Even if You Don't Care About Any Cryptos, It's a Good Story

Motley Fool host 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.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on Sept. 17, 2023

Zeke Faux: It boils down to how would you like to keep your money in the ad blocker, in your browser, one of those little icons next to the URL. If you lose the password it's gone forever and everyone's telling me that you're going to get it stolen. 

Mary Long: I'm Mary Long and that's Zeke Faux, investigative reporter for Bloomberg and the author of the new book Number Go Up: Inside Crypto's Wild Rise and Staggering Fall. Deidre Woollard caught up with Faux to talk about how FOMO hit crypto speculators, the problems of actually using crypto. What Jimmy Fallon said to Zeke about his promotion of NFT's in Zeke's time hanging out with none other than Sam Bankman-Fried. Well, 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 treat 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.

Zeke Faux: I feel like I got really lucky because, since I was a teenager I always loved these adventure stories. I loved books by Jon Krakauer, Ben Mezrich who did the MIT Blackjack story. But I never thought that I had found a story good enough that I should write a book. This is my first one. When I got into this crypto world, I was skeptical of it not just as an investment, but even as a topic to write about because I felt like I knew it. I'd seen these guys with their Lamborghinis saying their coins were the best. But once I dived in, I realized that first of all, I find myself on some billionaire's yacht, people are talking openly about scams that they're running and about finding drugs for the after party, and I'm like pinching myself like, am I really here?

Deidre Woollard: [laughs]

Zeke Faux: I'm realizing that, but also something interesting is happening in world history. If you don't even care about crypto, but you still should care that this is one of the craziest financial manias and biggest that's ever happened in the history of the world. I'm sitting there, I'm realizing I'm here, I'm hanging out with the people at the center of it like Sam Bankman-Fried, and 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 it's happening to me. It was super fun while it was happening and I just felt lucky that I was there to see it all.

Deidre Woollard: You have seen a lot. The title of the book Number Go Up, it feels like it's being shouted in a read it forum, which I think is the idea of crypto. A lot of people just wanted to believe so much in this. I've been studying financial history lately, this is nothing new. We've seen this throughout from 1700s on at least in the US. Why as investors, are we so willing to just throw 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?

Zeke Faux: I really think that fear of missing out is really powerful. If you see your friends making money on something. I had a good friend who was making money on Dogecoin. He was telling me I should buy Dogecoin.

Deidre Woollard: [laughs]

Zeke Faux: It was annoying to me because I'm more of a Motley Fool type investor. My portfolio is all per Bloomberg rules, it's all in index funds. I'm not someone who's chasing the latest trend. I'm saying, 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. As you said, it really is this universal emotion. In the book I write about Alexander Pope, a British poet from the 1700s who invested in the South Sea company which was like an early bubble. He wrote this letter to his stock broker that was very poetic, but boiled down to the fact that he really wanted a giant carriage with 10 horses pulling it, which would have been the Lamborghini of his times. He was like, let's just give it a shot. Let's go for it. Give me some of that South [laughs] Sea bubble. In the moment when you see it's happening, it's hard to be the naysayer. It's really no fun. Why not get in on it? 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.

Deidre Woollard: 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.

Zeke Faux: Personally I feel like I'm not that cool, so by the time I hear about it, it's probably too late. You read about people in the newspaper who are becoming overnight millionaires or billionaires and there is that thought like why not me? Why don't I try my luck? I'm not earning any interest at the bank, the stock market goes up, maybe it goes up 5% that's not really that fun.

Deidre Woollard: [laughs] That's why people buy lottery tickets. I want to talk about, I think it's one of the biggest lies of crypto that you chased out of the book which is Tether, it's a "stable coin" supposed to be pegged to the US dollar. Stable coin, it's an oxymoron. I feels like the stable coins have proved not to be stable so far. But is there a place for stable coins? The idea is correct but the execution just is not.

Zeke Faux: It's a pretty complicated one and still standing now, so they've held up. But the idea is that it's always worth a dollar. It's a to a cryptocurrency that's always worth a dollar because each token is backed by a real dollar in the bank. 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. 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, what are they doing with all this money? Because when I start investigating, they're supposed to have $50 billion in the bank. Enough that would make them a really large financial firm and the company is just totally iroic in the book, they're quilted out of red flags. I've never seen [laughs] a company with so many red flags. The CEO and the CFO are totally elusive. They never give interviews. They both have strange pasts. The company has been proven to have lied about its reserves in the past by the New York Attorney General. When I start investigating, they're not really saying what they're doing with this money. It turns out that 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 a 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. It turned out to be one of the best things I've ever been able to investigate and just the bottomless mystery.

