Motley Fool Money - Number Go Up

Episode Date: September 17, 2023

“I’d pull back the curtain and there was nothing there.” The hype of crypto was real. Many of the use cases are still to be determined. Deidre Woollard caught up with Zeke Faux, an investigative reporter for Bloomberg and the author of “Number Go Up: Inside Crypto's Wild Rise and Staggering Fall.” They discuss:  - Why investors are quick to throw belief out the window - What really happens at an NFT party with Snoop Dogg, Eminem, and Jimmy Fallon - Questions around stablecoins, and one company “quilted out of red flags”  - What happens when you spend a book advance on a JPEG image Tickers discussed: USDT Host: Deidre Woollard Guest: Zeke Faux Producers: Ricky Mulvey, Mary Long Engineers: Dan Boyd, Annie Pope Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi everyone, I'm Charlie Cox. Join us on Disney Plus as we talk with the cast and crew of Marvel Television's Daredevil Born Again. What haven't you gotten to do as Daredevil? Being the Avengers. Charlie and Vincent came to play. I get emotional when I think about it. One of the great finale of any episode we've ever done. We are going to play Truth or Daredevil.

What? Oh boy. Fantastic. You guys go hard. Daredevil Born Again official podcast Tuesdays and stream Season 2 of Marvel Television's Daredevil Born Again on Disney Plus. It boils down to how would you like to keep your money in like the ad blocker in your browser, like one of those little icons like next to the URL. And like if you lose the password, it's gone forever.

And everyone's telling me that you're going to get it stolen. I'm Mary Long and that's Seek Fox, investigative reporter for Bloomberg and the author of the new book, Number Go Up, inside crypto's wild rise and staggering fall. Bidre Willard caught up with Fox to talk about how FOMO hit crypto speculators, the problems of actually using crypto, what Jimmy Fallon said to Zeeke about his promotion of NFTs, and Zieg's time, hanging out with none other than Sam Bankman Fried. This book, I think I read it faster than I've read any business book I've read in a long time. It feels like a beat read a bit. It starts with some splashy parties. You've got definitely some wild characters.

What is it about crypto that you have found so fascinating to cover? I know you've been covering it for a while. I feel like I got really lucky because I, since I was a teenager, I always loved these like adventure stories. I love books by like John Crackauer, Ben Messrich, who did the MIT Blackjack story. But I never thought that I had found a story like good enough that I should write a book. This is my first one. And when I got into this crypto world, I was kind of skeptical of it not just as an investment,

but even as like a topic to write about because I felt like I knew it. I'd seen these guys with their Lamborghinis saying like their coins were the best. But once I dived in, I realized that like, first of all, I'm like, I find myself, I'm on some billionaires yacht.

Like people are talking openly about like scams that they're running and about like finding drugs for the after party. And I'm like pitching myself like, am I really here? And I'm realizing that. But also, like, something interesting is happening in, like, world history. Like, if you don't even care about crypto, but this is, you still should care that this is, like, one of the craziest financial manias ambiguous and biggest that's ever happened in, like, the history of the world.

And I'm sitting there, I'm realizing, like, I'm here. I'm hanging out with the people at the center of it, like Sam Bankman-Fried. And, like, I should start taking really good notes because this is going to make an amazing book. this is the adventure that I've been waiting for. And like, it's happening to me. So it was super fun while it was happening. And, yeah, I just felt lucky that I was there to see it all. Yeah, you have seen a lot.

You know, the title of the book, number go up. It feels like it's being shouted in a Reddit forum, which I think is kind of the idea of crypto. A lot. People just wanted to believe so much in this. I've been studying financial history lately. This is nothing new. know, we've seen this throughout, you know, from, from, you know, like 1700s on, at least in the U.S. Why, as investors, are we so willing to just throw belief out the window and just, you know,

throw, you know, logic out? We just want to surrender to the belief when it comes to our finances. Why do you think that is and what made crypto so appealing for people? I really think that, like, fear of missing out is really powerful. And if you see your friends, like, making money on something, like, I saw it. I had a good friend who was making money on Dogecoin. He was telling me I should buy Dogecoin. And I was like, it was annoying to me because I'm more of like a Motley Fool type investor. Like my portfolio is all, per Bloomberg rules, it's all an index funds.

