Financial Perspectives: Insights from Investment Professionals

CHATS: Exploring the Digital Mirage: Cryptocurrency's Rise and Fall

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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.

Speaker 1:

Hello and welcome to this month's chat segment of the Financial Perspectives podcast. Our chats episodes feature dynamic conversations between industry experts from some of our recent and most popular webinar recordings. This month you'll hear from Zeke Fox and Devin Banerjee as they discuss cryptocurrency's historic journey and future potential.

Speaker 2:

Thank you so much for joining us today. Thank you to CFA Society San Francisco for hosting this event. I'm Devin Banerjee, I'm a senior managing editor at LinkedIn and I'm also a member of CFA Society San Francisco's Member Programming Advisory Council, or MPAC, and I'm delighted to be here today with my friend and former colleague, by the way, zeke Fox.

Speaker 2:

Zeke is an investigative reporter for Bloomberg Businessweek and Bloomberg News, as well as a national fellow at the New America Foundation. He's won multiple high-profile journalism awards, including the Gerald Loeb Award, and he's the author of the new book that has been making waves in finance and crypto, entitled Number Go Up Inside Crypto's Wild Rise and Staggering Fall. Zeke and I are going to chat for about 20 to 30 minutes, but in the meantime, as well as after that, please do put any and all questions that you have for Zeke in the Q&A tab of your Zoom window. I'll be taking a look there throughout the conversation and then posing your questions to Zeke toward the end and, as a reminder, this webinar is being recorded, so please keep that in mind. Zeke, welcome and thanks for joining us on what's a particularly busy day for covering the rise and fall of crypto.

Speaker 3:

Yeah, thank you so much for doing this with me, devin. Yeah, I'm here at a WeWork down the street from federal court in New York where it's the opening day of the Sam Bankman Freed trial. So an exciting day, although it was actually just a bunch of people bringing in doctor's notes and saying that they did not want to serve on the jury.

Speaker 2:

Jury selection day. Yeah, absolutely, but I'll have some questions for you about your expectations for the trial and Sam Bankman for its defense, and all that in a little bit. But, zeke, the book is fantastic. I finished it and I've heard other interviewers say this because it's true. I think it's so easy to finish in like one or two days because it's so entertaining and the stories are just endlessly fascinating. But I want to ask you to start by taking us back to the start of this idea, or this project of yours. I think it was probably about two years ago. You did a cover story for Bloomberg Businessweek on Tether, the stable coin. So each coin is supposed to be backed and is supposed to be worth $1 because it's backed by real dollars. Why did you start pursuing that idea and what did you learn from that initial project?

Speaker 3:

So as an investigative reporter, I really love diving into shady companies and trying to understand how they work, and I want to go through their contracts to see what loopholes they're trying to exploit, or look at their balance sheet and see what doesn't add up. I resisted looking into crypto because so many of the cryptocurrencies felt like empty, like transparently empty, as if there was nothing to investigate. Like if Dogecoin goes up and up and up because people say, oh it's funny, I wasn't really sure. If there was nothing to investigate. If Dogecoin goes up and up and up because people say, oh, it's funny, I wasn't really sure what I was supposed to do about that. Then Tether came along and when I started looking into it two years ago, like you said, tether had grown, so it was supposed to have about $50 billion and Tether played an important role in crypto. Every day, some days, $100 billion of Tether would change hands and Tether played an important role in crypto. Every day, some days, $100 billion of Tether would change hands and it was supposed to have this $50 billion backing it in the bank somewhere, but they wouldn't say where, and this seemed like the kind of mystery that I could handle. I would go look for this money and try and figure out if some of it was missing.

Speaker 3:

And what made it an even better thing to investigate was there was concern about Tether at even the highest levels of the US government. Janet Yellen had called a meeting of all the top regulators in the summer of 2021 to talk about does Tether have its money? What if it doesn't? Could this crash the crypto market? Could this then cascade into regulated markets, like when money market funds broke the buck during the financial crisis? So this felt like a real traditional. It was like a traditional finance story buried in crypto world, and as soon as I dug in, I realized that there was so much fun stuff to investigate in crypto I was wrong to dismiss it. Each character I met was like wilder than the next, and I told my editor this bubble is crazier than we had thought and we'll never get through it all. We'll never investigate all these great companies, and by great I mean terrible.

