Crypto Revisited (Part One)

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On January 3rd, 2009,, the Bitcoin network quietly went live.

At first, excitement was limited to a few computer coders and anti-Federal Reserve activists.

Bitcoin is an electronic online digital currency.

But in the matter of just a couple years, Bitcoin spawned a massive cryptocurrency industry that has taken America, and the world, on a wild rollercoaster ride. The value of this money is like totally unpredictable. It fluctuates from $20 a unit to $260 a unit and all the way back down.

Bitcoin on Wednesday hit a new all-time high of more than $66,000 US dollars. Christ is back! And he's got Bitcoin! Bitcoin is in freefall. It's almost 70% off its historic high.

With the cryptocurrency industry no longer in its infancy, it's time to ask the question, where is crypto going?

And I'm Adriana Cortez.

And this is Red Pill Demerica, a storytelling show.

This is not another talk show covering the day's news. We are all about telling stories.

Stories. Hollywood doesn't want you to hear.

Stories. the media mocks. Stories about everyday Americans that the globalists ignore.

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So we first took an interest in cryptocurrency in 2019 when we heard then-President Trump's argument against Bitcoin.

Crypto is being talked about. The president actually weighed in and tweeted about cryptocurrencies last night. He wrote in part this, I'm not a fan of Bitcoin and other cryptocurrencies, which are not money and whose value is highly volatile, based on thin air, he writes. Unregulated crypto assets can facilitate unlawful behavior, including drug trade and other illegal activity, writes the president.

So we produced a three-part series on the topic and asked the question, is Bitcoin dangerous to America? If you haven't heard it, you should go give it a listen. We concluded, based on the president's argument, that Bitcoin wasn't necessarily dangerous to America. But did we get it wrong? Now that the crypto industry is no longer in its infancy, we thought we'd revisit the topic by asking the question, where is crypto going?

It was a Friday evening in mid-November 2022, and Zane Tackett looked worn out.

I literally haven't slept the last two nights, so it's been hectic.

The thin, dark-haired, 20-something-looking white guy was appearing on a late-night livestream of the Up Only podcast. At the time, Zane was the head of institutional sales at cryptocurrency exchange FTX. Or at least, that's what his title used to be. You see, about a week earlier, his employer, FTX, entered a firestorm that placed Zane's job in limbo. News reports broke that FTX's sister company, Alameda Research, was insolvent.

Over the weekend, speculation rose about the solvency of FTX.

This came after a CoinDesk report.

So, FTX CEO Sam Bankman-Fried took to Twitter this morning to clear something up.

He said that a competitor is trying to attack the company with rumors.

He then says in the same tweet, FTX is fine, assets are fine.

Zane Tackett was out of the country when the rumors about his employer started heating up.

I was in Portugal up until midday Monday, I guess, European time, and then flew out.

He said, by the time he landed in Miami, his FTX boss, Sam Bankman-Fried, went completely quiet on the growing controversy.

Like, the silence just became too much, and then I was like, all right, there's got to.

be something deeper here.

But even with the glaring red flags, Zane believed his boss' assessment of the company's financial situation. Sam Bankman-Fried was a pillar of the crypto world. In any ways, Alameda Research and FTX were two completely different companies. The insolvency of Alameda should have had nothing to do with FTX. At least, that's what Zane made himself believe to cope with the situation.

You know, I was trying to think, like, all right, there's no way it's that bad. Like, I feel like they're just really afraid of, you know, trying to tarnish this, like, you know, what's a pretty sterling reputation.

But rumors and all, Zane still believed in FTX. So much so, that the day after he got back from Portugal, he says he deposited a large portion of his personal wealth into the FTX cryptocurrency exchange.

On Tuesday, I deposited like $750K into FTX. I was like, there's no way that this is going to be a death kneel, or, you know, something that will bring us down.

But then, the unthinkable happened.

Breaking news. It appears that FTX has stopped withdrawals for the past, basically, four hours.

