What Ben McKenzie Learned When He Started Investigating Crypto | Odd Lots

0:00 [Music] thank you hello odd Lots fans this is a special episode of the podcast that was recorded June 8th at the Bloomberg invest conference Our Guest Ben McKenzie he's a well-known actor you might remember him from the OC and he's the author of a forthcoming book called Easy Money about his journey into the world of

0:30 cryptocurrency Ben thank you so much for joining us how did you arrange that sort of like from a PR standpoint that you got the government to file suits against coinbase and binance as a lead up to your book that's you know very well done yeah yeah I I had nothing to do with it but I'm very grateful and if they could just hold off on any doj pending action until just wait until July 18th July 18th that'd be wonderful you're gonna

0:52 have to keep rewriting the epilogue I think um well why don't I ask the obvious question which is how does an actor get into um the profession or hobby of investigating cryptocurrencies sure there's a longer answer the shorter answer is a sort of a middle a mini midlife crisis uh like a just sort of a um it was the fall of 2020 it was the height of the pandemic um and I came down with a serious case

1:18 of fomo um I saw all these Knuckleheads getting rich and uh and I thought hey maybe I should you know try to try to get rich as well um in a roundabout way that that led me to crypto um a very good friend of mine uh who uh in my 20s encouraged encouraged me to invest in a obscure medical device company um and that was going to create synthetic blood and it was going to make a ton of money a random guy at a wedding

1:49 had assured him so and so we definitely needed to invest in this I put money into it and promptly lost almost all of it might have been a penny talk penny stock pumping up anyway that same friend came back to me in 2021 and said you got to buy Bitcoin and I thought hmm I wonder what is this cryptocurrency stuff so um I have a degree in economics from the University of Virginia it's about 20 years old so I dusted that off

2:15 um and I ended up writing this book um so as to why I'm here I would say the book is really it's really about money and lying right and I know about money uh because a little bit because I because I have an econ degree and and I made a little bit of them two decades of sugar Essence um but I know about lying because I'm an actor and I do it for a living uh uh and

2:35 so when cryptocurrencies we're calling themselves currencies the first thing I bumped up on was was the word um you know as an actor and a Storyteller um words are are tools and they can be used for a variety of purposes some of them are honorable and some of them not um and although Bitcoin of course was intended to be a currency that was the intention supposedly of Satoshi Nakamoto um it never really functioned that way right and it certainly wasn't

3:01 functioning that way in 2020 2021 at the height of the Mania so that's where I started like these aren't currencies so what are they so the friend came and you already had this video okay this is the guy who lost you a bunch of money yeah so rather than because you said you had fomo so a lot of people like they just went out and bought and your first instinct was like brush off the old economics books yeah but but what where

3:21 did you see okay so you didn't like plow your money into crypto at the top no but that's still like like how did you sort of begin your exploration of this industry sure well uh I read a lot of so first I needed to understand like okay where were we in in 2021 I very quickly came to the conclusion we were in a bubble um you know a fairly obvious bubble perhaps in retrospect but and the book

3:46 is called easy money not just because of this fake money called cryptocurrency but also because of the Easy Money policies that have been around since the GFC and that went nuts uh you know during the response to the pandemic right trillions of dollars jumped into the economy um and by the time I was thinking about entering the market everything had gone crazy so um I I I took Gary Gensler the head of the SCT taught this course at MIT on on

4:14 blockchain and crypto and it was available for free online and again I had a lot of time on my hands so uh I took that I read a bunch um and I just I was stuck with the feeling that so fraud historically speaking runs rampant during Easy Money times during bubble times for Fairly obvious reasons right when there's access easy access to money and credit people uh speculate wildly in term in search of

4:45 high returns um some of those you know Innovative Technologies are truly Innovative and and people make a ton of money but some of them are fraud um Charles kindleberger's studied this you know extensively and so I felt like there probably was a lot of Fraud and that became kind of a pandemic hobby of mine you know like betting against fraudulent companies and stuff like that and around that same time my friend Dave came to me and said Bitcoin is uh is is

5:10 the bee's knees and um and I was troubled by by Bitcoin and crypto because it was everywhere and the celebrities were selling it and it was you know the Super Bowl was going to feature it heavily um and I thought look if I'm right and maybe I wasn't um if I'm right this is something like the biggest Ponzi scheme in history um that troubled me so I was actually reading my daughter The Emperor's New Clothes a daughter is uh