Speaker 2:

So one of the central questions that you said you really wanted, like Uber and WhatsApp, but so few of us and so few people around us use crypto still and so, like, what did you find in terms of as you travel the globe, by the way, to to report out the story and write this book what did you find in terms of any legitimate or popular use cases of cryptocurrency?

Speaker 3:

So I am sure there's some good crypto company out there. I want to say that. But whenever I would look into the ones that everyone was talking about, I would find that there just was nothing there, and I was just continually surprised and disappointed by how little there was to see. One example that Bitcoin people love to talk about was El Salvador. They would tell me that El Salvador had adopted Bitcoin as a legal tender in the country and that it was doing great things for poor people there. And when I went there, it was actually challenging to write about because there was so little going on. It was just a curiosity for tourists and I actually would try to use.

Speaker 3:

I loaded up my Bitcoin wallet and whenever I try to use it, I'd feel kind of ashamed because the clerks would be like oh, do we have to? Oh, the manager's out, he's the one who knows how to use the Bitcoin machine. It was just a. There was nothing going on. It was my expectations were low and they were not met. I mean another.

Speaker 3:

As a reporter, you like to write about things that are happening, so I'd always ask these crypto founders can I see your product in action? Can I speak to your users? And again and again they'd be like oh, there's not actually anything to see yet, but have we told you you could earn 15% interest rates staking our token on our native DeFi platform? So the title of the book Number Go Up. It comes from something a Bitcoiner said, and he said that Bitcoin's most powerful technology was number go up technology, which just meant the price would go up and then, as it went up, people would notice that and they'd get excited and they'd buy Bitcoin, and then it would 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, is it? But to a very, very large extent, I think the answer is yes.

Speaker 2:

It was all about just getting in, thinking you were getting in early and you were going to get rich reporting it out and writing the book, and I think what I took away from that is just how widespread this idea and this craze became and it really started involving a massive human element especially in Cambodia.

Speaker 3:

So tell us why you went to Cambodia and what you discovered there. So one thing I would hear about consistently was that cryptocurrency, and in particular, this coin, tether, that I set out to investigate, was useful for crime, that it was popular among money launderers, and I wanted to figure out how this worked. But my technique is usually to call up the bad guy and say, hey, that's a cool operation you got going on there. I like that. You're, you know you're interesting approach. Maybe we could do an interview and you could tell me more about it, but I didn't think that, you know, russian oil traders would respond well to these inquiries, respond well to these inquiries.

Speaker 3:

So I found that one of the uses of crypto, one of the criminal uses, is these scams called pig butchering scams, and these are the random text messages that you probably get on your phone. You know like hey, bill, did you pick up the milk for the cat today? And I found out that if you, I played along with one of these and they eventually they'll start to flirt with you. It's usually like a pretty woman. They'll tell you they'll listen to your problems. Eventually they start to tell you, they start to drop hits that they're really good at trading and then eventually maybe they'll let you try out their trading strategies. When they move in for the kill, they tell you how to buy some Tether using a regular crypto app like Cryptocom or Coinbase, and they'll ask you to send it to their special app where you can do the cool trades. Then they'll even show you gains in that app and try to get you to send more and more. Once they figure they've gotten as much as you're going to send, which in some cases is like hundreds of thousands of dollars, they just take it all close off communication. So these pig butchering scams. One crypto tracing expert I talked to estimated that $10 billion had been lost to them. So it's like a pretty major criminal use of crypto.