Zane Tackett's $750K was now locked up in the FTX crypto exchange. He could see the balance of his account, but couldn't withdraw the funds. With things beginning to unravel at FTX, Zane turned to his boss, Sam Bankman-Fried.

When I found out what was going on, on Tuesday, I informed Sam and the executives that, you know, I'd be there to help the clients kind of weather the storm and, you know, get through this and try to help them as much as possible. But after that, I wouldn't be able to continue on.

However, a day later, he tried logging into his account on Slack, the company's communication platform.

All of a sudden, I went to go into Slack and it was gone.

Something big was happening. As Zane sat there exhausted on that Friday night livestream, explaining his week-long ordeal, things got even worse. A host of the Up Only podcast delivered the bad news.

So, chat's kind of going wild. Apparently, FTX hot wallets are currently being drained.

Apparently, FTX customer accounts were being drained of all of their funds. Realization of the news swept over Zane. His face went blank as further confirmation came in.

So, Zach has just tweeted that multiple former FTX employees confirmed to me they do not recognize the transfers for $383 million. And one guy that previously worked at FTX has also said that to me on Telegram. And some people saying that if they log into FTX, they have a balance of zero now.

A stunned Zane became distracted, typing away at his keyboard. A few seconds later, he delivered the news.

My account's zeroed.

He disappeared from the screen as more bad news arrived.

Yeah, so it looks like all FTX.

Then Zane re-entered the livestream, almost laughing through the agony.

I have no idea what's going on with the movement of funds. I just went downstairs and asked our other employees. They had no idea. One of them looked on social media and said that she was seeing a rumor of funds being stolen. What a f***ing week.

Zane Tackett was clearly distraught. If he was right, his $750,000 was now gone. He appeared like he needed a moment to process what just happened. The up-only hosts could obviously read the situation and let Zane off the hook.

Alright. Ledger, do you want to stay on for a little bit and let Zane go?

Alright, thanks guys. Thanks, dude. Thanks for being with us. Have you ever experienced something anywhere near this insane in crypto?

Everyone watching the situation had one question. What just happened?

FTX was thought to be the rock of Gibraltar of the entire cryptocurrency industry. It was even bailing out firms that were faltering. Just a few weeks earlier, its young founder and CEO, Sam Bankman-Fried, was thought to have the Midas touch.

In just the past five years, Sam Bankman-Fried went from buying his first bitcoin to becoming a multibillionaire. The FTX founder is now worth an estimated $11 billion.

In the short time since FTX's founding in mid-2019, the company grew to become the second largest cryptocurrency exchange in the world, valued at $32 billion. It was this meteoric rise that grabbed the attention of the financial news desk, and they could not get enough of the young crypto tycoon.

And joining me now is Sam Bankman-Fried, one of America's youngest billionaires.

They call him the J.

Just thrilled to have him here and get his perspective.

How did you do this so quickly? Your company is two years old, and you're doing something like $400 billion worth of volume per month, which is 25 times what you did a year ago.

CNBC, Bloomberg, Forbes, Fortune, and the New York Times all gushed over the bushy-haired cryptocurrency wonderkind. He was so popular that he'd become known simply by his initials, SBF. As late as September 2022, SBF was a front-page staple throughout corporate media. But a little over a month later, Zayn Takit's nightmare began to surface.

News just came out that FTX is actually insolvent,

and dirty bubble media actually went ahead and did a lot of digging.

Unfortunately, I have some bad news to report. Currently, a bank run is happening on FTX. Its reserves, specifically, Ethereum, is being drained off by the hundreds of millions right now. Shocking crypto news. Even I'm in disbelief.

In just a matter of days, SBF's cryptocurrency empire came crashing down.

FTX, the big exchange, has filed for Chapter 11 bankruptcy.

Our company, the second largest crypto exchange in the world, has become insolvent and filed for bankruptcy in the space of a week.