5:40 yeah it sounds made up and I probably subconscious I was probably intending like I was like you know but I did see it on the shelf and it did happen organically she was six at the time and um and I remember the gist of the story but I had forgotten a couple of points the first the the Taylor's trick everyone basically an appeal to to Ego and Status worship right only the smartest people can see this only the people of highest

6:05 station and the second thing the thing that really stuck with me was as the at the end of the story as the emperor's gallivanting through town naked and the adults are pretending not to notice it's a child who calls out uh scam it's the only person brave enough to call truth is a person who doesn't know he's being brave he's simply speaking the truth well it was hard not to see myself as the child in that metaphor right like what

6:31 the heck do I know I'm just an actor I have an undergraduate degree in economics 20 years old but I don't know maybe I'm right right like like and how often in life do you get a chance to have an adventure so um I got high I I I got my medical marijuana card uh over the pandemic because I you know I like alcohol but like there's a limit you know what I mean and uh right and I

6:59 was definitely over it and so I got high and I was like well I should write a book about it's really retro that anyone would like go to the now that they literally sell them yeah then someone would go to the effort of like getting no I'm such a like Goody Two-Shoes right I have my card and I like overpay for my marijuana like um but yeah I got high and I was I should write a book about

7:17 about crypto and which sounded like it sounds like a really good idea when you're high um the next morning sober uh I realized I didn't know how to write a book um so I got high again and uh I I realized this journalist uh Jacob Silverman had written an article that I that I really found quite funny it was called um even Donald Trump knows Bitcoin is a scam which was basically Trump didn't really criticize crypto

7:42 until he left office and then he was like at this game um they brought together a couple things I've been thinking about Golden Age of Fraud and all that so uh I summoned the courage to DM him on Twitter as you do um I realized he lived in Brooklyn and took him to drinks and said hey what if we write a book uh that I don't know how to write about events that haven't happened yet and he

8:06 was going on Parental to leave and he uh foolishly agreed so we're off today I love that during the depths of the pandemic while other people were getting high and baking sourdough bread or watching Tiger King you were like I'm gonna launch an all-out investigation into the cryptocurrency market um well I'm a weird guy you touched on the Easy Money aspect of it and also the fomo but can you talk a little bit more about like what is it that makes

8:30 cryptocurrencies so attractive to so many people and particularly one segment of the population it seems which would be young men like what is the you know the attraction there well that's a great that's a great question so um I kind of look at as a Storyteller I became fascinated by Robert Schiller's work right the Nobel prize winning Economist was talked about how economic narratives form and their response to to real events right and so the Bitcoin white papers

8:59 release in October of 2008 was at the height of the some prime crisis and there was an understandable mistrust of Legacy financial institutions Banks all that Banks were even more unpopular than they than they often are and um and so the timing was perfect to to set in motion the notion of a theoretically peer-to-peer currency um it didn't really work it never didn't take off for a while but I think just sort of I guess to back up the

9:28 reason that I think crypto appealed to so many people in so many different ways and so many different types of people 40 million Americans about crypto um is that they could kind of see anything in it that they wanted to right I mean on one level it's very simple it's a get rich quick scheme but on another the technology people that were interested in sort of like libertarian politics could do that the people that wanted to build it was marketed as

9:55 general generational wealth Builder is marketed as a way to unbank the bank bank the unbanked um so also the next big thing on Wall Street at the same time exactly what was marketed as the future of money and all you needed to invest in the future if money was the willingness to part with the current the current the current version yeah um so there it had a it had a very broad which was also one of the reasons why I

10:17 was so skeptical of its authenticity was that how can it be all of these different things at the same time and yet of course it wasn't a currency so then what the heck was it well it seemed like an investment right I mean people were putting real money into it hoping to make real money off of it that sounds like an investment contract to me so I I had to figure out you know how did Bitcoin come to be classified as a

10:38 commodity which is sort of an interesting Source dorky story but um and then what the heck were these 20 000 other things the total value of all the coins I think is uh like around a trillion dollars supposedly supposedly and then like you know we discover or you know and you've you've reported this out like it's it's uh it's small there are a lot of people who are just like on a group chat together and they're all

11:02 important in the industry can you talk about like how big is this industry how real is this industry in your view it's it's much much much smaller than um than you know that that one trillion dollar number that market cap number so and I don't know and and you don't have to take my word for it in March of 2022 I was at South by Southwest it was my first um Venture into the real world Jacob and I had done