Speaker 3:

And the worst part of it is the people who send these messages are often in Cambodia or Myanmar and they're actually victims themselves. They're lured to these countries with offers of high-paying jobs and customer service. Then, when they get there, they're trapped, they're forced to scam, they're beaten and tortured. They can only leave if they pay a ransom. So I went to Cambodia to check this out for myself because it sounded like a conspiracy theory, and what I saw was entire office parks with giant towers full of people who are being forced to scam, truly like eerie places. It's horrible. It's actually been getting some attention lately at the United Nations and there's like they. The one UN report estimated that 200,000 people have been trapped in this way, so hopefully the authorities are finally taking more serious action against it.

Speaker 2:

Yeah, that's. That's some great work you did in 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 seen multiple federal counts on a fraud and those kind of things, I want to just take a step back, Zeke, and talk about some of the largest forms that cryptocurrency has taken and the technology underlying it, and get your take on it. So first is Bitcoin. So I'm just looking at my Yahoo Finance chart today right now trading $27,321 in a 52-week range of $15,000 to $31,000. So near the upper end of its 52-week trading range. So Bitcoin in particular, Zeke. What do you think is supporting that cryptocurrency? Fairly well, right now.

Speaker 3:

I mean it's truly wild to me to see how well it's holding up when Bitcoin has proved to be pretty useless as a means of payment.

Speaker 3:

Bitcoin enthusiasts have shifted to this idea that it's digital gold, because there can only ever be 21 million bitcoins. I think they've done a great job selling this story, but that it actually doesn't really make sense. There maybe can only be 21 million bitcoins, but first of all, why would there be demand for those bitcoins if Bitcoin doesn't do anything? And second of all, it's actually very easy to create new digital currencies which compete with Bitcoin, and many of the new ones are actually superior in pretty much all ways to Bitcoin. So I think the Bitcoin people have been able to turn it into kind of a cult, and if you go to their conferences, the people are just so fanatical about Bitcoin that nothing's going to change their mind. These people are dedicating their lives to telling their friends and family to buy Bitcoin too, and so I don't see that actually crashing to zero. I don't see any catalyst to change in their mind, but I do think if it doesn't find widespread adoption and doesn't find like an actual use case, that interest in it is going to decline over time.

Speaker 2:

One really interesting thing I always notice over this entire three year craze that we've been through is when you ask any traditional business leader in an industry like financial services or like traditional technology sector probably the CEO of my employer, possibly Mike Bloomberg, I'm not sure, probably the CEOs of a lot of the employers of people attending they pivot a lot to this idea that the underlying technology of decentralized, distributed ledgers, like blockchain you know that technology holds a lot of promise and maybe some of these cases like cryptocurrency that you know they may be skeptical or they may be supportive or they don't know how it will play out. In all of your conversations, though, zeke and I know this is away from the cryptocurrency topic and use case do you see? I mean, have you found promise and like distributed ledger technology and applications of that for other industries and in a widespread way?

Speaker 3:

All of these ideas sound promising and I know a lot of smart people are working on them. So I want to say, you know, never say never, but I always come back to. Actually, during the previous crypto bubble around 2017, I spent a full day at the offices of a company called ConsenSys. It was kind of like a consulting company for crypto and they were promoting this idea that blockchain would revolutionize every industry, and I heard a whole day of presentations about how property deeds would go on the blockchain and passports would go on the blockchain and even all the fish in the sea, things like that. I was, and none of it's come to pass.

Speaker 3:

So I feel like this technology has gotten more than a fair trial, and we still see these announcements that the crypto people are great at getting attention for them, like Visa is going to do a trial with blockchain, or JP Morgan is going to try something out and you almost don't need to investigate them because, just so consistently, these are just little tests that don't come to anything. So I'm not a technologist. I'm not trying to say there's no way the blockchain could ever work. I just think that we can only judge it by what it's done so far, which is not much.

Speaker 2:

So let's talk about Sam Bankman-Fried. I mean, he doesn't represent all of crypto, but he and FTX became in many ways the face of crypto for a long time and is now certainly the face of its downfall. But I just want to read a short passage a description of yours of his from your book. This is in chapter 10. You say Sam Bankman-Fried was developing a public profile as the boy genius of crypto, the man who was going to take the industry mainstream.