Like I would, I'm not someone who's like chasing the latest trend. And I'm like, I'm saying this is like, this is so transparently dumb. Why would I want to get involved? But then I see him making money and I'm kicking myself that I didn't do it. And as you said, it really is this like universal emotion. In the book, I read about Alexander Pope, a British poet from the 1700s who invested in the South Sea Company, which was like an early bubble. And he wrote this letter to his stockbroker that was very poetic,

but boiled down to the fact that like he really wanted a giant carriage. with like 10 horses pulling it, which would have been like the Lamborghini of his times. And he was like, let's just give it a shot. Let's go for it. Give me some of that South Sea bubble. And like, yeah, it's just, it's very, in the moment when you see it's happening, it's hard to be the naysayer. It's really like no fun.

Why not get in on it? And everyone thinks they're going to be the one who's getting in early and making money. And they don't think they're going to be the one left holding the bag. Yeah, that is a big part of it is that people think that they've caught it early enough because they've heard from enough people, which of course usually means that you've caught it too late, unfortunately. Yeah, I mean, I think personally, I feel like by the time I'm not that cool, so by the time I hear about it, like, it's probably too late.

But there's so many examples of people, you read about people in the newspaper who are like becoming overnight millionaires or billionaires, and you're like, you know, there is that thought, like, why not me? Why don't I try my luck? I'm not earning any interest at the bank. You know, the stock market goes up, you know, maybe it goes up 5%. That's not really that fun. Yeah, it's why people buy lottery tickets.

I want to talk about one of the, I think it's kind of one of the biggest lies of crypto that you chased throughout the book, which is Heather. It's a stable coin, I mean, stable coin, in quotes, supposed to be pegged to the U.S. dollar. Stable coin. It's kind of an oxymoron, right? I feel like the stable coins have proved not to be stable so far. But is there a place for stable coins? I mean, like, the idea is correct, but the execution just is not. It's a pretty complicated one.

I mean, and still standing now. So they've held up. But the idea is that it's always worth a dollar. It's a token, a cryptocurrency that's always worth a dollar because each token is backed by a real dollar in the bank. So you could almost think of it like chips that you buy at the casino. You give them your real money. They give you these chips.

And they are promising that when you go back with the chips, you're going to get the real money. And in the case of Tether, actually, so far that's been true. But the mystery that I'm trying to uncover in the book is like, what are they doing with all this money? Because when I start investigating, they're supposed to have $50 billion in the bank. Like enough that would make them like a really large financial firm. And the company is just like totally, I write in the book, they're quilted out of red flags. Like I've never seen a company with so many red flags.

The CEO and the CFO are totally elusive. They never give interviews. They both have like strange pasts. The company's been proven to have lied about its reserves in the past by the New York Attorney General. And when I started investigating, they're not really saying what they're doing with this money. And it turns out.

that like the mystery of trying to figure out where this money is would take me years to investigate and would lead me to meet all of the biggest players in crypto because this tether coin is almost like central bank for crypto it's connecting all of the biggest companies it's how they're moving billions of dollars around the world it's a way for people to get real money into this world of virtual currencies. So it turned out to be like one of the best things I've ever been able to investigate and just like this sort of bottomless mystery. Yeah, you just pulled one thread and it just like led you all over the world. Yeah, I mean, by the end, I'm in this, I start looking out for Tether's money by talking to like traders on Wall Street to see if they've handled any of it.

And by the end, kind of insane, but I'm in Cambodia looking into this human trafficking ring run by Chinese gangsters who used Tether to run scams. And like, it sounds like the kind of conspiracy theory stuff that, like, you wouldn't believe if you read it on the internet. But, like, I was there, I saw it. And, like, Tether brought me there. Yeah. Yeah, yeah, definitely an interesting adventure. Another adventure you had in the book that kind of gave me a little bit of anxiety is you bought an NFT, you bought it aboard ape NFT. The parts of the book I thought was pretty funny is you sort of explaining this to your wife and why you needed to do this. So tell us, why did you feel like it was necessary to participate in the NFT craze as you were covering it? So NFTs, if you have forgotten, were, because it was a quick craze, but they were these, yeah, they were images that like digital art and they were selling, the board apes were images of apes, like these kind of ugly cartoons of apes wearing silly costumes.

