From its pandemic-fueled emergence to its catastrophic crash and now its phoenix-like resurgence, cryptocurrency defies conventional wisdom. Once a fringe element in volatile financial markets, it’s now a campaign talking point, with Donald Trump surprisingly emerging as an enthusiast. As blockchain-based crypto goes mainstream, its growing influence on the global economy raises alarm bells. Is it an exciting tech revolution or a financial time bomb?

On this week’s WhoWhatWhy podcast, I talk with Andrew R. Chow, author of Cryptomania: Hype, Hope, and the Fall of FTX’s Billion-Dollar Fintech Empire. Chow guides us through the crypto landscape, from its original utopian dreams to the spectacular fall of FTX and its disgraced CEO, Sam Bankman-Fried.

He tells us about the lesser-known players behind the headlines, and explains how crypto’s promise of decentralization ironically led to unprecedented centralization of power and wealth, with a consequent potential for multibillion-dollar fraud.

With crypto a growing part of our financial future, critical questions loom: Can this digital beast be tamed? Will it upset our economic stability? Or will its mainstream acceptance ultimately negate its original promise to empower individuals to take control of their personal finances?

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(As a service to our readers, we provide transcripts with our podcasts. We try to ensure that these transcripts do not include errors. However, due to a constraint of resources, we are not always able to proofread them as closely as we would like and hope that you will excuse any errors that slipped through.)

Jeff Schechtman: Welcome to the WhoWhatWhy Podcast. I’m your host, Jeff Schechtman. In a time of unprecedented economic volatility, where traditional markets swing wildly and central banks grapple with inflation, the role of cryptocurrency in our financial ecosystem has become a topic of intense debate. What began as a utopian vision for a more equitable and decentralized financial future has evolved into a contentious issue, even finding its way into the arena of presidential politics. The question arises: What role, if any, should cryptocurrency play in our broader financial landscape? Is it a hedge against inflation, a speculative bubble, or something in between?

To help us to unpack these complex issues, I’m joined today by Andrew Chow, a correspondent for TIME Magazine who has been at the forefront of reporting on technology, culture, and business. In his debut book, Cryptomania, Andrew takes us on a journey through the crypto landscape, from its idealistic inception to the spectacular implosion of FTX and the conviction of Sam Bankman-Fried. As cryptocurrency prices once again show signs of resurgence and the markets seem more volatile than ever, Andrew’s insights will help us explore the lessons learned from the crypto crash, its impact on the broader economy, and how it’s shaping political discourse.

We’ll also examine what the future might hold for this controversial technology in an increasingly uncertain economic climate. It is my pleasure to welcome Andrew Chow here to the program to talk about Cryptomania: Hype, Hope and the Fall of FTX’s Billion-Dollar Fintech Empire. Andrew, thanks so much for joining us here on the WhoWhatWhy podcast.

Andrew Chow: Thank you so much, Jeff. That was an amazing intro.

Jeff: Well, thank you. It is a delight to have you here. When we think about crypto, should we be thinking about it with respect to financial markets or specifically technology? It seems to always jump between the two. Talk a little bit about that first.

Andrew: That’s a really good observation, and I think one of the reasons I became so interested in it is how big of a tent crypto is or at least presented itself to be. It had room for the nerdiest of technologists who just wanted to build really elegant systems. It had room for financial mavens who wanted to open up financial markets to global audiences and create all sorts of interesting tools for people to play with. It got the interest of artists who hoped to thrive in a new way and people interested in how we can reform governance. Can we vote more fairly on the blockchain? Can we house carbon credits on the blockchain?

There are all sorts of people who stormed into the crypto world, especially during the pandemic, seeking all sorts of things. A lot of them did not come to fruition, which is sort of what my book traces. I would say, right now, most of how people think about crypto is through a financial lens, as opposed to that maybe this is going to be the next bedrock of our technological future or the next bedrock of the Internet or something like that.