Speaker 2:

Compared to others and you name a few others, like from the profits of Tether and Celsius, bankman-fried seemed grounded in reality when he went on TV to talk about the boom. He was comfortable discussing numbers with Wall Street traders or public policy with congressional staffers and his style gave him an air of authenticity and I think that really describes when we all watched him before the reality came out, it was like, oh, he's so authentic, he's so approachable. He is, even though he is like shy and awkward, he is seemingly comfortable speaking with anybody in any setting. And I'm just curious, given what we know now, zeke, like what you've learned about, like human psychology, both in SBF's case as well as all of our collective, you know psychology and awareness of a high profile kind of face of a trend or craze like this, like we were all kind of caught off guard and so what have you learned about like human psychology, diligence and human behavior out of that?

Speaker 3:

I mean, I think we all sort of had this idea of what a scammer looked like, how a scammer talked, and especially in the Bitcoin world. It was the guys with showing off their Lamborghinis and saying Bitcoin to the moon. And Sam, he was able to speak the language of Wall Street and, even though he dressed like a college kid who'd spent the night in the library, he came off in a weird way as the adult in the room, and I think that those cues really helped him gain everyone's trust, and really very few people looked beyond that. He just had this amazing story and he told it over and over again, including to me. He just had this amazing story and he told it over and over again, including to me, and telling that story is how he was able to amass billions of dollars from venture capitalists and get to where he was. So I don't know. I wish there was some lesson that we could take from this and learn how not to be fooled the next time. But I think the crypto bubble also made really crazy things sound plausible, so when he was saying things like, oh, I'm going to buy Goldman Sachs next and I'm going to be the biggest source of transactions in the entire financial world.

Speaker 3:

It sort of seemed like I don't know, 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 of boring being I don't know. I imagine some of the people in the audience felt this way, where you felt sort of annoying, like a scold, to be asking well, your coin, how will it make money? What are its eventual sources of profit? Will you have any revenue for this crypto company? And you felt like, yeah, you felt like a, an old guy who just didn't get it. Um, and I think we learned that these fundamentals do matter and that people should be able to, should be asked these basic questions. Maybe you should be suspicious of them if they, if they don't have good answers.

Speaker 2:

And we always say follow the money, which is probably the most important thing. But one thing I also like doing, and like seeing when people do or society does, is like following the talent and looking at who is actually operating and running certain businesses or are behind certain trends. And you know one thing I you spend a lot of time around FTX and Sam's team and other operations and I think you found I heard you say recently that it was like kids running all these operations. It was their first job out of school. They were not like sophisticated in any legal sense or compliance sense or even just operating a business sense. There was a lot of like drugs and alcohol surrounding it, so like. But you tell me, like what did you find about the talent in this space, in this, in this crypto craze? And like what? What are some lessons we can draw about? Like evaluating talent that goes into into a certain craze, and what are some lessons we can draw about evaluating talent that goes into a certain craze?

Speaker 3:

Well with the FTX employees. They actually really helped convince me that FTX was legit, because they all seemed so sincere. They were really obsessed with effective altruism, like Sam. It was not an act. It was all these guys that had spent all their time doing it and some of these traders and programmers who I met, sam's old friends. They just seemed so shy and nerdy and so awkward that they felt they gained my trust that way.

Speaker 3:

Many of these people may not have had any idea of what was going on, but the company did not have a CFO or if they did, the CFO didn't really do anything. They were using a pretty small auditing firm. For a company of that size, the board of directors was three people who didn't have very much experience. That size, the board of directors 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 corporate structure and a board of directors. So I do think when the bubble is going really the bubble is blowing up. Even venture capitalists get FOMO and it's easy to overlook these basic safeguards. But I don't know, maybe we should be more careful, but it's hard to say, I mean, when the next bubble gets going. Do you really want to be the one who misses out because you insisted that the boy genius founder hire a real CFO, right?