11:26 everything virtually up to that point I ran into a guy named Alex machinski Alex machenski was the CEO of a crypto lending firm called Celsius it's now um bankrupt um I he agreed to be interviewed uh I asked him how much real money is in crypto he didn't ask me what real money was he said 10 to 15 said the rest is speculation now in March of 2022 the crypto market cap was 1.8 trillion dollars so you know give or take 1.5

11:55 trillion of that isn't there it's it's speculation it's leverage it's all these other things um a chill ran through my I mean he said it's sort of nonchalantly um but a chill ran through my spine because regular people don't understand that I mean they think when they buy Bitcoin they had you know Bitcoins whatever it is 26 27 I had no idea um they think they have twenty seven thousand dollars but in a way they actually only have

12:20 maybe 10 or 15 of that maybe if they can get it out um it's not can you explain sorry can you explain that if someone has a Bitcoin non-coin base or whatever yeah in fear what's it at 28 000 or 26 000 sure if they could sell that and get 26 000. so what do you mean when you say and that's a very good point and I do want to caveat if you're going through a licensed exchange well perhaps not a

12:46 license exchange but one that's operating as an exchange and yeah you're you're probably good and if you're not trying to move a lot of money you're probably good but the liquidity in crypto is very very low and Brian Brooks who was the uh Chief legal officer of coinbase and then he was the acting comptroll of the currency and then he went to binance us for like three months he testified under oath to Congress about this so you know you don't have to

13:08 take my word for it again like the liquidity is very little um so how does it work well most of the volume in crypto runs through the overseas exchanges right it ran through FTX before it was shut down it's now running through binance or you know uh Finance is the biggest uh crypto exchange by a country mile it's huge and but the question is how much of that volume is real wash trading is in an is

13:35 an enormous part of cryptocurrency I mean you've seen it in the the uh the SEC charges gets financed I believe the allegation of their first or second day they were set up was that 99 of the volume in the first hour is wash trading 70 on the first day I've read uh papers academic papers um that have surveyed I think they surveyed 29 different exchanges they found 70 wash trading on the unregulated exchanges so it's just not there people

14:04 are able to uh create I'm I'm leaving Bitcoin aside for the moment and talking to the other cryptos people are able to create as much crypto as they want that allows you if you can borrow against it to create as much leverage as you want um when I testified against testified to Congress and in December uh Professor Hillary Allen professor of American University uh was on the other side uh with with me testifying alongside me she wrote a paper in

14:35 February of 2022 so just a few months before crypto kind of fell apart and she compared the Dynamics of of crypto to the subprime crisis and they're very very similar in many ways leverage complexity rigidity plus a bank run equals a crash the the difference is in crypto the Leverage is unlimited because you can print as much Crypt as you want the complexity is similar the the you know these all of these things are so complicated at least theoretically right

15:02 staking pools and protocols and smart contracts and blah blah blah um the rigidity is even worse because of the things like the smart contracts and and even you know the code itself it's irreversible it only Moves In One Direction so it's a it's a blockchain that can be added to but never subtracted from so when fit hits the Shan there's nothing you can do it just blows up can you talk a little bit more about the leverage example in the context of

15:30 specifically I'm thinking about FTX yes right because they they were sort of the trifecta of creating new tokens out of nothing borrowing against them and then also potentially allegedly using wash trading to push the value of those tokens up so they could get even more credit exactly exactly so right so it's fgx had this token ftt um and I think you should you know let's just start with the obvious you have an exchange that's issuing its own token

16:00 right its own security basically right and as binance has the same binance has uh BNB um and it also has its own stable coin busd so already you've got you know potential massive conflicts of interest right imagine if the NASDAQ like issued its own you know I mean we were going to trade the stock we're going to issue the stock we're going to um and another thing that I think was sort of the poker chips and the crypto casinos

16:27 are tethers tether is the biggest stable coin in crypto by an enormous amount there's supposedly 80 plus billion uh tethers out there the biggest client of tether according to produce is crypto publication uh was Alameda research Alameda research supposedly bought I think it's 36.8 billion dollars worth of tether how did that work how Alameda gave 36.8 billion real US dollars to to tether

16:59 that seems unlikely to to be true given that that Alameda had raised a few billion from VCS and allegedly perhaps had stolen some money from their clients but how did you get to 36.8 so how did it work I don't know so there's been a lot of skepticism about the existence the persistent existence of tether right over the years and I think both of us have joked that like you know in the year 2200 when they're still good it's

