Weekend Bonus: Crypto IRL, Episode 9, with Tim and Katie

This is episode nine of Crypto I r L. If you want the full video experience, head over to Bloomberg dot com, slash qt or check it out on YouTube. Yesh h. The implosion of f t X has given ammunition to crypto skeptics. It's kind of this I Told You So a moment for those who've been against crypto from the beginning. At the same time, many of those said skeptics see the case against crypto is larger than the failure of one of the biggest crypto exchanges on Earth.

To them, it's about utility and inherent value of crypto. It's about the concept. They don't actually buy the idea that you can use crypto to create an alternative financial system. Throughout the series, we've heard from the true believers who make passionate and extraordinary promises about crypto that bitcoin provides freedom because they, not a government, are in control of their money, for example. But there are also people out there who make it their mission to shine a light

on what they see as the deficiencies. You're about to hear from three of those people, all of whom we spoke to before the f t X to bacle. And even though we don't yet know the ultimate fallout from f t X is collapse, how much money is gone, what clients will recoup or how, or if it will ultimately undermine confidence in crypto, we know that the skeptics are already using it as yet another example to make their case. I gotta say it's a little weird that

this is our last episode. Well, we're making the case against crypto. We're talking to prominent voices who are anti crypto. It seems like a pretty good journalism thing to do, you know, get both sides of the argument, right, It's a noble pursuit, it's a higher calling, right. Yeah, We're out there collecting information about both sides and presenting it in an even handed way. And we got to meet the guy from the o C. How did you find

yourself in this mess? Because people know you as Ryan Francis Outwood from the o C. They know you as a copy on other shows. Yes, on two separate shows where I played a cop. Yeah. Um, how did I find myself in this mess? So? I have a degree in economics UM from the University of Virginia UM, which I got for a while ago, uh, two decades ago. But of the pandemic, I had a lot of time

on my hands. Um. Uh. The short answer is a buddy of mine from college, who has given me the worst financial advice of my life, came to me and said you should buy some bitcoin, and I said, Okay, I think that's a red flag some something might be up here. So I, UM. I hadn't paid attention to cryptocurrency really ever, um up to that point. I took UM Gary Ginsler. They had the SEC's course that he taught on blockchain and crypto in m T and he had made it available for free online, so I took it.

Hours later. It was like I had a lot of information, but I had the same questions, which, to be honest, I started with with the word itself with language. You know, I'm a storyteller. UM, that's what I do for a living and work to have a lot of power. UM. And cryptocurrencies aren't currencies by any reasonable economic definition. There a poor medium of exchange, unit of account, and store

of value UM. And so what they more closely resemble is a security UM where and securities are obviously regulated under American law. They're an investment of money in a common enterprise with the expectation of profit to be derived from the efforts of others. That's the four prongs of the how we test, which is how we define securities

under American law. I saw a massive unregulated securities market UM that was drawing in millions and millions of people who I don't think we're aware of the potential fraud. UH that could that could ensue, that could be happening right as at that moment, and so UM. Anyways, I reached it. I got I got high one day and Uh, I decided that I should write a book about crypto and fraud, which sounds like a really good idea when I was high. UM. The next morning, sober, I realized

I didn't actually know how to write a book. Um. So then, UM, I reached out to uh this journalist Jacob Silverman, who I had never met before, but I had followed him on on Twitter and he followed me back. Um. He had written an article called even Donald Trump and know his Bitcoin as a scam, which I thought was kind of funny and had brought together a few things that I was thinking about, this is why we always need to have our d m s open. Yeah. Anyway, and butt him to drinks and was like, hey, do

you want to write a book about cryptoon fraud? And he's like, my wife just that they're about to have a pandemic baby. My wife and I had had our pandemic baby earlier, so he was going on parentally, so he's probably like, didn't have anything better to do, but he was like yeah, sure. So so it's funny that all of this kind of started in the pandemic for you, because that's actually when I started watching the o C Yeah with with my brothers. Actually it was very weird.

You're like so late. I know, I know, but I got there, which is the important thing. That is the important thing. But listening to you, it sounds like most of your objections lie in the cryptocurrency part of the cryptocurrency universe, the currency part. But how how broad is your skepticism here, Like when you think about things like to centralized finance, like the promise of the blockchain, for example, do you see any merit or potential in those areas? UM?

