800 shut down. It's now running through finance or you know, 0:14:13.760 --> 0:14:17.280 finance is the biggest crypto exchange by a country model. 0:14:17.320 --> 0:14:20.400 It's huge, But the question is how much of that 0:14:20.480 --> 0:14:25.920 volume is real. Wash trading is an enormous part of cryptocurrency. 0:14:26.040 --> 0:14:29.720 I mean, you've seen it in the SEC charges against Finance. 0:14:30.000 --> 0:14:32.520 I believe the allegation of their first or second day 0:14:32.560 --> 0:14:35.080 they were set up was that ninety nine percent of 0:14:35.120 --> 0:14:38.120 the volume in the first hours wash trading, seventy percent 0:14:38.160 --> 0:14:38.880 on the first day. 0:14:39.280 --> 0:14:41.760 I've read papers, academic. 0:14:41.320 --> 0:14:45.280 Papers that have surveyed I think they surveyed twenty nine 0:14:45.320 --> 0:14:46.239 different exchanges. 0:14:46.520 --> 0:14:50.520 They found seventy percent wash trading on the unregulated exchanges. 0:14:50.760 --> 0:14:52.160 So it's just not there. 0:14:52.640 --> 0:14:57.120 People are able to create I'm leaving Bitcoin aside for 0:14:57.160 --> 0:14:59.360 the moment. Talking to the other cryptos. People are able 0:14:59.360 --> 0:15:02.320 to create as much crypto as they want. That allows you, 0:15:02.400 --> 0:15:04.320 if you can borrow against it, to create as much 0:15:04.400 --> 0:15:08.960 leverage as you want. When I testified against testified to 0:15:09.000 --> 0:15:15.680 Congress in December, Professor Hillary Allen, professor of American University, 0:15:16.480 --> 0:15:19.040 was on the other side with me. 0:15:19.120 --> 0:15:20.120 Testifying alongside me. 0:15:20.640 --> 0:15:23.120 She wrote a paper in February of twenty twenty two, 0:15:23.200 --> 0:15:25.080 so just a few months before crypto kind of fell 0:15:25.120 --> 0:15:29.040 apart and She compared the dynamics of crypto to the 0:15:29.080 --> 0:15:34.400 subprime crisis, and they're very similar in many ways. Leverage, complexity, 0:15:34.600 --> 0:15:36.800 rigidity plus a bank run. 0:15:36.720 --> 0:15:37.600 Equals a crash. 0:15:38.000 --> 0:15:40.920 The difference is in crypto, the leverage is unlimited because 0:15:40.920 --> 0:15:42.400 you can print as much crypto as you want. 0:15:43.200 --> 0:15:45.200 The complexity is similar. 0:15:46.000 --> 0:15:47.760 You know, these all of these things are so complicated, 0:15:47.800 --> 0:15:51.880 at least theoretically, right, staking pools and protocols and smart 0:15:51.880 --> 0:15:53.800 contracts and blah blah blah blah. 0:15:53.960 --> 0:15:55.640 The rigidity is even worse. 0:15:55.800 --> 0:15:58.880 Because of the things like the smart contracts, and even 0:15:58.960 --> 0:16:01.640 you know, the code itself, it's irreversible. It only moves 0:16:01.640 --> 0:16:03.960 in one direction. So it's a blockchain that can be 0:16:04.000 --> 0:16:08.320 added to but never subtracted from. So when fit hits 0:16:08.360 --> 0:16:11.440 the shan, there's nothing you can do. 0:16:11.560 --> 0:16:12.600 It just blows up. 0:16:13.840 --> 0:16:17.680 And if you combine that criminal activity, you know. 0:16:17.720 --> 0:16:20.000 A lot of people lose a lot of money, but 0:16:20.360 --> 0:16:21.520 not as much money as as clan. 0:16:38.360 --> 0:16:40.200 Can you talk a little bit more about the leverage 0:16:40.240 --> 0:16:45.080 example in the context of specifically I'm thinking about fts, yes, right, 0:16:45.120 --> 0:16:49.360 because they were sort of the trifecta of creating new 0:16:49.440 --> 0:16:52.720 tokens out of nothing, borrowing against them and then also 0:16:52.920 --> 0:16:56.320 potentially allegedly using wash trading to push the value of 0:16:56.360 --> 0:16:58.560 those tokens up so they could get even more credit. 0:16:58.760 --> 0:17:01.240 Exactly exactly right. 0:17:01.320 --> 0:17:05.520 So FTX said this token FTT, and I think you should. 0:17:05.560 --> 0:17:07.919 You know, let's just start with the obvious. You have 0:17:07.960 --> 0:17:12.320 an exchange that's issuing its own token, right, its own 0:17:12.680 --> 0:17:16.640 security basically, right, and as Finance has the same Finance 0:17:16.640 --> 0:17:19.080 has BnB, and. 0:17:19.040 --> 0:17:21.639 It also has its own stable coin b USD. So 0:17:22.359 --> 0:17:23.440 already you've got you know. 0:17:23.400 --> 0:17:26.920 Potential massive conflicts of interest, right. Imagine if the Nasdaq 0:17:27.040 --> 0:17:29.560 like issued its own you know, I mean, we're going 0:17:29.600 --> 0:17:31.120 to trade the stock, We're going to issue the stock. 