17:26 like the Cockroach surviving the nuclear winner it's like somehow tether is going to be there is holding the peg but it is kind of weird because it's like you know it it has not blown up right and many other things that people thought were professionally run I would say FTX and the associated entities have blown up what if what did you learn about tether and what's interesting about it in the course of writing this book tether's a fascinating company

17:51 um the uh c f o uh is paid a 65 000 settlement to Microsoft for software piracy um the CEO hasn't been seen in public in many years um that public face of the companies their CTO um The Wall Street Journal reported that as recently as 2019 four individuals controlled 86 percent of tether

18:22 um so it's this very very small company supposedly dealing in you know up to 80 billion dollars and uh it is incredible that they've survived uh uh but they have deep ties to uh to to to Sam and FTX and Alameda and you know I guess we'll see what happens let me ask that question in a slightly different way which is because I think one of the frustration for a lot of journalists is you know cryptocurrencies have been

18:48 around for a long time at this point and um I've certainly written my share of eulogies for things like Bitcoin I think the first one I wrote was in 2011 if you can imagine yeah sure and then I did it again in 2017 and each time it comes back so what would it take what would be the Catalyst for something like tether to finally and definitively you know break the Peg and be put to bed these are not

19:17 honest markets I don't know how else to to uh to say it um given the amount of wash trading and God knows what else what other Shenanigans um you know Sam in a Twitter spaces somebody asked him did you even make these trades like do this even exist and he said ah some of it no so that's a bucket shop right I mean that's that's what that is um bucket shops were were made illegal in 20s so

19:45 in some senses we are revisiting you know a century ago so as as to why it hasn't fallen apart and what it would take I believe it would take law enforcement action to to to really kind of get to the bottom of where the actual real money is um we'll see if that happens but um you're you're getting closer to I mean the uh seasoned assist that the SEC issued to finance to freeze their money I think is sort of the next thing to

20:12 kind of watch because they're clearly concerned that the money could be could be moved away and that the customers us customers can get their money up so again we started this conversation by noting the timing this week of the what is binance where did this I mean it's obviously massive and there's been a lot of reporting on it but in in terms of like how you studied the company in your book like what is it that gave it that

20:32 just like such an extraordinary footprint in the global market how did it establish this and how crucial is it to like all of the you know these fake prices the prices that exist on finance it's absolutely crucial Finance I I don't know today but but it's I believe actually it's still over half of the of the volume in crypto is uh spot volume trades through through binance I think it's been as much as I believe 70 so

20:56 it's just absolutely massive just dwarfs every other exchange as to how it succeeded I mean uh Shang Pang Xiao uh started early uh when when when crypto was at a much smaller stage uh he was very aggressive about courting clients especially big firms uh to trade on it um and he funded things like FDX he was an initial investor in FTX um and he's been very good at uh binance Global has no headquarters there is no

21:25 Finance headquarters which is a pretty neat trick uh because it becomes difficult to pin you down um there is a rumored headquarters but yeah we won't go into it yeah let's not go into that quite unless you want to no uh what there are are local affiliations right there's a binance us there's was a binance Australia I think all these places well in the SEC uh uh a lawsuit they mentioned this Tai Chi document oh yeah so the Tai Chi document is this uh

21:57 allegedly a document the internal document from binance it's basically we're going to practice Tai Chi we're going to set up locally compliant places like binance us that are going to play nice with the authorities and follow the rules but the volume we're going to push all the volume onto the main Exchange so redirect the regulator's energy towards the uh towards the local shops if that's true then interesting strategy heretofore successful I believe the the Yen of uh champagne zhao's Tai Chi may

22:31 make the Yang of U.S law enforcement but I guess we'll see something on that note I mean cause of a lot of the recent crypto drama was CZ starting to criticize FTX and the ftt token um which a lot of people I think commented at the time was kind of weird if you think of crypto as a sort of House of Cards Market that involves a few big players it seems like a very dangerous strategy to start attacking

23:02 each other do you have any idea or like conspiracy theory about what was going on there well I mean I was talking to Sam I interviewed Sam in July of last year and then we continued a DM conversation uh through October things were clearly getting pretty bad um he talked of a stablecoin war with CZ and binance so there was clearly some animosity there um and then yeah I mean what I know publicly what's been presented publicly