I think it's I think it's extremely difficult to tell right now until the dust settles on what I believe was effectively the largest planting scheme in history by in order of magnitude. UM. I know that's a bold claim, but I'm happy to back it up with you know, facts and figures and all sorts of stuff. Until we see that uh settle and we see what's left. It's

difficult to find hard numbers and cryptois. You're it's probably no. But according to the Pew study that was done just this last month, they asked people, you know, did your investment in crypto the forty million Americans who have bought crypto, um of the adult population, did your investment in crypto

live up to your expectations? UM? I think like fifteen sixtent said it exceeded them, said it was you know, kind of what they expected, and like said it was worse so just starting there, you're looking at like a three to one split right with like saying it was okay, we don't really know where it's gonna go yet, but if I'm optimistic, it sounds like you're open to it yea and totally opening. I was sorry I couldn't tell your biggeste guess I am. I am open to it.

I mean, I don't I don't mean. I don't care about a distributed ledger right, that does not animate my like I don't think that your blood. I don't care. It's just a ledger, Like, if you can use it to you further. Um. The things that Crypto purports to do, then great. Right. I would love for our financial system, which has many many flaws, to be better. I would like for it to be more inclusive. I would like

for the fraud to be lessened. Um, And I'd like for people to be able to transact easily and particularly overseas between countries. But unfortunately, Crypto I don't think accomplishes any of those things. I'm wondering how you think about what you're doing right now in the context of your identity, your professional identity, or your personal identity. You're a dad you're an actor, you're a crypto skeptic, you're writing a book. I guess my question is what's the end game with

the crypto side of things? And how that kind of yeah for you, Like what's your goal with writing the book? Why are you doing it? Like? What what do you want to com indicate? Yeah, it's funny that you might talk to my therapist and he's like he said, he He's like, you're not the things you do. You're not the results of the things you do. That's why I said, your dad too, not that I talked to your therapist.

That's fine. So, like, I don't like it when people I like you, you're you're, you're, you like your town. I'm not just a journalist. So what I hope to do with the book is tell a story about people and what they want and why they bought crypto um and what we can learn from the failures of crypto and where we might go from here. And back to your point is there are there things we can take from blockchain and decentralized technologies that they do offer value.

And I'm very open to that, and I'm talking to academics and people that know a lot more about that than me. When you reflect on the rug pulls, the pig butchering that's gone on, how much flame do you place at the feet of regulators. There's a lot of blame to go around. UM, but it's funny. I'm actually writing that chapter now. UM A lot. It's been a massive failure across the board, both parties. Um. Um, there's a lot of reasons for that, I think. I think.

I don't think there's a sort of I think there are simple answers to that question. Um. One of the things that I was struck by when I started to try to understand, like why this has gotten so big, um with so little regulation. Um. One of the things that I observed that I thought was just quite fascinating was the fact that we separate our commodities regulation from our securities regulation, which, as far as I'm aware, is we're the only country in the world to do so.

You live in Brooklyn, Yes, I live in Brooklyn. Matt Damon lives in Brooklyn. You won't even yes, you know where I'm going without God. When you think of celebrities in crypto, you think of celebrities who have endorsed crypto. Matt Damon Larry, David Parakelton, Kim Kardashian Um. I mean, have you ever run into any of these celebrities, given that you're kind of the soul celebrity skeptic, I don't want to say soul, but you're among the most vocal

celebrity skeptics. Do you ever run into Matt Damon, for example, that our weekly meetings, that your weekly meetings? No, I do not, um, So I haven't talked to them. So I don't view celebrities as so. The first article that Jacob and I wrote in October of last year was about Kim Kardashian UM and about the theory of max shilling,

which was just pretty obviously scanny UM. And so it's it's pretty rewarding, I have to say, personally, and quite frankly to be a little indulgent that like, almost exactly a year to the day after we wrote that article at the STC, you know, reach a settlement with her for one point six million dollars. But um, But celebrities are just the megaphone that crypto needs in order to

get more retail trader traders into the casinos. Like they're not I'm sure or the celebrities, you know, run the gamut in terms of their knowledge of cryptocurrency and block technology. But my suspicion is they're not deeply steeped in the they haven't all read the white paper. They have not read the white papers or perhaps taken Ginsler's course. Um they are, you know, they're selling stuff, as celebrities have always sold stuff since there have been celebrities. Ben Mackenzie,

thanks for hanging out with us. Yeah, it's been a pleasure. Molly White so non seen. Carmona, thanks for joining us. It's good to see you both. Thanks for having us. Thank you, Molly. I want to start with you. I think a lot of people everyone knows about Web three is going great now, but I'm interested in your own journey because you have a background in computer science, you

have a background in communities. It's kind of strange that you don't love crypto, given that we're talking computer science and communities, Like what's not to love? I think, um, crypto doesn't actually help communities in the way that it claims to be. UM. You know, I do care a lot about communities, and I care a lot about them being treated fairly and being um educated about what they're getting into and I don't think crypto does either of