Jeff: One of the things that’s happened, and this is in part what you’re addressing, is this nexus between crypto as a currency with its involvement in financial markets and the blockchain in terms of technology.

Andrew: Yes, so they’re very intertwined. Both emerged out of the ashes of the 2008 financial crisis, when a person named Satoshi Nakamoto created this system that was supposed to be an alternative decentralized money system so that we could get away from the predatory banks that were running our world. The idea of the blockchain was that it was this decentralized ledger that you could operate, run, and access anywhere around the world, outside of government meddling. The ideals of it were genuinely pretty cool and I think much needed in that time in which people felt like there were a couple of puppet masters pulling strings that weren’t looking out for people’s best interests.

Obviously, these concerns were held both on the far left, as you saw with Occupy, and on the far right out of libertarianism. But the first blockchain was to power Bitcoin, which was supposed to be this global currency with which you could buy things or transact with people anywhere around the world. So they were always linked. Now, on the blockchain side, people have become interested in how you could use this underlying technology to support all sorts of applications. Can you put art on the blockchain? And then you get a form of provenance. Before, if we didn’t know if a work was actually da Vinci, well now, if an artist mints on the blockchain, then they can know that it’s there.

Can you vote in a community on the blockchain so that it’s free of tampering and it will always be there? And then decentralized autonomous organizations. There are all sorts of ideas of can we blockchainify everything, especially over the pandemic. A lot of those ideas, they didn’t really pan out. While the dream of blockchain is still alive, its implementation has been quite rocky, I would say.

Jeff: There seems to be some kind of correlation between the rise in interest in crypto and blockchain and the volatility of anything that’s going on in global markets. You mentioned the pandemic. That certainly gave rise to an awful lot of interest in crypto. That seemed to have burst its bubble, and we will talk more about that. Now that markets are volatile once again, in general, there seems to be a renewed interest in crypto.

Andrew: One of the original ideas of Bitcoin was that it was going to be this amazing hedge against inflation. That if inflation is rampant across the world, but particularly in certain economies, people would just buy Bitcoin and it was going to be this sort of digital gold, it was going to zig when the overall markets zagged.

That correlation or lack of correlation between crypto and the larger financial markets has been really interesting to watch. At the beginning of the pandemic, we saw a real jolt in the market and that jolted Bitcoin as well. But as interest rates lowered and as governments started sending out stimulus checks, it became more advantageous for people to buy a risky asset like crypto.

It was a lot cheaper to buy into crypto if interest rates are nothing. If you got $700 from the government for free, a lot of people just threw up their hands and were like, “Well, I’ll try to turn my money into more money.” A lot of people were sort of just stuck at home during the pandemic. They needed some hits of dopamine. There was this new cultural force of crypto and NFTs that was emerging, so there were a bunch of factors that contributed to the rise of crypto during the pandemic.

I think what we’ve seen since then, and particularly crystallizing starting in 2022, is that crypto has moved more so like any other volatile asset on the S&P 500 — particularly like tech stocks that go up and down based on hype a lot of the times, or whether a technology has come to fruition. When the US raised interest rates, crypto hurdled down alongside stocks like Zoom and Peloton. And just this week, we saw when the overall market was hammered, I believe starting in Japan, crypto took a 20 percent dive — its biggest since 2022 — with over $1 billion liquidated from the crypto market, which was just totally downstream from everything else that was happening in finance.

So while these crypto idealists had hoped that if there’s turmoil in a market, people would remove their money from that market and then into Bitcoin as a safe haven, that has not come to fruition yet because there are so many investors right now who are just treating it as another potential tech stock that can grow very fast and then they’re going to exit when the waters get choppy.

Jeff: In a market that moves as quickly as markets today and where there’s as much apparent transparency because of 24/7 information, is it even possible in the wildest dreams of the idealists that created all of this to think that crypto could somehow be separated from the ups and downs of the markets?

