One of the world's largest cryptocurrency exchanges, FTX, recently imploded spectacularly. Its CEO, Sam Bankman-Fried, had been called "the next Warren Buffett" and was a Democratic megadonor as well as a major funder of the "Effective Altruism" movement. Overnight, Bankman-Fried saw his fortune and his company wiped out, and he is now under criminal investigation.
To explain what happened, and why we keep seeing spectacular frauds in the crypto industry, we are joined today by Stephen Diehl, a longtime critic of crypto who has been warning for years that crypto assets can suddenly implode and that unregulated crypto exchanges like FTX are a terrible place to keep your money. Diehl is the co-author of the new book Popping the Crypto Bubble, an accessible explanation of how cryptocurrency works and why it's a terrible idea. He and his co-authors show how the history of financial bubbles and manias helps us understand crypto-hype today. In this episode, Stephen discusses the credulity that allows con artists like Bankman-Fried to flourish in the crypto industry, and that dupes supposedly savvy investors into believing in the digital equivalent of magic beans. We also discuss the complicity of financial journalists in promoting con artists as altruistic geniuses who can be entrusted with one's retirement savings.
"To anyone who does due diligence, this thing [FTX] is papered in red flags. It’s a Bahamanian shell company set up in the least regulated environment on the planet, with no board of directors, no governance, completely opaque financials set up by a 28-year-old and apparently staffed by 17 kids all living in a frat house in the Bahamas. But the investors in this thing were some of the most sophisticated funds on the planet! … Apparently none of them did any due diligence on this thing." — Stephen Diehl
The FTX Super Bowl commercial with Larry David is here. The Bloomberg interview in which Bankman-Fried seemingly admits he is “in the Ponzi business” is here. For more on the subject, read our interviews with Molly White and Nicholas Weaver, or read "Why Cryptocurrency is a Giant Fraud." A delightful 1901 illustration of financial speculators being tormented in Hell can be viewed here.
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