Deidre Woollard: You just pulled one thread and it just led you all over the world.

Zeke Faux: I started looking out for Tethers money by talking to traders on Wall Street to see if they've handled any of it. By the end, insane but I'm in Cambodia looking into this human trafficking ring run by Chinese gangsters who use Tether to run scams. It sounds like the conspiracy theory stuff that you wouldn't believe if you read it on the internet, but I was there, I saw it and Tether brought me there.

Deidre Woollard: Definitely an interesting adventure. Another adventure you had in the book that gave me a little bit of anxiety is you bought a Bored Ape NFT. One of the parts of the book I thought was pretty funny is you explaining this to your wife and why you needed to do this. Tell us why did you feel like it was necessary to participate in the NFT craze as you were covering it?

Zeke Faux: If you have forgotten because it was a quick craze.

Deidre Woollard: It was quick.

Zeke Faux: They were images that digital art. The Bored Apes were images of apes these ugly cartoons of apes wearing silly costumes and they were selling for hundreds of thousands of dollars, even millions of dollars. It was crypto because your ownership of the ape was recorded on the block chain forever. But the funny part was that, there's nothing stopping anyone from downloading this ape. 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. It's just like so much of crypto is baffling to me. It was impenetrable. Crypto people were telling me, I got this question a lot, they'd be like, hey, do you own any crypto? I'd be like, well, I got 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 that's not how it works. It's not like Robert Caro was president and he's our great presidential biographer. But I still felt like they had a little bit of a point and if the appeal of crypto is 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.

This guy was telling me I needed to buy something called Solana Monkey Business to go to this party and it cost $25,000 and it was really just an imitation of these Bored Apes. 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. I had an advance for writing the book and I went to my wife, Nikki, and I said, listen, for my research, I really want to try this out and I think I should buy one of these Bored Apes. They have mutant apes. These are like worse pictures. They look really gross. They say the ape drank this potion. They call it slurping the potion and then their face melts. These images cost a lot less. They were like 90% off. So you could get one for $40,000. I'm telling Nikki and she's like, oh and she makes this horrible face. She's really been super supportive of the whole project and she got it when I explained it to her that if I got one of these apes I could go to their Ape Fest, which is like a week long party and I could see behind the curtain, like what's going on with these NFTs? Look, if somebody is paying 30 bucks to 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. The reader wants me to. 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 really quick.

But I was determined to go through with it and it was actually more educational than I expected. Because I had to actually send $20,000 into the crypto world and the process of doing this was truly horrible. At any point, I could have 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 a customer service person you can call if something goes wrong, how would you like to keep it in the ad blocker in your browser? Like one of those little icons next to the URL. 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 apes. He paid I think 300 grand. It got stolen. 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 ape TV shows. Anything seemed possible for a couple of years there at the crypto bubble. His ape was stolen. He had to buy it back and he lost another 300 grand or something. The ape I got, 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, it was headlined by Snoop. Eminem 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 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. 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. 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. You're a loser. This is the worst ape. I can't even believe they let you into this party. The ape served no purpose. One of the original or a very influential promoter of the Bored Apes was Jimmy Fallon. He had gotten one and he featured it on his show and he interviewed Paris Hilton who had one. I saw him, he did come to the ape fest and I was like, maybe I should show him my ape, see what he thinks. He was up in the back. There was a VIP area, but walked by and I 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. He didn't really want to look at my ape. I'm like, hey, at this point, like I said, the prices had come down a lot. I was like, Jimmy Fallon, what do you think? You had this on your show and then people really bought these for tons of money. Anyone who's here, they probably lost like 100 grand or more. He was like, oh, I don't know about investing. Then he said something that all these ape people said that I found offensive which was just, oh, I did it for the community. That was the idea. Oh, I bought this $100,000 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 I felt like I would pull back the curtain and there would be nothing there. It was not the future of art, it was not the future of finance. It was just all hype and there wasn't as much to it as had been promised. These Bored 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 paying for them.