Andrew: It’s a really great question. I think you’re speaking of or maybe perhaps hinting at a smidge of naivete coming out of some of these idealists. I think that is an extremely fair question to ask. I think they had hoped that with this new ideology, they would be able to convince people in a different way that crypto had value beyond the traditional markets and obviously that has not happened in the way that they had hoped, yet.

Jeff: Talk a little bit about the idealists that were at the core of crypto, because I think that’s an important part of it, what the original intent was.

Andrew: I believe that a lot of the early Bitcoiners came out of what was called the Cypherpunk Movement in the ’90s — a libertarian tech-forward group of thinkers, often out of California, who really wanted to use technology to rebel against government surveillance and oversight. The idea that you’d be able to transact and carry on your financial life without the government prying into your business and to do that from anywhere around the world. So there were a lot of libertarians in early crypto who basically just wanted to use it to strip power from the government. And one of the most fascinating people in the whole crypto space is Vitalik Buterin, who was the founder of Ethereum.

He was one of these folks who caught on to Bitcoin early, thanks in part to this libertarian ideology. But he soon zoomed out and was just thinking about how can we use crypto not only to divorce ourselves from governmental overreach, but to actually forge better systems. So that’s where Ethereum rises as the potential building blocks of a fair, digital society. But as my book shows, at least in the time period over the pandemic, people really just wanted to use Ethereum to get rich and to play risky stock games.

Jeff: And the crash that happened in ’22 was a function of the abuse and the shady practices, but it was almost inevitable on several levels.

Andrew: Yes. So, I mean, you can go back to these macroeconomic forces that we’ve just been talking about. When you have lower interest rates, it’s just less advantageous to put your money in a government bond. You have a lot more freedom to do what you want. So a lot of people were just piling money into crypto, and, in the middle of 2022, you have a bunch of forces. You have Russia’s invasion of Ukraine, which weighs upon the supply chain. Inflation skyrockets in a lot of places. Federal governments decide that the money supply needs to contract. They raise interest rates and that, just by nature, is going to force people out of risky assets and towards safer harbors.

So those are sort of the external forces that weighed really heavily upon crypto, which had never really existed in an era of not-free-money. And then there were the forces inside of crypto that also put a huge dent in the market. Because crypto is a decentralized space, there was sort of a power vacuum, especially during its meteoric rise. And there were several figures who came hawking their own crypto products and projects, and with giant personalities on crypto Twitter, that became the main characters of the cycle. And unfortunately for crypto, most of these people who put themselves forward as crypto’s heroes became crypto’s villains.

And I kind of refer to them in my book as the four horsemen of the cryptopocalypse. It’s not a term I coined, but I think it’s just funny. It was Do Kwon, Su Zhu, Alex Mashinsky, and Sam Bankman-Fried. They were all these entrepreneurs who created these products that were stacked on top of each other. They involved a lot of leverage, so a lot of borrowing of money to put into other risky investments in a lot of ways that really mirrored the 2008 financial crash.

Just this belief that bubbles would continue to expand, and betting not only your money but other people’s money on the continuation of bubbles. So their products crashed and coincided with these larger external forces, and because they were operating on so much leverage, the domino effects were really, really acute and it wiped out a trillion dollars from the crypto ecosystem.

Jeff: Well, certainly, the crash of crypto and Sam Bankman-Fried and all of this got a lot of attention in the public consciousness and the media, et cetera. Was crypto ever large enough to really have much of an impact on the larger economy?

Andrew: Yes. That’s a really interesting question. I think you could make an argument that the press and the attention and the consternation punched above its weight in terms of the actual economic impact it had on the overall populace. Now there are some different theories about this. One of them was, if you are talking to someone who’s pro-regulation, they would tell you that, specifically, the SEC did a good job at keeping crypto at an arm’s length from too much of the American public diving into it. The fact that most Americans in 2022 couldn’t really put crypto as part of their 401Ks yet, for example.

Of course, the crypto world would totally disagree with you and they would say that SEC was asleep at the wheel and not doing enough to protect consumers from bad projects like FTX. But I would say that in this particular crash of a couple years ago, a lot of the participants weren’t really at the center of the American financial system. They were at an arm’s length or they were a small subset of hyper-aggressive investors.