Speaker 2:

Yeah, it is fascinating how easy it is to that, or how easy it seemingly is, for sophisticated investors and people who regularly in other contexts do talk about the importance of governance and structure and regulation and guardrails, how easy it is for them to overlook all of those things when the going is good and the party is sort of roaring, if you will.

Speaker 3:

It seemed like the venture capitalists actually liked Sam more the more crazy he seemed, and that his lack of respect for them made them actually admire him more and think, oh, this guy is just crazy enough to do what he says. Enough to do what he says, similar to how Adam Neumann of WeWork just the bigger, the crazier plans that he spun, the better everyone liked him, until it all blew up.

Speaker 2:

Yeah, and regulators, I think at least. I mean, it's hard to paint them with one brush, but take Gary Gensler of the SEC. Seems to be more clear-eyed than venture capital investors and others who have rushed in here, but still has been a bit slow or taken his time putting into place regulations around crypto. What's your take on where we are right now with crypto regulation and where things could possibly go?

Speaker 3:

So the crypto industry really wants Congress to pass a law that will codify rules about tokens that are looser than the existing rules for securities, and Gensler's position I mean oversimplifying is that these crypto tokens just because you say it's crypto, it doesn't mean it's not an investment and all the rule, the hundred year old rules that govern investing, should still apply, and I agree, I think that in some cases it was really clear that these crypto companies were breaking the rules and they're only just now getting sued by the SEC or getting criminal charges from the DOJ.

Speaker 3:

I think that the regulators were reluctant to be blamed for popping the bubble and that they didn't want to go after these companies early on, when there would have been a lot of opposition from the users who were getting rich when the number just went up and up. But in my opinion, that should not be how they look at this. It's their job to enforce the rules impartially and by letting things go on as long as they did, they've now opened themselves up to the objection from the crypto companies, which is you, let us do this for so long. Why are you saying it's illegal now? You implicitly agreed it was fine by letting it go on, which is also not how the law works, but you can see how they got that impression. So I think, better late than never, though. These investor protection rules exist for a reason, and they would have prevented stricter enforcement of them would have prevented a lot of people from losing their money prevented.

Speaker 2:

Stricter enforcement of them would have prevented a lot of people from losing their money Zeke. I want to incorporate one of our audience questions, because it's related to this and also something I was wondering and going to ask you. I mean, one of the avenues right now that regulators are seriously continuing to consider and huge asset managers like the biggest in the world, like BlackRock, are seriously considering, are Bitcoin ETFs. I know Bloomberg has been doing a lot of reporting around this. I don't know if you personally have, but what are the prospects for a true Bitcoin ETF? Do you think?

Speaker 3:

I think that the SEC's arguments against it have run their course and that they will have to approve it at some point. It's never really made sense to me how they could object to it, given that they allow investors to buy Bitcoin in so many other ways. The flip side is that I think a lot of people who want Bitcoin have it at this point, and the option of a Bitcoin ETF might not lead to some huge upswing in adoption, and I also don't think it's this big sign of Wall Street adopting Bitcoin. I think it's more that they see Coinbase making money by facilitating Bitcoin trading and they think, hey, if we had a Bitcoin product, people might want to trade that too, which is probably true. Why don't we create our own Bitcoin product and earn the fees from it?

Speaker 2:

Yeah, so at a high level Zeke. Where do you and I know everyone's been asking you this where do you see crypto going from here? I mean, was it a zero interest rate phenomenon and it's over and the reality is back and trumping a zero interest rate phenomenon like crypto, or will it continue to be something we're talking about and is on the finance industry's mind going forward?

Speaker 3:

I really think that it is over, and it's not that all the coin prices are going to go to zero tomorrow, but I just think that this last bubble has really discredited crypto. So many of the companies collapsed and were revealed to be frauds. Why is some normal person going to send their money to the next boy genius who says that their crypto platform is the future of finance? Already, there was a lot of disdain for crypto in the mainstream, and I think that the people feel like they are proven right by the collapse of this bubble. All the attention that Sam Bankman-Fried is getting won't help, and I'm sure there'll be some people who still are interested in crypto, but many more are going to associate it with get rich quick schemes and scams and ways to lose your money.