23:32 is that see that uh Sam and uh his cohort Brian Salem uh started kind of mocking CZ on Twitter um saying can CZ even come to this country things like that because uh cz's a Chinese uh Canadian um pretty bold strategy and then the balance sheet of Alameda leaked I was reported by coindesk and it was you know can I say show on uh on the Alki it was yeah it was a show and um and CZ had

24:04 this chip which is that he owned he had a lot of the ftt token Sam had tried to separate himself from CZ now I believe I think they fell out of our Malta as a license in Malta that that's allegedly that CG didn't want to fill up the paperwork or something it's like you don't want to fill out the paperwork in Malta um anyway uh Danny so they couldn't pay him real money so they so they gave him some I think but but he

24:28 was mainly paid out in which gave him this chip to play right if he has a lot of the supply so all of a sudden there was a run on ftt um Sam's cohort Caroline Ellison tried to uh stop the bleeding by saying you know buy all the FDT you want at this price and CeCe said no let the market play out and um and it collapsed in spectacular fashion and then there was this brief moment where CZ considered

24:55 buying the company and a non-binding letter of intent which of course was immediately transformed by certain members of the media into he was definitely going to buy the company but of course it's a non-binding letter of intent so 12 hours later he said said nah I'm good what was your take uh what was your takeaway from interviewing Sam obviously prior to the events of November like how what were your interactions with him like um well our interview in person was

25:22 interesting it was July 20th 2022 was it a Midtown uh a hotel in Midtown right around here um at the time crypto had had done itsort of first crash the May crash of Terra Luna um so it was seemingly on life support but Sam was the was the The Golden Boy right Sam was uh you know spending a lot of money on Capitol Hill he was trying to get a particular piece of legislation through the AG committee uh the dcpa he was

25:54 meeting with the cftc commissioner I believe he met with him at least 10 times um and he was being called the JP Morgan of crypto by none other than Anthony scaramucci the mooch um with whom he had a business relationship anyway uh so and he was going to buy up the JPMorgan references reference in 1907 when JP Morgan and his Palace had to come in and kind of rescue the uh the financial system from collapse he was going to

26:22 come in and buy all these companies that were failing right like Celsius and block fine all these companies um so that was a circumstance under which I I interviewed him um boy I'll put it this way the chapter devoted to that interview is entitled uh the emperor is butt ass naked so it was weird it was really weird because I asked him some questions

26:52 I I I wanted to understand how he could explain cryptocurrency as what what good it did I found that answer very unsatisfying um he said uh he kind of tried to duck it and then he went into remittances or uh sending uh payments Between Borders I had just come from El Salvador the only country in the world trying to use crypto is real money El Salvador's economy the foundation I would argue of El Salvador economy is

27:18 reminisces a quarter of the Southern economy is South people of Salvadoran descent who live in the United States two to three million of them sending money home so the government had you know for for reasons that we could go into and another question had decided to set up a system chibo wallet and it was suddenly gonna you know bring in tourists but it was going to be a way for the Salvador people to profit by or

27:42 to to not spend money on MoneyGram and Western Union traditional services and it was going to be this huge Boon to the to the economy well nobody used it it was a failure it was complete failure uh for a lot of the reasons that plague crypto more broadly the system didn't work the gebo system just like malfunction all the time people got defrauded people lost their money um and so they decided they would rather stick with traditional services so

28:10 according to the government's own figures less than two percent of Remedies use this system so I just come from there and he was saying it's remittances and I'm saying Sam baloney BS and then we went around around and when I came back to that same question because the question was give me one company just give me one comment give me one comedy that's doing anything anything of productive value just tell me and he eventually told me Solana

28:35 well Solana was known as one of Sam's coins because he owned a lot of it I think it was like a billion dollars worth of it when it went when they went kablooey did he really believe in Solana or was he trying to pump his back like what was that also Solana has the unfortunate tendency to shut down it just stops working I think it stopped working at least a dozen times over the course of its history so that I found those

28:58 answers very unsatisfying you can't give me one company that's of any use in your industry so there was those questions and then there were questions about his donations um probably the most nervous I think he got was seemingly was when he wanted to talk about his effective altruism he's going to give his money away pandemic preparedness all that stuff I said how much money have you given to that stuff he said 50 to 100 million so okay

29:22 how much have you given to politicians and he froze and he turned in a seed and deal this stuff and you know he's kind of a Twitchy guy and I get that he's got 80d I'm not trying to but like it was weird and he wouldn't tell me and at the time I'm thinking this is really strange because this information is public right like I mean we know he gave 40 million to Biden we know his cohort gave 23