And they were selling for hundreds of thousands of dollars, even millions of dollars. And it was crypto because your ownership of the ape was recorded on the blockchain forever. But the kind of funny part was that, I mean, there's nothing stopping anyone from downloading this ape. Like, it's a JPEG image. You could right-click it and save it on your computer without paying. But still, people were paying huge sums just so that they could prove that they were the one who technically owned it. And it's just like so much of crypto is baffling to me. It was impenetrable.

And crypto people were telling me, I got this question a lot. They'd be like, hey, do you own any crypto? And I'd be like, well, I got like a little so I could test it out. And they'd be like, you don't understand. If you're not invested in crypto, you're not qualified to write about crypto. Which, I mean, that's not how it works. It's not like, you know, it's not like Robert Carroll was president. And he's like our great presidential biographer.

But I still sort of felt like they had a little bit of a point. And like, if the appeal of crypto is like gambling and getting rich, How can I understand the psychology of it if I don't try it? There must be something I'm missing. So I had been approached. This guy was telling me I needed to buy something called Solana Monkey Business to go to this party. And it costs $25,000. And it was really just an imitation of these board apes.

And I'm like, if I'm paying tens of thousands of dollars for a really dumb picture of an ape, at least I'm going to get the original. So I, you know, I had an advance for writing the book, and I went to my wife, Nikki, and I said, listen, I think that I need to, I need to, for my research, I really want to try this out, and I think I should buy one of these bored apes. And they have mutant apes. These are, like, worse pictures. They look really gross.

It's like the ape got, they say the ape, like, drank this potion. They call it, like, slurping the potion. and then their face kind of melts. These images cost a lot less. They were like 90% off. So you could get one for $40,000. And I'm telling Nikki and she's just like, ooh, and she makes like this horrible face.

But she's like the, she's really been super supportive of the whole project and she got it when I explained it to her that like if I got one of these apes, I could go to their ape fest, which was like a week-long party, and I could see like behind the curtain, and like what's going on with these NFTs. And it's something that the reader, if they're, look, if somebody's paying 30 bucks to like read this book,

I want to deliver. I don't want to be like, I couldn't go to the ape party because you had to buy an ape. No, I'm buying the ape. Like, the reader wants me to. So I got the, by the time I went to actually buy the mutant ape, the price had declined to about $20,000, which was cool because that's a lot less than $40,000.

But it was also terrible because it just showed that you could lose $20,000, like, really quick. But I was determined to go through with it. And it was actually, like, more educational than I expected because I had to actually send $20,000 and into the crypto world. And the process of doing this was truly horrible. At any point, I could have, like, lost my money if I made a typo. it boils down to how would you like to keep your money instead of in the bank where there's like a customer service person

you can call if like something goes wrong, how would you like to keep it in like the ad blocker in your browser? Like one of those little icons like next to the URL. And like if you lose the password, it's gone forever. And everyone's telling me that you're going to get it stolen. Like there was the actor Seth Green. He was one of the many celebrities who bought,

about apes for like, he paid like, I think 300 grand, it got stolen. He had made like a, he was trying to make a TV show. There was this idea that these apes would turn into TV shows. It was really confusing. I don't know why people would want these like ape TV shows, but like anything seemed possible for a couple of years there at the crypto bubble. And yeah, his ape was stolen. He lost, he had to buy it back and he lost another 300 grand or something.

The ape I got, it had very, it was especially ugly because I got the, cheapest one, had a very melty face, and it was wearing a sweater made of maggots. And it really cost $20,000. It was not lost in transit. And I was able to go to this ape fest, which as promised, it was headlined by Snoop, Eminem sort of performed. He appeared and played a music video.

But it was definitely like the best crypto party that I've ever been to. But at the same time, the thing. that I realized was like the point of these NFTs, the idea is that it's like a good way to show off like buying a fancy watch or something. But the people who like I showed my friends and they were like that ape is ugly, what is this? You're so dumb. I can't believe you did it. So they were not impressed. And then at the party, I was showing everybody. But these people were like pimply teenagers and they'd be like, your ape sucks. I have a million dollar ape. Like, you're a loser. This is the worst ape. I can't even believe they let you into this party.