Speaker 2:

And so, as you mentioned, today was the opening day of Sam Begman Freed's trial. You're across the street from it. You were there for the kind of as we were talking about early on. It's kind of jury selection not too exciting just yet. Jury selection, not too exciting just yet. What's your sense of what his team's defense will be?

Speaker 3:

So back in November, just before Sam got arrested, I flew down to the Bahamas and spent the day with him at his $30 million penthouse and he gave me what I think is a preview of his defense and it's honestly, it's a real bank shot. You have to say that, first of all, he didn't commit fraud on purpose.

Speaker 3:

You have to say that he has to claim that he just lost track of what was going on and he argued to me that he was just paying no attention to money going in and out and that he did not notice that his hedge fund, alameda Research, had borrowed $8 billion of customer money from FTX. And the problem with this is that three of his top lieutenants have pleaded guilty. They've said we committed fraud with Sam. They're expected to testify against him and now Sam could say hey, they'll say anything, now they just want to get off with a light sentence. New problem is that the prosecutors also have a tape recording of the head of Alameda Research, caroline Ellison, his ex-girlfriend, from back in November. She had held a staff meeting at that time in which she'd essentially confessed to the staff and she'd said we dipped into the customer funds, we gambled them away. We had a big meeting and decided to do it. Sam told us to do it. So even if you argue that she's lying, now you have this tape from back then to use.

Speaker 3:

But Sam, he's shown that he's actually. He lost his bail because of an effort to discredit Caroline, because she's going to be an important witness. So he leaked her diaries to the New York Times in an effort to paint her as irresponsible, and he's also claims that because they had been dating and broken up, they weren't talking. So he gave me a version of this back in November and I was just I really couldn't believe it. And I said to him Sam, are you really, is your defense really that your ex-girlfriend did it?

Speaker 3:

Like, is that really what you're trying to say? Because that doesn't sound. I don't think that's going to work. And he said I think the problem is it's not even clear who did it. So I think he's going to have to work on that if he's going to convince the jury, because at the center of it the $8 billion is gone. Where did it go? The government says it's just embezzlement. They stole it, which is, I think, an easier story to sell. He's going to have to make it seem very complicated in order to win over the jury.

Speaker 2:

Thank you to the audience members for putting questions in the tab. Continue to do so. I'll come to your questions in just a few minutes. Zeke, just one or two questions more for me on this topic of Sam Bankman-Fried and kind of what he knew and what he didn't and what his headspace was over the evolution of FTX. Your daughter, Margo, said I love this part in the book. Right before you were about to fly down to the Bahamas, for I think that final time to meet with Sam, she said why would someone do bad things if they were trying to do good things, which is such a great question from a child, that perfect kind of innocence. Do you think Sam Bankman-Fried and others around him and others like him started out with good intentions or was it always kind of a scheme?

Speaker 3:

So I'll preface this by saying I look forward to learning more at the trial. But my theory is that they did have good intentions the whole way and that's what actually made them do risky things or even commit crimes, because they were convinced that they were the heroes of this movie and they were going to get so rich and make so many billions of dollars that they might have a chance of saving the world, like if they funded the right AI researchers, this might change the course of human history. So there was a moment when they realized that they'd made some bad bets and their hedge fund, alameda, was effectively insolvent. So I think they were presented with this choice, which is the choice is admit that Alameda is insolvent and essentially that would probably do in FTX, because investors would lose confidence in FTX too. So they'd lose everything and they would not be able to give away these billions of dollars and save the world. But they would be honest and they would not face any liability. Or hey, what if we just let Alameda borrow some of the customer money? Hey, we're geniuses, we'll probably make it back anyway. No one will ever know and we'll still have a chance to give away all this money and save the world and worst case scenario, if we get caught.

