“It’s like the narrative would be way sexier if it was like, ‘Holy s—, this is the world’s biggest Ponzi scheme.’”

Sam Bankman-Fried

As markets ripped in late 2021, the total value of all cryptocurrency approached $3 trillion. Just 12 years prior, crypto didn’t exist.

The boom created a wave of young millionaires and billionaires almost overnight. Crypto promised to replace fiat currencies and put power in the hands of average people.

Journalist Zeke Faux traces the crypto boom and bust in his excellent new book Number Go Up.

The Crypto King

Somewhere near the top of cryptoland stood Sam Bankman-Fried. The young founder of crypto exchange FTX had a peak net worth of $26 billion and the ears of celebrities and government officials across the world.

Despite founding one of the most valuable tech startups in existence, Bankman-Fried couldn’t really code. So he hired engineers like Nishad Singh and Gary Wang to spin up the new crypto exchange in 2019.

In just a couple short years, FTX became the third largest exchange by volume. It was valued at $32 billion by blue chip venture firms including Sequoia Capital.

Unusually, they did not ask for a board seat. Had they been closer to the action, perhaps they could’ve stopped what was about to happen.

A Potemkin Village

FTX presented a slick exterior, with star studded ads and a Miami arena bearing its name. But inside, it was a mess.

FTX employees tracked billions of dollars worth of transactions in primitive spreadsheets. Bankman-Fried and others misappropriated or sometimes simply lost track of massive sums.

The young founder had personal issues as well. He fidgeted endlessly, perhaps overstimulated by Adderall or other ADHD medications.

In his conversations with Faux, Bankman-Fried occasionally dropped hints that everything might not be on the up and up.

He openly pondered the possibility of massive Ponzi schemes throughout the crypto world. Perhaps he wanted to confess.

The Fall of FTX

As the Federal Reserve began to raise interest rates in 2022, problems began to bubble up in cryptoland.

Coin prices fell hard. One project after another, from Terra-Luna to Celsius to BlockFi, imploded.

By late fall, FTX was unable to meet customer redemptions. Their money was gone — sent to related hedge fund Alameda Research and gambled away.

On November 11, FTX filed for bankruptcy. FTX could only withstand a down market for a matter of months.

Soon after, Bankman-Fried was arrested and eventually convicted on numerous counts of fraud and conspiracy.

Wrap-Up

“Only when the tide goes out do you learn who has been swimming naked.”

Warren Buffett

When the price of money is zero and cash is flooding into your company, it’s hard to lose. No matter what mistakes you make, no matter how much you steal, there’s always more.

But when the money starts moving the other way, the problems start.

As one company after another imploded, I was struck by one thing: no real use cases were left.

There were no happy customers using crypto to buy their groceries. There were just gamblers, and now they had packed up and gone home.

Faux’s book traces the collapse of FTX and other exchanges in riveting detail. But there’s a lot more to the crypto crash — we’ll dig into that in part 2.

What do you think the future holds for crypto? Leave a comment and let us know!

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