Uber really started to become a thing in 2012. It was a spectacular revelation.
Gone were the days of worrying about calling a cab or hailing one in order to get to the airport. Similarly gone were the days of worrying about being able to secure a ride in bad weather. Thanks to “surge pricing,” Uber was serving its customers well by treating its drivers equally well. They would be handsomely compensated for being on the road amid heavy rain, snow, traffic, or any other condition that tended to keep price-controlled cabdrivers out-of-sight when their services were most needed.
What’s important is that by 2012 Uber was already a 3-year old service. Young people in particular had been using it long before it became essential to relatively late adopters.
Yet even as late as 2012 “you can Uber your way to the airport” still generated a lot of blank stares. Particularly among older people. What’s an app?
This came to mind quite a lot while reading Time correspondent Andrew Chow’s new book, Cryptomania: Hype, Hope, and the Fall of FTX’s Billion-Dollar Fintech Empire. In Chow’s words, “this book is the story of crypto’s craziest sequence yet,” but it’s also a look into a world that will have “other-century” qualities for a lot of readers.
So while Cryptomania is easy to read (including short chapters), it might elicit some blank stares with its discussion of ETH, “Bored Apes,” blockchain, and so much more. Which is perhaps the point. As with Uber gradually becoming a noun, verb and adjective to the masses, the bet is that with time the obscure qualities of crypto will be anything but. Or will they?
The answer to the above question requires a digression, or at least a pivot. In The Wealth of Nations, Adam Smith casually observed that “the sole use of money is to circulate consumable goods.” Precisely. In stating the obvious, Smith didn’t belabor the obvious point. Why would he have? Money isn’t wealth, rather it facilitates the exchange of wealth. What Smith observed is as true today as it was then.
Where there’s abundant productivity, there’s abundant money facilitating the exchange of the production. Where there’s little production there’s logically little money. No economic school of thought can get around this truth, though many try.
Which is why it remains an uncertainty as to whether cryptocurrencies and the youthful culture that comes with these would-be exchange mediums (read Nathaniel Eliason’s excellent Crypto Confidential for endless lingo created within this new world - review here) will eventually have noun, verb and adjective qualities a la Uber.
Chow describes the creators of the crypto leap as “risk-seeking idealists who thought they had finally discovered an oasis outside the traditional strictures of analog society,” and crypto itself as a “tool initially created with the goal of narrowing power imbalances,” particularly control of so-called “money supply” that up to now has allegedly been “controlled by central banks of governments.” The power of central banks is vastly overstated (as is its purported ability to control so-called “money supply”), but that’s another opinion piece.
For now, Chow himself might cop to the platitudinous quality of his own descriptions. Much more effective as an endorsement of crypto’s potential genius as “money” comes from the author on p. 126. He writes that “In 2011, $1 USD was worth about 150 [Nigerian] naira. A decade later, a dollar was worth 400 naira and rising.” Crypto in its perfect form would protect people in parts of the world where money’s sole purpose as a production-for-production exchange medium is being perverted by governments.
The people who comprise what we refer to as an “economy” don’t require so-called “money supply” as the various U.S. economic religions imagine, they simply want to get in amounts equal to what they produce. This is particularly pressing in parts of the world (Africa notably, but really anywhere) where money isn’t trustworthy. See the Nigerian naira once again.
At the same time, see bitcoin, or for that matter, Ethereum. Chow writes on p. 31 that “between May 2020 and January 2021, the cost of buying one bitcoin jumped from $9,000 to $34,000, and then surged to $60,000 in March. The cost of buying one ether, the currency of Ethereum, ascended from $200 to $1,200 to $1,900 over the same time frame.” What those numbers tell us is that while bitcoin and ether offer interesting speculative opportunities for those who get a rise from risk, neither is money.
Money facilitates exchange of actual wealth, but as evidenced by the extreme lurches of bitcoin and ether, the biggest risk when using either “currency” as a facilitator of trade is the use itself of bitcoin or ether. Imagine buying anything with bitcoin or ether in May of 2020 based on the near-term ascendance of both. The losses associated with using those mediums would have been substantial. Imagine taking a loan in either cryptocurrency in May of 2020?