So, like, the ape served no purpose. And one of the original, uh, or a very influential promoter of the, the board apes was Jimmy Fallon. He had gotten one. And he featured it on his show and he interviewed Peris Hilton who had one. And I saw him. He did come to the ape fest. And I was like, well, maybe I should show him my ape, see what he thinks. So he was sort of up in the back. They're sort of a VIP area, but walked by and I said, showed him, I called my ape Dr. Scum, and like everyone at the party, he's like, whatever. When everyone has an ape, no one cares about the ape. It's a flaw in the system. So he didn't really want to look at my ape. And I'm like, hey, at this point, like I said, the prices had come down a lot. So I was like,

Jimmy Fallon, what do you think? Like, you had this on your show. And then people really bought these for tons of money. Like anyone who's here, they probably lost like 100 grand or more. And he was like, oh, you know, it's not like, I don't know about investing. And then he said something that all these eight people said that I found kind of offensive,

which was just, oh, like I did it for the community. That was the idea. Oh, I bought like hundreds of this $100,000 dollar ape, not because I wanted to get rich, but because I wanted to hang out with a bunch of other random dudes who paid hundreds of thousands of dollars. for an ape. Time and again in the crypto world, like, I felt like I would pull back the curtain

and there would be nothing there. Like, it was not the future of art. It was not the future of finance. It was just, like, all hype, and there wasn't as much to it as had been promised. These board apes are still kicking, and the prices are way down, but still the good ones cost, like, 50 or 100 grand or more, which is wild to me, that people are still. That people are still paying for them. Yeah. Well, I'm glad you were able to sell yours. Let's talk about, you know,

talk about like pulling behind the curtain and seeing nothing there. You have, Sam Bankman Fried is on the cover of your book in sort of a Roman coin form, which I thought was pretty cool. And in the book, you talk about him, you sort of lay out the beginning of his story. And, you know, he started with Alameda, which was sort of his, like, crypto kind of hedge thing. then moved on to FTX.

And part of the thing I think is interesting is the idea of effective altruism, which starts off logically as this idea that you kind of, like, the more money you make, the more money that maximizes the good you can do in the world. Sounds sort of logical, but then everything kind of goes hyperbolic. What led Sam Bankpenfried from like,

I'm going to make money and spend it doing good to wherever he ended up next. That is what appealed to me about his story, because by the time I met him, this guy, he's 29 years old, he's worth tens of billions of dollars. He's running FTX, like one of the seemingly most successful crypto companies.

But just 10 years earlier, he'd been a student at MIT, and he'd been like a vegan activist. He tried handing out pamphlets. He met with this philosopher who was like, hey, so Sam, he had said even as a teenager, he was really committed to trying to do good in the world. And this philosopher was like,

listen, you're not going to do that much good handing out pamphlets. You're not especially good at it. Same as the next guy. But you're great at math. What if you just earned a lot of money and gave it away? You could hire, you know, lots of people to give out pamphlets or whatever. And Sam was like, yeah, good idea. And like less than a decade later, he was one of the richest people in the world.

So I was just like, I found this story really fascinating. And by the time, when I met him, he had given away like a lot of money by most standards, maybe like $100 million, but not really that much for someone who is worth like $20 or $30 billion on paper. So my question was, and to be clear, this was not the right question. But I was like, has he been corrupted by the hunt for money and will he actually give it away? Or is he just going to become like most billionaires where you make tons and tons and tons of money and you pledge to give it away like some sometime in the future? But meanwhile, you just keep getting richer and richer because it's really appealing to like a mass money and power.

But we now know that, in fact, his drive to get rich had corrupted him so much that he ran apparently like a massive fraud at FTX. And by the end of the book, I'm at his apartment. The company has collapsed. And, you know, the authorities are closing in. And he's got $8 billion missing. And he's making up, like, crazy sounding excuses for what happened to all this money. Yeah, I think there's an interesting mix there because at first you go and you see him in his office and he's like eating, eating like at his desk and he's got the bean bag next to him where he sleeps. And he just seems like this guy who's completely like focused on this.