29:43 million to the Republicans like why doesn't he just and now you know what's alleged is that he was running a 93 million dollar uh stride owners game so maybe I don't know maybe that was why um it was a really bizarre interview it was really one of the most strange hours of my life we've we've had our own weird interview well that's right Sam yes well that was very informative so I mean if you don't mind I'm just gonna you know

30:08 so in the spring of that year he had been on your podcast with Matt Levine and he talked about I believe it was magic boxes out of which money comes the question was how does yield farming work right and we were expecting a technical answer you know oh there's this protocol this protocol yes yes yes instead it was magic boxes out of which money comes and Matt correctly said that sounds like a Ponzi scheme um I think Sam laughed I don't know what

30:35 happened after that um but it's real was really strange for me I mean I'm you know I got an ego and stuff but I'm just I have an undergraduate degree I'm an I'm an actor I've just been looking at this for a couple years and I'm here since talking to the supposed JP Morgan to crypto like can he give me one satisfying answer can we get one you know moment where we could kind of I could see how this was

30:59 going to work um I left basically with a lot of questions but they were all the same one what the was that all about like what was that it was really weird yes all of this sounds familiar um you mentioned law enforcement earlier so again let me ask the basic question but where are The Regulators so we're starting to see some actions now notably from the SEC and the cftc also sued Finance earlier this year but

31:30 where have they been and why the reluctance to crack down on this industry yeah so I believe it was 2014 when a cftc commissioner Timothy Mossad asserted cfdc control over over Bitcoin said because there's Futures were being traded um uh and under the cea the commodity exchange act 1936 they could they could argue that uh that uh the bitcoin's a commodity okay so that already creates a little bit of a gray area right because if if the com if bitcoin's a commodity

32:02 but these these 20 other 20 000 other cryptos came into existence what are they um you can say the SEC hasn't been as aggressive as it should have been and I I don't I don't disagree with that um I think the politics are interesting I mean people are now very angry Gary Gensler in the crypto industry um and they're angry that he that he allowed coinbase to go public uh coinbase was listed on April 14th 2021

32:31 Gary Gensler assumed office on April 17th of 2021. say what you will about Gensler but he does not have a time machine um so look what here's what I'll say crypto has exploited a gray area between how we classify Commodities and securities I do think this is a problem we are the only country in the world that separates our Commodities regulation from our Securities regulation in the way that we do we have two different agencies they are

33:00 overseen by different uh committees in both the house and the Senate that creates really bad incentives as a you know armchair Economist that's very bad incentive-wise right because people want to get on politicians want to get on elective members want to get on those committees to oversee the the the industries but also to get donations right and The Regulators are fighting for Turf sometimes friendly sometimes not uh the crypto industry really really

33:31 wants the cfdc to be in charge the cfdc is the smaller agency it's about a quarter of the budget as a quarter of the budget of the SEC um so there's a lot of blame to go around I would say um but in the defense of regulators it does take time to build cases to to Target these things out in a court of law so you know we've talked a lot about the industry um but your story starts with like a

33:57 friend and obviously a lot of people have lost a ton of money um over the last couple years particularly can you talk a little bit more in the course of your reporting like sure like the types of people that you met on just this sort of like the buyers like the people who like uh sucked in at the top it's everybody I mean it's really fascinating like you could interview and I did I interviewed everyone from you

34:18 know kind of regular Traders I walked around the Bitcoin conference in Miami last year just talking to random people um and then of course there are more sophisticated players there are hedge funds that are uh you know high frequency trading firms things like that um and then there are the sort of the core players which you know were Sam and CZ and you know the folks that are kind of facilitating these transactions um so amongst the kind of the regular

34:45 folks again I kind of go back to this point of like crypto just becomes whatever you want it to become right it's like it's a way of you expressing your like your your freedom your you know get off the shackles of tradfi and like find your own create your own financial destiny kind of stuff um and I get that that is such an intoxicating uh pitch sales pitch that's why Schiller talks about these narratives and how powerful they can be

35:15 and how difficult they are to he Compares them to to viruses you know it's sort of you have to study the epidemiology of them and we kind of have to you know um reach herd immunity here which I think we kind of are getting to now in crypto but it's also very sad because um I tell a story at the end of the book about a particular case it's pretty pretty rough but you are also getting