those things very well. This special audio only episode of Crypto I r L will be right back with more from Katie Greifeld and Tim Stanovic. If you want the full video experience, head to Bloomberg dot com slash qt. Tell us about your background? Is this live? Just kidding? Its not? Okay? So I know that a lot of your research has focus on inequity and sort of how crypto plays into that. So I mean, taking those comments, would you agree? So I, like you just said, focus

on inequities. I was not a crypto researcher person, didn't think I was going to end up into the space. But I found that there were a lot of like recent reportings at least around the time I started looking into crypto, with you know, headlines around communities of color really being drawn to cryptocurrencies, and so I really came in extraordinarily curious. I just wanted to know, so, how does this work? How does this happen that you have

these promises and it actually like comes true. And in doing that research is when I found one the promises weren't being met and then two it also there's this was this space with just a whole range of risks and drawbacks. Well in that research to not see I'm wondering if there was anything that you found that is promising in the technology, in the concepts to how build a more equitable society Because the financial system, I mean, is it fair to say that it is exclusionary in

some ways? Oh? I think one of the things at least I talk about is that historically a lot of communities of color have been excluded from traditional financial institutions. That is absolutely true, But that doesn't mean that crypto is necessarily the solution. I don't agree with the status quo. I believe we should fix the status quo um. But then even digging deep into crypto, I don't disagree with the ideas of democratization of finance. I don't disagree with

the claims themselves. I disagree with the fact that they're essentially false promises and so Molly, I mean bringing that forward, the work that you do, sort of chronicling all the risks and drawbacks. When you think about everything that has happened over the past few months, the scams that we have seen, the rugs that have been pulled, what would you the pinks that have been slaughtered. You know about this pig butchering. Have you heard of this UM? Well,

in any case, actually called boats. So we're good the same effect at the end of the day. But what's the common denominator there between all these different scams, because it feels like they've taken a lot of different forms and shapes. But how what what would you say is the common linkage? They do take a lot of different forms UM, and I think they do differ in a lot of ways, but they often rely on the fact

that people think crypto is really hard to understand. It's really you know, technologically complex, and so they're sort of willing to accept that maybe they don't understand it, but that they should still you know, buy into it. UM people will often just say, well, I don't really get how it works, but you know it's promising me these huge returns, and so I'm probably just not smart enough to understand it, but you know, they'll put their money

in UM. And I think, you know, people actually generally are actually smart enough to understand what's happening in these schemes. I'm wondering if so, not seeing there's like any promised the idea of disintermediation, of getting rid of you know, quote unquote middleman, a third party. The decentralization here, the idea of people being able to send remittances to other countries without paying huge feast to some sort of third party.

Isn't that at least promising? Right? So? I I guess your your question really to me, the thing that struck me was the fact that you said idea. The ideas are promising, um, But it's when you dig deep into the technology itself you find that disintermediation, that so called decentralization. I mean, one could actually quibble with that in itself,

and that there are intermediaries within the technology itself. You have software developers who make decisions that you essentially have to rely on to make the right decisions, that they have the right incentives to make those decisions, that they don't have conflicts of interest as they're making decisions. You have miners with certain cryptocurrencies that make decisions. So those

are mediaries actually exist. And when you zoom out the very like structures are additional technologies and platforms that are being built on top of the blockchain. You have a whole new set of Intermediaris. Molly, there's this this funny thing happened yesterday. I was on your website and there's this good news section sort of this good news tag, and I was like, Oh, I'll click this and it will be like all the good things that crypto has done.

It's not. It's like the last entry I think it is July, and the good news was that some game developer is not going to use n f T s. Yes. So my challenge to you is name something good that has come from all of this. Well. I think the best thing actually about crypto and everything that has sort of sprung out of it is that it has put the spotlight on a lot of failures in existing systems

that we deal with today. So I think a lot of people are actually a lot more aware of issues in the banking system or in you know, unbanked communities than they might have been if they hadn't started engaging in crypto. And I think that's great. This special audio only episode of Crypto I r L will be right back with more from Katie Greifeld and Tim Stanovic. If you want the full video experience, head to Bloomberg dot

com slash QT. I want to get your thoughts on a conversation we were having with Matt Levine um and in his big piece on crypto for words, Tim and