So that’s the reason I think there weren’t many ripple effects. This time around, I think you’re seeing crypto hell-bent on growing and becoming more and more entangled in the American financial system. They’re also arguing that they’re going to forge better regulations that would prevent the worse actors like Sam Bankman-Fried from taking control again, but the jury is out on future impacts.

Jeff: How do the leaders of mainstream financial markets — people on Wall Street, bankers, et cetera — how are they viewing crypto today?

Andrew: For a long time, they have had a total animosity towards crypto, as crypto positions itself as a direct threat against what they’re doing. I think I can’t really speak to why some of their minds have changed. Maybe it’s simply the fact that crypto became too big for them to ignore and that they themselves wanted to go in as a potential hedge. So I think a lot of these banks are dealing with crypto, thinking about if they should be custodying crypto, having a small part of it on their balance sheet just because it’s so fast-growing. Bitcoin and Ethereum performed better during this bull run than any stock on the S&P 500. So if you’re a money manager, it’s hard not to at least think, well, we need to be paying some attention to it.

I think there are some folks that are trying to integrate it into their systems or to defang it, and then there are others that still think that it’s a total utter threat to what they do and the stability of the financial system.

Jeff: And among its original libertarian idealists, how do they see it today in terms of it becoming more mainstream in the way it is being forced to be embraced by the mainstream? Is that taking some of its power away, from their perspective?

Andrew: I think there are a lot of contradictions in the main storylines of crypto this year. The fact that the crypto world was so excited about the idea of an ETF, basically Bitcoin being packaged into an understandable financial instrument that any trader could buy on their Schwab account or whatever; Bitcoin being a part of 401Ks being held by money managers; people begging Congress to let crypto be a bigger part of this mainstream system.

Yes, I think the mainstreaming of crypto is a really fascinating storyline. And then major companies like Coinbase, these major crypto companies which have the backing of these traditional Silicon Valley, VC powerhouses like Andreessen Horowitz. I think for something that started out as so oppositional, you see the power centers of crypto now in Wall Street, in Silicon Valley. Maybe some of those folks would argue that, as we were talking about earlier, the original ideals were naive. It needed to grow up, it needed to be integrated into these systems in order to have any shot of survival.

Jeff: And is there a new collection of players in the crypto world? Maybe not another four horsemen, but another group of leaders that are taking crypto to a new place?

Andrew: Donald Trump is no crypto leader, but I think we need to talk about him in the context of this moment. Trump, for years, had expressed distaste, distrust in crypto — which, by the way, Sam Bankman-Fried also did in his earliest years. Sources told me that before he got into crypto, he didn’t understand where its inherent value came from, but was persuaded to come in when he saw the arbitrage opportunities of how much money could be scooped up between the cracks and leveraged for his own aims.

It’s fair to wonder if Trump is taking a similar tack. Maybe it’s possible that he’s gotten really good advising and now believes that crypto, and specifically Bitcoin, is going to be this really powerful store of value. We’ve seen him talk about it in overflowing terms. He showed up at the Bitcoin conference in Nashville just last month to sing Bitcoin’s praises, talk about how he wanted Bitcoin mining only in the US, how he was going to keep a stockpile of Bitcoin on the US balance sheet. And crypto has really embraced him and sent out signals. They believe that a Trump presidency would be much favorable to them than a Harris presidency.

The question of the crypto voter has come to the fore. So right now, whether it’s genuine or opportunist or whatever it is, there is sort of this alliance and this belief that Donald Trump is the crypto candidate. But as we’ve talked about, these issues are always so much more nuanced and multifaceted, the impacts on crypto, than whether president says Bitcoin good or Bitcoin bad. So I’m very fascinated in Trump’s continued alliance with Bitcoin and what that actually looks like moving forward.

Jeff: And what is the regulatory pressure on crypto now, and where is it coming from?