Speaker 3:

It's sort of the same we just go broke and we're unable to donate billions. And so because in their utilitarian philosophy you're not supposed to value your own life over the lives of others. So Sam would say it wasn't that important to him if he ended up destitute. He'd say I always want to flip that coin and take that risk. But now, I mean, it came up tails. He's on trial for fraud. He's facing the possibility of decades in prison. I'd really like to know. I wish we could have had a real conversation about that, because I'd really like to know what he does think about that and what if he'd take that decision back. But he has to say no decision was made.

Speaker 2:

So one final question for me, zeke, which is related to this audience of investment professionals, and it is related to something you mentioned earlier in this conversation which really resonated with me, which is like, during the upswing and height and peak of a craze like this, we all kind of nod along and pretend in many ways that we understand what's happening and what people are talking about, because they're so excited about it and there's a lot of passion behind what they're doing. But an investigative journalist like yourself and others who have really like all along and recently written and found and discovered you know really uh, meaningful things about the crypto ecosystem. Just ask very basic, straightforward questions and and you repeat, you know questions over and over about, about basic things and how they work and where does the money come from, where does the money go, what is the source of revenue, what is the? You know the money come from?

Speaker 2:

Where does the money go? What is the source of revenue? What is the? You know very basic questions is and I find that to be a big overlap between the journalism profession and the investment profession. What's what's like a lesson there Zeke as a as a fantastic investigative journalist. What's a lesson for an audience like this? About asking questions, understanding the root, you know causes and forces at work, not worrying about how you look or how you seem or whether you look stupid or like the old guy who doesn't understand something.

Speaker 3:

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 then when I got to my first conference, bitcoin 2021 in Miami, I realized, oh, I have this wrong. These are not serious people. There's so many weird schemes going on and this idea that there's mainstream adoption that's just around the corner is a pipe dream. So I feel like you know you can look at the numbers all day, and I think that you should, but sometimes there is. If it's possible, it's great to get out there and to see these companies in action, to, like, check out their products, try to talk to the users.

Speaker 3:

I mean, so much of the stuff that we do as investigative reporters is really not that special. It's just calling people who might know something, asking them about it. You know, because the truth is not always available on the internet and a lot of media coverage can be superficial, not due to any fault of the reporters, but just that investigating something takes like months and months and there's not really enough time for a newspaper to assign a reporter to spend months digging into Cardano or some random token. So if there's something that you really want to find out about, people like to talk about their jobs, and even if you're not a reporter, you might be able to just call somebody up and say hey, I'm curious about this company. Does your hedge fund like with Tether?

Speaker 3:

I would call up different crypto hedge funds and say do you use Tether? Do you interact with the company? What are your interactions like? Now, I will say a lot of people. If you're Tether, do you interact with the company? What are your interactions like? Now, I will say a lot of people. If you're not a reporter, they may be. Some of these people are part of expert networks and may try to send you that way and hit you up for $1,000 so you can talk to them. It's nice. As a reporter, we don't participate, we don't pay anybody, so people just like talking to reporters. So we do have it better in that sense.

Speaker 2:

So we just have a few minutes remaining, zeke, and I'm going to pose the remaining audience questions to you, and the first is do you see institutions investing in Bitcoin and related crypto assets as a legit asset class going forward, or have these controversies made crypto uninvestable, like including for institutions that want to diversify and kind of put money into every pocket of investable assets?

Speaker 3:

You know, I still hear about institutions buying in and I think that their approach to it is maybe not that sophisticated and they might think about it the same way, you know, like my uncle might, where he'd say, all right, like a lot of people are talking about Bitcoin, Maybe it's something, maybe there's something there, Maybe I'll put in. What's the harm of putting in, you know, one or 2% of my portfolio? But I don't. I don't see anyone actually using crypto for anything and that makes me skeptical of investing in it. I think eventually it's got to be useful if it's going to be valuable.

Speaker 2:

And then final question for you, zeke, which I think I know the answer to, so I'll pose the audience question and then ask you. I think the question behind the question, but the audience question is do you like USD US dollar currency more than Bitcoin? If yes, why? And then my version of that question, zeke, is there. You know, you know, currencies that are backed and controlled by governments and or intergovernmental, like institutions and agreements and things like that. Is there a future for a currency that is decentralized and something that would appeal and be useful for people who do not trust centralized or government controlled, government backed currencies?