And then you go at you get the, you get sort of, you get the great interview. You get the one after he's filed, after FTX is filed for bankruptcy. The authorities are closing in and he's in this massive. and you start to see that there is a difference between how he's been portraying himself as like just some smart guy out there doing stuff to this person for whom it seems like prestige really actually did matter a lot yes and like there so he really liked people to he he could tell it was this really it was successful like he built this image of like I'm a guy who doesn't care about money I'm like the boy genius of crypto I'm seemingly

so unstudied that like he had this way of presenting as very authentic where he's like, I'm just a big nerd. I can't even be bothered to comb my hair. I drive a Toyota Camry. I don't, you know, when I showed up at his office, I was, I was in the break room and I'm chatting with his assistant. He just walks in and wearing, you know, athletic shorts, t-shirt, crew socks, no shoes, reaches into a cabinet.

takes down a packet of shelf-stable chickpea corma, like you might get at Trader Joe's or something, rips it open, doesn't microwave it, and just starts, like, spooning it into his mouth. And the assistant's like, hey, this is like the reporter who flew here to in it to profile you for Bloomberg. And he's just like, oh, hey, what's up?

You know, and shuffles out. He had me just pull up a chair next to him at his office. He's answering emails. He's got his calendar up. He's on Slack. and seemingly I could see everything that he was doing, and he's just seemingly as open as can be. Meanwhile, like we now know that like all sorts of shady stuff was going on.

I mean, it's wild to think now that I was sitting there next to somebody who was like potentially like the biggest con man since Bertie Madoff and, you know, looking at his inbox, looking at like his chat with his traitors, and I had no idea. But he was really good at convincing everyone that he, was trustworthy. I mean, he was testifying before Congress and senators were speaking to him, like, in a fawning way, and venture capitalists were throwing money at him. It was really impressive what he was able to pull off. I really think that, I mean, you mentioned the effect of altruism,

and I think in some weird way that that was genuine, and that he, did set out with this goal of like helping the world and he pictured himself as like the hero of the story and it was that desire to be the hero and that that belief that like if he made money he would know what to do with it and that he could save the world that it made it so that he could justify whatever it was that he felt needed to be done whatever risks he took um and i should say his trial's coming up he's pleaded not guilty um he's saying that he did not commit a fraud And I look forward to seeing what happens at the trial, though the evidence looks pretty strong that there was a big fraud here.

Right now, you've got the SEC, sort of, which has sort of been trying to figure out where it fits in the crypto world. Now it seems to be kind of stepping into the spotlight. We had some news recently about a Bitcoin ETF. So what do you think is next for crypto? So, you know, is this something that's going to have legs in the future and this, maybe the scams and the NFTs and the crazy hype was just part of growing pains? Or is, or does this go down an even darker road?

I would say, first of all, the book is not about investment advice. It's about like the crazy adventure of these last two years, the people who made billions and then lost it all and are now. jail and like whatever happens this was an insane bubble and I think people are going to it's going to like go down in history now that said when it comes to the future of crypto I think you have to judge it by I do think you have to judge it by like what's happened so far and Bitcoin's been around as long as Uber WhatsApp like and ask yourself like do you do you do it anything with it? Do you know anybody who does anything with it? Are people doing anything with it

besides buying it and hoping that it will go up? The story of the board ape was kind of silly, but that was like my one time using crypto for real, how it's supposed to be used, where you actually like have a crypto wallet and you're not just gambling on it on like Coinbase or Robin Hood or something. And what I found was that it's incredibly hard. It is not something that like my mom would ever do. And the user experience is just so terrible that it would have to improve so much before it would attract a big,

like a mass audience. And I do think that like things have to make money to be valuable. Like it can't just be hype forever. And I kept asking myself when I beat crypto people, show me how this is being used in the real world. Like let me try this out. And I was like continually disappointed.

So could somebody like come up with some new coin that could actually be good? Like sure. But will I be the one to be able to differentiate that coin from like the next one that's a scam? Like I don't think so. So I think that the crypto people like to say do your own research. But I think that's actually kind of a bit dangerous because in the crypto world, there's so little transparency about these companies. companies. And time and again, they're shown even like the seemingly most reputable ones

have turned out to be frauds. And there really was no way for like the average person to figure that out ahead of time. And even if you bought the right coin and you made lots of money, what if you had your money on FTX and then it failed or on Celsius or Voyager or whatever? And that happened to some smart investors in crypto. Nobody who's paid attention to these last couple of years is going to be optimistic about crypto now, I think. Yeah, I think that's true. Well, the book is number go up. Zeke Fox, thank you so much for your time today. Thanks for having me on. It's really fun. As always, people on the program may have interests in the stocks they talk about.

And the Motley Fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. I'm Mary Long. Thanks for listening. We'll see you tomorrow.