Deidre Woollard: I'm glad you were able to sell yours. Let's talk about pulling behind the curtain and seeing nothing there. You have Sam Bankman-Fried is on the cover of your book in a Roman coin form, which I thought was pretty cool. In the book you talk about him, you lay out the beginning of his story. We started with Alameda, which was his crypto hedge thing, then moved on to FTX. Part of the thing I think is interesting is the idea of effective altruism. Which starts off logically as this idea that the more money you make, that that maximizes the good you can do in the world. Sounds sort of logical, but then everything goes hyperbolic. What led Sam Bankman-Fried from like I'm going to make money and spend it doing good to wherever he ended up next.

Zeke Faux: That is what appealed to me about his story. Because by the time I met him, this guy, he's 29 years old, he is 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. Sam, he had said even as a teenager, he was really committed to trying to do good in the world. This philosopher was like, listen, you're not going to do that much good handing out pamphlets. You're not especially good at it. You're the 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 lots of people to give out pamphlets or whatever. Sam was like, yeah, good idea. Less than a decade later, he was one of the richest people in the world. I was just like, I found this story really fascinating. When I met him, he had given away 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. 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 sometime in the future, but meanwhile, you just keep getting richer and richer? Because it's really appealing to amass money in power. But we now know that in fact, his drive to get rich had corrupted him so much that he ran apparently a massive fraud at FTX. By the end of the book, I'm at his apartment, the company has collapsed, and the authorities are closing in and he's got eight billion dollars missing, and he's making up like crazy sounding excuses for what happened to all this money.

Deidre Woollard: I think there's an interesting mix there because at first you go and you see him in his office and he's eating at his desk and he's got the bean bag next to him where he sleeps at. He just seems like this guy who's completely like, focused on this. Then you get the great interview. You get the one after FDX has filed for bankruptcy, the authorities are closing in. He's in this massive penthouse, 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.

Zeke Faux: Yes. He could tell 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 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. When I showed up at his office I was in the break room and I'm chatting with his assistant. He just walks in wearing, athletic shorts, T-shirt, crew socks, no shoes. Reaches into a cabinet, takes down a packet of shelf stable chick coma like you might get at Trader Joe's or something, rips it open, doesn't microwave it, and just starts like spotting it into his mouth. The assistants like, hey this is like the reporter who flew here to edit or profile you for Bloomberg. He's just like, oh, hey, what's up 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. 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 shady stuff was going on. I mean, it's wild to think now that I was sitting there next to somebody who was potentially the biggest con man since Bernie made off. Looking at his inbox, looking at like his chat with his traders 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 in a fawning way, and venture capitalists were throwing money at him. It was really impressive what he was able to pull off. 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 the hero of the story. It was that desire to be the hero, and that belief that if he made money, he would know what to do with it and that he could save the world that made it so that he could justify whatever it was that he felt needed to be done. Whatever risks he took, I should say his trial is coming up. He's pleaded not guilty. 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.

Deidre Woollard: Right now you've got the SEC which has been trying to figure out where it fits in the crypto world. Now it seems to be stepping into the spot light. we had some news recently about a Bitcoin ETF. What do you think is next for crypto? Is this something that's going to have legs in the future and maybe the scams and the NFT's and the crazy hype was just part of growing pains or does this go down an even darker road?

Zeke Faux: I would say first of all, the book is not about investment advice. It's about the crazy adventure of these last two years. The people who made billions and then lost it all and are now facing jail. Whatever happens, this was an insane bubble, and I think it's going to go down in history. Now, that said, when it comes to the future of crypto, 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 and ask yourself, do you do 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 silly, but that was like my one-time using crypto for real how it's supposed to be used, where you actually have a crypto wallet and you're not just gambling on it on like coin base or Robin Hood or something. What I found was that it's incredibly hard. It is not something that like my mom would ever do. 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. I do think that things have to make money to be valuable. Like it can't just be hype forever. 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. I was like continually disappointed. 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? I don't think so, I think that the crypto people like to say do your own research. But I think that's actually a bit dangerous because in the crypto world there's so little transparency about these companies and time and again they're shown even like the seemingly most reputable ones have turned out to be frauds. There really was no way for like the average person to figure that out ahead of time. 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. 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.

Deidre Woollard: I think that's true. Well, the book is number go up, Zeke Faux. Thank you so much for your time today.

Zeke Faux: Thanks for having beyond. It's really fun.

Mary Long: As always, people in the program may have interest 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.