0:17:31.160 --> 0:17:31.879 We're gonna. 0:17:33.160 --> 0:17:37.439 And another thing that I think was sort of the 0:17:37.440 --> 0:17:41.439 poker chips and the crypto casinos are tethers. Tether is 0:17:41.480 --> 0:17:44.959 the biggest stable coin in crypto by an enormous amount. 0:17:45.119 --> 0:17:49.960 There's supposedly eighty plus billion tethers out there. The biggest 0:17:50.000 --> 0:17:55.639 client of tether, according to protos is Crypto publication, was 0:17:55.680 --> 0:17:59.560 Alometer Research. Alometer Research supposedly bought I think it's thirty 0:17:59.560 --> 0:18:00.480 six point eight. 0:18:00.400 --> 0:18:05.959 Billion dollars worth of tether. How how did that work? 0:18:06.119 --> 0:18:09.720 How Alameda gave thirty six point eight billion real US 0:18:09.800 --> 0:18:14.520 dollars to Tether. That seems unlikely to be true, given 0:18:14.560 --> 0:18:18.159 that that Alameda had raised a few billion from vcs 0:18:18.200 --> 0:18:21.640 and allegedly perhaps had stolen some money from their clients. 0:18:21.640 --> 0:18:23.720 But how did you get to thirty six point eight 0:18:23.840 --> 0:18:24.560 So how did it work? 0:18:24.600 --> 0:18:24.960 I don't know. 0:18:25.280 --> 0:18:28.800 So there's been a lot of skepticism about the existence 0:18:28.920 --> 0:18:32.119 and the persistent existence of Tether over the years, and 0:18:32.160 --> 0:18:34.240 I think both of us have joked that, like, you know, 0:18:34.800 --> 0:18:36.960 in the year twenty two one hundred, whether there's still 0:18:36.960 --> 0:18:39.240 gonna it's like the cock croach surviving the new their winner. 0:18:39.240 --> 0:18:42.440 It's like somehow Tether's gonna be there holding the peg. 0:18:42.720 --> 0:18:45.240 But it is kind of weird because it's like, you know, 0:18:45.440 --> 0:18:48.480 it has not blown up, right, and many other things 0:18:48.480 --> 0:18:51.560 that people thought were professionally run, I would say FTX 0:18:51.560 --> 0:18:55.439 and the associated entities have blown up. What did you 0:18:55.560 --> 0:18:58.560 learn about Tether and what's interesting about it? 0:18:58.600 --> 0:19:00.639 In the course of writing this book, t Other's a 0:19:00.640 --> 0:19:01.600 fascinating company. 0:19:04.000 --> 0:19:12.920 The c fo is paid a sixty five thousand dollars 0:19:12.920 --> 0:19:18.600 settlement to Microsoft for software piracy. The CEO hasn't been 0:19:18.600 --> 0:19:22.720 seen in public in many years. That public face of 0:19:22.760 --> 0:19:27.040 the company is their CTO. The Wall Street Journal reported 0:19:27.080 --> 0:19:31.560 that as recently as twenty nineteen, four individuals controlled eighty six. 0:19:31.440 --> 0:19:32.160 Percent of Tether. 0:19:33.840 --> 0:19:37.760 So it's this very very small company supposedly dealing in 0:19:38.080 --> 0:19:39.800 you know, up to eighty billion dollars. 0:19:40.240 --> 0:19:40.440 Yeah. 0:19:40.440 --> 0:19:42.520 I don't know how much more I should say except 0:19:42.520 --> 0:19:50.040 that that's very suspicious and it is incredible that they've survived. 0:19:50.960 --> 0:19:55.119 But they have deep ties to to SAM and FTX 0:19:55.160 --> 0:19:57.200 and Alameda, and you know, I guess we'll see what happens. 0:19:57.480 --> 0:20:00.000 Let me ask that question in a slightly different way, 0:20:00.119 --> 0:20:02.240 which is because I think one of the frustration for 0:20:02.280 --> 0:20:05.119 a lot of journalists is, you know, cryptocurrencies have been 0:20:05.160 --> 0:20:08.440 around for a long time at this point, and I've 0:20:08.480 --> 0:20:11.760 certainly written my share of eulogies for things like that coin. 0:20:11.920 --> 0:20:14.600 I think the first one I wrote was in twenty eleven, 0:20:14.800 --> 0:20:16.840 if you can imagine, Yeah, and then I did it 0:20:16.840 --> 0:20:20.639 again in twenty seventeen, and each time it comes back. 0:20:21.400 --> 0:20:24.080 So what would it take What would be the catalyst 0:20:24.320 --> 0:20:28.359 for something like Tether to finally and definitively, you know, 0:20:28.520 --> 0:20:30.920 break the peg and be put to bed. 0:20:32.359 --> 0:20:35.560 These are not honest markets. I don't know how. 0:20:35.480 --> 0:20:41.480 Else to to say it, given the amount of wash 0:20:41.520 --> 0:20:46.399 trading and god knows what else what other shenanigans, you know, 0:20:46.520 --> 0:20:50.160