Money is supposed to be quiet, while the wealth that money helps producers move is supposed to be the story. Yet at least as of now, crypto is the story in transactions involving it. This is a problem, yet not one discussed by Chow. Maybe it was by design.
Figure that his book is about the “mania” itself. Which enables an easy pivot to Sam Bankman-Fried. This column has all along maintained SBF’s innocence, after which Michael Lewis’s Going Infinite (review here) and Eliason’s Crypto Confidential enhanced this belief. Those out to invent the future are invariably more than a bit odd, only for SBF’s oddities to become very public precisely due to his success in helping turn what was obscure (crypto itself) into what Chow himself describes as a mania.
If crypto were still an extraordinarily unknown quantity (Eliason notes that in the early, early days someone bought two Papa John’s pizzas for something like 10,000 BTC), we would never have heard of SBF, and by extension, Chow wouldn’t have published Cryptomania. Which is the point, or should be the point.
The mania that eventually surrounded crypto due to the efforts of people like SBF attracted lots of frantic buyers of the new forms of “money.” More than a few of these buyers likely weren’t trying to stick it to central banks or persistently devaluing governments nor were they victims of devaluing governments, but they did see a chance to make money – fast.
That’s why, per Chow, SBF quickly went from the $32 billion man “receiving messages telling him how many lives he and crypto had improved across the world” to the same “criminal” receiving messages about how “My childrens [sic] future is forever changed. We trusted in you and your site and we were robbed.” Let’s be serious. No one saving for the future of their children would store their limited savings on a crypto exchange. Neither were SBF’s alleged victims. They viewed SBF (Chow cites a Fortune cover with SBF on it, and accompanied by the headline “The Next Warren Buffett?”) as their path to quick and easy wealth until finding out the hard way that markets can go down too.
In Chow’s own words, FTT (the FTX token) “served as a pseudo stock for FTX. To buy FTT was to buy into the idea that FTX’s usage would continue to soar – and to bet on Sam himself.” Seven pages before the previous observation, Chow wrote skeptically of how the money flowing into FTX and Alameda “was all Sam’s to play with,” but that was the point. The money inflows were a bet on SBF’s ability to spin crypto trades and adjacent investments into gold. Put another way, if the money hadn’t been “Sam’s to play with,” then it’s a safe bet there’s none for Sam to play with.
This is important in consideration of Chow’s writing on FTX/Alameda vis-à-vis Caroline Ellison, SBF’s off-and-on girlfriend. Ellison recognized that if the crypto market corrected, that FTX customer funds were “the only available large source of capital I could think of if all the rest of our loans were being called.” Well yes. None of this worried FTX account holders on the way up, but suddenly it did on the way down? Sorry, but FTX account holders were speculators. That’s it. Without knowing SBF, and surely without knowing if he’s a good or bad guy, the idea that he and his colleagues face prison time completely misses the point.
As a counter to this review’s point-of-view, Chow quotes former FTX executive Gary Wang as saying that “the money belonged to customers and the customers did not give us permission to use them for other things.” In isolation it’s a damning quote for sure, but it’s even more of a surety that absent SBF putting client money to work, and absent SBF using it as collateral (Chow notes a $6 billion loan to FTX collateralized by FTT, p. 237), there’s quite simply no customer interest in SBF. FTX customers were once again speculators, and SBF was their ultimate speculation.
Considering SBF more broadly, Chow obviously wrote his book knowing the end result for SBF. This enabled slanted reporting that likely wouldn’t have made its way into the book if the crypto market hadn’t dipped so substantially in 2022, and taken FTX/Alameda with it. Chow writes of Dragonfly Capital’s Alex Park, and his retrospectively wise decision to not commit $5-$10 million in capital to SBF. Due diligence of sorts apparently scared him off, but obviously hundreds of VCs with good track records weren’t as scared.
Chow cites former FTX employee Christine Chew’s observation that “it was rare for venture capital firms to conduct rigorous research about the companies they invested in,” and this surely included FTX. It all sounds so damning, until it’s remembered that VC’s are well aware ahead of time that they’re investing in the oddest of oddballs in hot pursuit of ideas that, by virtue of them pursuing VC funds, were broadly rejected by established businesses. An alleged lack of due diligence is thrown out there as an indication of VC indifference, but more realistically it’s the business model of VCs. If they’re hitting a few singles but no grand slams, they’ll soon be out of business.