Andrew: It’s coming from the SEC and SEC chair Gary Gensler, who has basically become crypto’s number one enemy, especially following the FTX crash. Gensler really ratcheted up his offensive against cryptocurrency companies that he deemed were acting in illegal ways, so filing all sorts of lawsuits. The companies would then file countersuits.

The crypto industry, I would say, has done a pretty effective job in creating this narrative that Gary Gensler is one of the sole forces suppressing the crypto world. That if crypto could just unleash from the shackles of Gary Gensler’s evil hammer, or whatever bad metaphor you want, then crypto would be able to run free, let innovation thrive.

I think this is one of the reasons that Trump was keen to embrace it, because it allows him to put himself in direct opposition to Biden’s Gensler and Elizabeth Warren, what he terms as the far left oppression of the markets. I think while there’s no doubt that Gensler has wielded a heavy hand against crypto, I would just point out that the crypto market tanked far before Gensler really began his biggest moves.

The crypto world was first brought down from within, from the actions of their once-heroes like Do Kwon and Su Zhu, who were allowed to run free and build up these enormously risky ventures. I think Gensler has been an enemy of crypto. He hasn’t made any indication otherwise. I think crypto also needs to do some internal soul searching.

Jeff: What about the role of crypto in global markets?

Andrew: A lot of my book is global in its focus because I think for a lot of people outside the US, crypto makes so much more sense. Some of my characters, my main characters, are from Nigeria, from Malaysia — especially these places where inflation runs really rampant. And if they’re holding their native currency for savings, they’re just seeing it getting demolished year after year.

Crypto also made sense in Nigeria in another way. For instance, in 2020, there were major protests against the government and these special police forces that were alleged to have been kidnapping and terrorizing civilians. And the government tried to use money to track the flow of donations for these protests. So crypto actually became a way for these protestors to fund the movement in a way that the government could not track or could not sanction through their bank.

Nigerians were often saving their money in crypto because saving money in the naira just didn’t make any sense. In the Philippines and Malaysia, a lot of jobs during the pandemic were in person and went away, so people turned to crypto to make ends meet, including playing crypto video games where they would earn crypto for playing for hours. That game, which is called Axie Infinity, basically went up in smoke because of its Ponzi-like economics.

So there were lots of reasons why crypto was and remains appealing to people in countries with financial instability. It’s still obvious that the US remains a global leader in crypto, perhaps just from the sheer capital that US players are putting into the market. I am more interested, if we’re talking about utility, about how crypto could present either an escape valve or an alternative for other systems that are fundamentally broken in other parts of the world.

Jeff: And is there any kind of global regulation that’s in play at the moment?

Andrew: That’s a really good question, and from what I can see, the answer is no. It’s hard enough for each country on its own to come up with regulations inside. So I’m not seeing that. I am seeing some governments work together to track down crypto criminals who have fled across the globe, but that’s sort of a different topic.

Jeff: It does seem with the rise of the global aspects of crypto that you talk about, and the lack of regulation, that that sets up an opportunity for an awful lot of danger down the road.

Andrew: Yes, and I think there are some crypto critics who basically just argue that all it’s been useful for is sort of like cross-border arbitrage, taking advantage of the differences in the ways that different governments are thinking about money. I think there’s obviously potential danger that has happened and will continue to loom.

Jeff: Andrew Chow, his book is Cryptomania: Hype, Hope and the Fall of FTX’s Billion-Dollar Fintech Empire. Andrew, I thank you so much for spending time with us here on the WhoWhatWhy Podcast.

Andrew: Thank you, Jeff.

Jeff: Thank you. And thank you for listening and joining us here on the WhoWhatWhy Podcast. I hope you join us next week for another radio WhoWhatWhy Podcast. I’m Jeff Schechtman. If you like this podcast, please feel free to share and help others find it by rating and reviewing it on iTunes. You can also support this podcast and all the work we do by going to whowhatwhy.org/donate.

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