I read all of it. Um he makes the point that the reason you've seen a lot of trad five people go into crypto, leave big banks to go into crypto is because there's so much more room for creativity and innovation rather than waiting for you know, someone way high up at the bank too, Okay, your project, you can just you know, go onto the blockchain, build a smart contract, build some sort of application, just go out

and do it. And I mean maybe in its present state that hasn't produced anything that has any real sort of tentacles into the real economy or hasn't made our lives better necessarily. But when you think about that sort of blue sky thinking that okay, there's lower guard rails here, maybe it'll produce something wonderful, does that cross your mind

at all? Well, I think that's one of the things where you sort of have to push back and say, well, why is there so much um you know, why is it so slow to do it in the current system. And it could be that he's you know that a person is working at a huge bank and there's just a lot of bureaucracy there. But I would guess that you know, if you're asking why is the traditional financial system really slow, it's probably because of all the regulations

have to comply with. And it's true that crypto doesn't have that many regulations and so people are able to quote unquote innovate in very interesting ways. But that's also where all the schemes and the you know, enormous disasters have been coming from too um and crypto I think has been you know, evangelists for crypto have been making the argument that you can't regulate crypto more strongly or

you will squash innovation. Not where do you come down on regulation, Because if there's nothing actually useful there to be regulated, then is it sort of just a waste of time and a waste of resources to even think about regulation there. That's a great question. So to your point on the regulation, I was just thinking of like

New York, they have a regulatory scheme. It's not perfect by any means, but it's something, and companies haven't left New York, so I think it also kind of just runs counter to the example that like, do you mean from a crypto perspective. Yeah, Yeah, from a crypto perspective, like companies are still operating in New York, they're still offering their services, they're still quote unquote like innovating, and so I just think that kind of helps debunk the

argument that regulation is all bad. Are you frustrated with the slow pace of regulation at this point? I mean, I know that the SEC find Kim Kardashian one point three million dollars huge, but cryptos here, it's been here for a while, no indication it's going away, and we're still talking about alphabet soup at this point. I'm enormously

frustrated with it. I mean, we've seen sort of piecemeal enforcement, you know, individual schemes that are being cracked down on by the SEC or the d J or various other uh groups. But it's very sort of whackall at this point. So to not seeing if if crypto doesn't solve the problems that you have done, that you've identified, the problems that you've studied, what does well, it depends on what you're trying, all right, exact because it all varies. So

I mean financial exclusion inequities. So if you're talking about let's say, like unbanked or underbanked, it's just to me even fascinating that Again, this gets lumped in with people wanting to use crypto for like wealth building, like for unbanked or underbanked. What is it exactly we're trying to solve. Is it access to a bank account? Is it access to being able to make financial transactions? There are policymakers

right now who provide a whole host of solutions. The thing is is that many of them don't necessarily require technology their policy based solutions. If we're talking about wealth building, which other people view like crypto as a mechanism for doing that, again, there are other policies that might actually help us do that. And what's fascinating is in this country, the federal government used to provide ample amount of support

subsidies to actually enhance wealth building. We used to be able to provide support to buy a house like in mass You know we do now, but it's just it's

not at the scale that it was becoming used. Yeah, there you to be like support to go to college, to start a business, all of these things, and then like maybe post seventies, you start to see kind of a decline in that to dismantling a lot of that support, and so now you have people who in reality don't see a way to build wealth or if they're excluded, a way to access these systems in a low cost way.

And so part of our work then is to figure out not necessarily the technology that solves this, but what is the pain point, and then let's build from there. And oftentimes it is policy solutions, and we have plenty of academics and researchers that have these, and so what we're really lacking is political will. Thank you to both of us. We did great. Hold on, hold on, hold on, hold on, Yeah, we did great. Yeah, good job to not seeing Carmona Molly Way, thanks for joining us. Ye,

that's it. That's it. That's We've done eight episodes. I'm kind of I'm very bum Yeah. I hope we get to do this again. I hope so too. I just remember there was a time when we first started filming, all the way back what eight weeks ago, I asked you your opinion on something. You said, I don't have opinions. I'm a journalist. Sounds like me, But come on, after eight episodes, weekend week out doing crypto talking, to the people we spoke to. You've got to have an opinion

on something, you know you're right. And this is something that I have struggled with. And you know when I when I really boiled it all down, I truly think that I want to see these episodes of Crypto I r l in video. Check them out on Bloomberg Quicktike at Bloomberg dot com, slash qt, or find Katie and Tim Over on YouTube. This is Bloomberg Crypto, a daily podcast from Bloomberg and I Heart Radio. For more shows from I Heart Radio, visit the I Heart Radio app,

Apple Podcasts, or wherever you get your podcasts. Send us your comments, questions, or suggestions for the show to Crypto at Bloomberg dot net or find us on Twitter. We're at Crypto. The supervising producer of Bloomberg Crypto is Vicky very Galina. Our senior producer is Janet Babin. Our producers are Mohammed Faruk and Sharon Barriro. Our associate producers are Ty Butler and Moses on Them. Desta wonder At is

our engineer. Original music by Leo Sidron. I'm Stacy Marie Ishmael have a great weekend,