As for the lavish living conditions of FTX employees in the Bahamas, Chew herself justified it at the time along the lines of “we’re probably spending 0.1 percent of what the company makes in a day.” This is arguably important in consideration of the hindsight way in which most understandably look at FTX now. The company’s daily earnings were enormous, which explains the capital inflows chasing those earnings. As FTT and earnings went up, the bet is that assuming account holders and investors knew about SBF et al’s lavish living conditions, they wouldn’t have cared. As long as they’re making money, or something like that. But on the way down what seemed reasonable logically took on suspect qualities.
Libertarians (I am one) and Randians have jumped on SBF for forging such close ties with politicians, for seeking more regulation of the crypto space, and for SBF’s alleged lean toward Democrats. The view all along from this libertarian was that SBF was operating in imperfect conditions and had to adapt to the world as it was, not as libertarians and Randians want it to be. Cryptomania doesn’t alter that point of view.
Chow writes that SBF hoped if he “won the trust of regulators and Hill staffers, they might forge crucial policy changes that would allow him to grow his business in the world’s largest economy.” This is important. FTX started out in Hong Kong, but for rising Chinese authoritarianism (including ridiculous lockdown policies) to make the formerly free island an increasingly difficult place to operate. The Bahamas followed, but the obvious goal for any business is to be firmly entrenched in the United States. SBF got into bed with regulators with the latter in mind, all the while knowing he was dealing with know-nothings. As he put it about those he had to kowtow to, regulators “can’t actually distinguish between good and bad.” No they can’t. If they could, they wouldn’t be regulators.
Regarding political giving meant to facilitate the regulatory part, SBF observed that “reporters freak the fuck out if you donate to Republicans.” So true, but again, this wasn’t SBF’s fault. Chow indicates there was lots of GOP giving too (including $23 million doled out by SBF lieutenant Ryan Salame in 2022 alone), but it was quieter.
As for SBF’s “effective altruism,” the latter offended the Randians the most. No doubt there are good philosophical arguments against it, including the obvious progress borne of the rich keeping their massive unspent wealth on the way to it being invested in market-driven fashion. At the same time, there are worse things than a goal of earning enormous sums in order to give it away. Was SBF a true believer? The speculation here is that he was and is, but also a true believer cognizant that the performative qualities of effective altruism are rewarding to the performer. Chow quotes SBF on p. 1 as saying that “his philosophizing was part of a ‘dumb game we woke westerners play…so everyone likes us.’” Well yes, once again.
Which brings things back to where they began. Chow’s book very interestingly and ably adds to the many books already out about the rush into crypto, and the many ahead. Is it the future? My own book (The Money Confusion: How Illiteracy About Currencies and Inflation Sets the Stage for the Crypto Revolution) argues it will be simply due to the old-as-government-money tendency of governments to devalue. Crypto can and will replace government money.
It all makes sense until you read a book like Chow’s or Eliason’s or Lewis’s, and it becomes apparent that those in the crypto space, and those who want to invest in it, not infrequently see crypto as the path to fast wealth. That’s fine, except that what’s a speculative instrument is not money.
Money is quiet, or at the very least good money is quiet. No one would invest in the inch or minute, and by extension investments into cryptocurrencies signal their evolution as something quite unlike money. A speculation for speculation’s sake. If so, the mania described by Chow might result in abundant information and even progress, but not progress of the kind that protects the wealth of producers the world over from the theft that is inflation, and the economy-sapping uncertainty that is currency volatility. Which is too bad.
Indeed, toward Cryptomania’s end, Chow quotes heavily featured Nigerian artist Owo Anietie on his move from Lagos to Nottingham, UK. He tells Chow that “For the first time in my life, if I want to work for an entire day without having any issues, I can.” Precisely! Real money is the agreed upon medium we all seek in return for our work, and that enables the getting of equal value to the work we do. Speculation is no way for the vast majority of us to make a living, but working is. If cryptocurrencies are to replace unreliable government money, the issuers of it will have to come to terms with this basic truth.