Speaker 3:

I mean. So, yes, I like using US dollars and I don't know if we're heading in the inflation direction, but I got hit with that a lot during when I would talk to crypto enthusiasts, and to that I would. This is I'm going to steal this joke from Joe Weisenthal, my Bloomberg colleague. Somebody posed that to him and said why would you keep your money in US dollars? And he said using a crypto term. Wait, you hold unstaked US dollars. Who would ever have US dollars without staking them, which I think is true. Nobody's sitting around with a bunch of cash in their mattress watching its value disappear. You invested in stocks or, if you're like me, I'm actually a net debtor. I think that I owe more on my house than I have in dollar assets. So this inflation the cost of living going up faster than my salary is bad, but I don't have this problem where I'm sitting on a big pile of dollars and the value of it is slowly eroding. So, yeah, I think I mean this is kind of like trollish, but in terms of Bitcoin as a store of value, there being only 21 million Bitcoins, I spent a while researching things that there's 21 million of, and there's 21 million VHS copies of Toy Story from the original printing. They can't make any more because the VHS factories have been destroyed, so the supply can only go down, probably similar to Bitcoin. Many of these tapes have been lost or destroyed, so I bet you there aren't even 21 million left. So VHS tapes of Toy Story may actually be harder money than Bitcoin and could be the.

Speaker 3:

Maybe that's the future of our financial system. And, more seriously, we tried out having private money. We had wildcat banks back in the 1800s. There were banks that were just there was loose regulation and they could print their own currency, and it turned out a lot of people abused that privilege and would print unbacked paper money and have led to a lot of bank failures. I'm not explaining that particularly well, but I think that, yeah, central banks have a lot going for them. They're not a conspiracy theory. I heard so many conspiracy theories about central banks, but we used to have many more financial crises when we were on the gold standard.

Speaker 3:

So the idea that some sort of Bitcoin standard is going to lead to an improvement in our economy I think is far-fetched. And I also ask you got me started on this In the world where Bitcoin takes over, then, so are the Winklevoss twins. They'll become the richest people in the world. Maybe they'll be like our kings. Will they be good kings? I mean, mean, I saw that facebook movie that they seem kind of tricky, so, like, um, I think that there's a lot of problems with this idea that, uh, that bitcoin could replace the dollar. Um, but, yeah, yeah, don't get me started on that one clearly well, zeke, at minimum.

Speaker 2:

I think your book is a lot more than this, but at at minimum it's like a fascinating and entertaining read and I learned a ton. I think the personalities I've mentioned this a few times in our conversation just the human behavior and psychology and what makes up talents, that makes up these business trends that we all talk about, is really, really valuable to know about and to learn. So thanks so much, zeke, for spending this time with us on a really busy day covering the rise and fall of crypto literally today, and I want to thank all our attendees and those of you who engaged in the Q&A and those of you who are watching this as a replay as well. So thanks a lot.

Speaker 3:

Yeah, thank you, and I do think the book's a lot of fun and you'll enjoy it, even if we disagree about Bitcoin. Thank you, zeke.

Speaker 1:

Thank you for listening to this month's chat segment. Chats is a monthly segment featuring audio from our recently recorded webinars airing on the second Tuesday of the month. To view the video recording of this episode and discover additional Society webinars. To view the video recording of this episode and discover additional Society webinars, visit the CFA Society San Francisco YouTube channel. Join us next time for our regularly scheduled Financial Perspectives podcast episode airing on the last Tuesday of the month, and make sure to send in a message to the show using a link at the top of each episode description or by emailing podcast at cfa-sforg. We'd love to hear what you think of our new chat segment or any suggestions on future topics you'd like us to cover. Thank you for being a dedicated listener. 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 at cfa-sforg or connect with us on LinkedIn.

People on this episode

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Tanya Suba-Tang

Host
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Lindsey Helman

Co-host