35:38 into um gambling addiction I mean let's let's be honest it's young men 42 of men 18 to 29 have have purchased use bought cryptocurrency that's that's a big number I mean almost half um it's gamified right the apps are it's very similar-ish to Robin Hood but unregulated um and it's easy to hide from friends and family I mean gambling addiction we talked to some gambling experts for this and and they told us that

36:08 there's a husband wife they run a boutique firm in in Brooklyn but that Services a lot of Wall Street clients and so they're treating all kinds of addictions but um they saw a trickle during the last craze of 2018 2017. but they saw a tsunami recently it's just and it's it was all men under 40. some of them are sophisticated Wall Street guys sophisticated people that really know their stuff about all sorts of other Financial stuff

36:36 um but have gotten drawn in uh and everything down to teenagers I mean parents coming in with their teenagers saying they're gambling away their their minimum wage job you know their summer job paycheck on the stuff um and that's where it gets into the casino capitalism that's why I want the book to be about more than just crypto because I I do worry that we are Keynes said this actually you know when when I don't try to quote him exactly

37:01 but basically when you turn the nation's capital into it's uh it's Capital markets into a casino you know the job is likely to be ill done you are not servicing an effective use of capital and I believe we need to look at some of these things through the lens of how much Social harm they can do gambling addiction I've heard from several people has the highest rate of suicide of all the addictions it's much easier to hide because all you need is a

37:30 phone and a few few minutes or even seconds to make some trades and so by the time families find out about the predicament that usually their son or husband partner is in it can be too late and and money's gone um it is treatable it is a retreatable addiction but you have to take some pretty serious measures sometimes and remove the ability to to make the trades and to actually access the accounts um so yeah I'm not to turn it into a

37:55 bummer but like I really think we need to talk about these things because the marketing was of course the exact opposite it was all the shiny stuff and all the amazing things but when you come down to it economically speaking crypto is a zero-sum game it's poker because it doesn't do anything productive it's strictly competitive for someone to win someone else has to lose but it's not a fair game you're not playing in a break you're not playing in Vegas now you're

38:16 playing in Vegas in the 50s when the mafia ran it you know what I mean and and unlike Vegas where there's entertainment value you can get comp some drinks have a dinner see a show you know cryptos like Vegas without the drinks the dinner or the show um So You're Gonna Lose You Know You're Gonna Lose 99 of people are going to lose um in the book you actually talk quite a bit about the overlap between online

38:39 poker and crypto and you almost almost draw a connection between the end of online poker and the beginning of Bitcoin talk to us more about the overlap that you see there sure so in the original code that became the Bitcoin white uh white paper code there's a poker Lobby so whoever Satoshi Nakamoto is was whoever they are um we do know they were interested in poker at the time similar time to when the

39:09 Bitcoin white paper came out online poker was was you know about to get crushed it had moved overseas um all these online poker rooms have been set up and eventually the government got around to to shutting them down uh on you know what's become famous is Black Friday in in online poker there's a company called ultimate bet that uh was uh had a secret god mode where insiders could see the other players cards uh the compliance officer for the

39:40 holding company escapsa uh of ultimate bet is a guy named Stuart Stuart hogner he's now tethers uh general counsel uh Daniel Friedberg Daniel Friedberg also uh worked at escapsa uh he was ftx's uh lawyer they think he then became their Chief regulatory officer or something like that interesting or with the signs where were the signs um they're really strong parallels so maybe

40:12 cryptos maybe Bitcoin was set up to be this emancipatory new form of peer-to-peer currency or maybe it was literally online gambling 2.0 a wave a way of moving money overseas and you know using it to facilitate again you know one thing that you've talked about and I think it's it might be it's probably there's probably been other cases like this but there's a lot of there's been a lot of peer pressure in crypto it's like people

40:38 telling their friend it's like you gotta get into that well your friend or just being told online have fun staying poor if you don't they don't you they tried that line on me that line doesn't work anymore but like you know that wasn't there in like online poker like that degree to which like the sort of like crowd whips its own members into a frenzy yeah and that's where I think you get into a multi-level Market marketing

41:00 scheme the abusive language is similar the the way that they're sort of twisting words and trying to create a pressure-filled environment where you feel like you know fomo you're gonna miss out if you don't invest now you know really quick you got to really quickly invest in the future of money because otherwise you're not going to get in there um which is a bizarre um but those tactics are very similar and and I would say here's the thing

41:24 that's a big tell to me the use of the word community the use of the word Community is just fascinating um you're not an investor you're not a client or a sucker you're a member of a community you're going to be reborn to the land of the free um strange to characterize a financial relationship especially with people you don't even know right I mean so much of this stuff is done online and through synonymous counts that's your community

41:55 um I'm not saying people don't find Community what's interesting is some of the strongest communities I've found are the participants in the class action lawsuits against companies that have allegedly defrauded them because they're Bound by the fact that they had a similar experience where they they had a lot of high hopes and then they were left out it is true no one talks about the community of like t-bill investors yeah exactly it's not really a thing

42:23 um let me ask a devil's advocate question uh but you know we've been talking about cryptocurrency mostly as a monolith we did touch on the narrative flexibility around Bitcoin so the idea that it can be many things to many people all at once one of the things that it seems to be now or at least there are some people pushing the story is the anti-crypto so if you lost money in you know some random coin because of a centralized

42:53 exchange that did something bad you should buy Bitcoin because it's truly decentralized and only you have access to it in your cold storage wallet or whatever how valid do you think that argument is so you're saying you need to be more pure you need to believe more in the decentralization if you don't like crypto you should buy the original crypto exactly exactly um not a cult um I think oh you know what so that's the flippant

43:19 answer on on one level there is some truth in the sense that it that Bitcoin is more decentralized by nature of the proof of work but that cuts the other way too because of course proof of work means it can't scale Bitcoin can only process five to seven transactions a second it hits a limit um it hits what's called a red Queen's race where like you're using more and more energy depending on how many competitors are there the more

43:42 competitors come in the more energy is expended for the same same block so you know it's like what the what the queen says to Alice right you're going to run twice as fast to get anywhere because of that energy usage it has environmental problem it I mean I went to the biggest crypto mine in the country it's outside of my hometown of Austin Rockdale Texas it took over a former Alcoa Aluminum smelting plant and the reason it took that over is

44:04 because it's connected to the grid so it can handle a lot of power you know in 2021 uh the Bitcoin Network and other cryptocurrencies used the energy equivalent of Argentina the entire country that's a problem if you if you view it as I do as a zero-sum game it's not doing anything productive and you're using a lot of energy so on one level you can make the argument oh you're you know you're more pure you're more decentralized but in terms of

44:32 stepping back for for the rest of us um why why should why should this can why should at least at least not be taxed an extraordinary uh level real quickly we just have a couple minutes left you know you mentioned we're using the virus analogy and you talk about maybe reaching herd immunity and then the question is like is there some pool of new money or new people that can be brought in to like keep it going like do

44:58 you think that like the sort of potential pool of would-be crypto buyers are more or less exhausted well it has utility you know for gambling I mean you can gamble on anything so I don't think that makes it unique but it has utilities as a gambling device and it has utility to facilitate crime because you can use it for money laundering and avoiding capital controls tax evasion sanctions Invasion whatever and I understand that there's there's an

45:19 argument cycle some of that's good right we don't like some of these authoritarian governments okay sure but also if it goes that way it also has to go the other way right if the good guys can use it the bad guys can use it um so yeah I I I just yeah I don't know how I was to answer that question all right uh Ben McKenzie thank you so much for joining us the book Easy Money July 18th congratulations and uh

45:43 thank you so much for coming on odd lots I really enjoyed talking to Ben you know I feel like we're so in this uh you know follow the crypto story so much it's good to sort of zoom out a little bit and talk to someone who kind of came at it with fresh eyes well totally and to his point it was all about the outsider perspective so it was a fun conversation shall we leave it there let's leave it

46:05 there this has been another episode of the all thoughts podcast I'm Tracy Alloway you can follow me on Twitter at Tracy Alloway and I'm Joe weisenthal you can follow me on Twitter at the stalwart follow our guest Ben McKenzie he's at Ben McKenzie follow our producers Carmen Rodriguez at Carmen Armin and dashell Bennett at dashbot and check out all of the Bloomberg podcasts under the handle at podcasts and for more Odd Lots content go to bloomberg.com Odd Lots

46:33 where we post the transcripts we have a Blog and a newsletter that comes out every Friday and for more Odd Lots content go to discord.gg odd Lots people are in their 24 7 talk about all types of topics that we talk about on the show including crypto end stream Bloomberg TV on Apple Originals Roku Samsung or any other streaming platform and make sure to tune in on Bloomberg TV at 10 pm Eastern thanks for listening and thanks

47:01 for watching [Music] thank you [Music] [Music]