The company's controversial chief executive, Sam Bankman-Fried, resigning as CEO. The embattled cryptocurrency exchange collapsing at stunning speed. Customers frantically trying to access their accounts, as Reuters reports, at least a billion dollars of client funds may be missing. Could crypto turn out to be the scam of this century?

Because ultimately, anybody could grow a financial services company quickly if you just give away a lot of stuff.

That's a representative from Doomberg, an anonymous team of former science and financial executives. Doomberg is one of the most widely read financial newsletters on the subscription-based platform Substack.

Also, be wary of manias, you know, would be another one, separate from Hempton's famous quote. And here it seems as though Sam Bankman-Fried has latched himself onto a mania in order to steal.

To truly appreciate the impact of this historic moment in crypto, we have to grasp how Sam Bankman-Fried came into power. Understanding his rise and eventual fall inadvertently illuminates where cryptocurrency is going and the profound threat to your freedom that's on the horizon.

Since the start of the war in Israel on October 7th, we have seen death and destruction in the Holy Land. For more than 40 years, the International Fellowship of Christians and Jews has been on the ground in Israel. And within hours of the war starting, and every day since, they've been feeding the hungry and protecting the vulnerable. The attacks continue in the north and the south in Israel. But there are resilient survivors who bravely share their stories.

I'm Jacob Goldstein. I used to host a show called Planet Money. Now I'm starting a new show. It's called What's Your Problem? Every week on What's Your Problem?

We didn't have a particular technology. We didn't have a way of making money.

It was a great way to start a company. I highly recommend it.

Welcome back to Red Pilled America.

I grew up in the San Francisco Bay Area on a Stanford campus.

That's Sam Bankman-Fried.

And had a, you know, really nice, sort of quiet, suburban upbringing, so to speak.

But his wasn't your typical suburban experience. He was born to Jewish parents, Joseph Bankman and Barbara Fried. Both were professors at Stanford Law School. From his first breath, Sam was surrounded by the elite of the academic elite.

Twelve-year-old, Sam was, I think, in some sense, kind of boring. Maybe bored and boring, sort of a little bit of both. I wasn't, sort of, like, really into kid things. But you're also in a position where you're not really able to hang out with the grown-ups, so to speak. It was a weird in-between state for me and felt, you know, uncomfortable.

If he had any hardship, according to his mom, it was extreme boredom. By all measures, Sam was a smart kid. He attended Crystal Springs Upland School, an uber-prestigious 6th through 12th grade private institution. Schoolwork was easy to him. So easy that he hated class.

My parents were really concerned with, you know, what impact they were having on the world, and what they could do there. They've tried to do a lot of things with their life, which has been really kind of inspiring to watch.

During this time, Sam's mom claimed she was only slowly creeping towards this philosophy, while her husband and son were becoming take-no-prisoners, utilitarians. In other words, young Sam Bankman-Freed was apparently adopting a philosophy of maximizing the collective good at all costs.

And I sort of thought, you know, maybe I was going to do math or physics, or, I don't know, it wasn't, the plans were sort of very non-specific. You know, sort of like, select whichever subject I was doing best at in school, and like, that's what I'm going to do, you know?

He may have been wishy-washy on his course of study, but as far as schools went, he narrowed them down to one of two prestigious colleges, either MIT or Caltech. In 2010,, he basically flipped a coin to decide between the two, and it came up MIT. Again, Doomberg.

He is clearly a very intelligent person. He is the son of two law professors at Stanford University and earned his way into the Massachusetts Institute of Technology for his undergrad degree. And MIT, which is sort of considered among the top five universities in the world, it's not a school that you can get into via sort of legacy or to buy your way in. It's a merit-based, largely very much a merit-based admissions system.

At MIT, Sam lived at Epsilon Theta, a co-ed student house. It was basically a nerd's version of a fraternity, where late-night alcohol-drenched parties were replaced with geeky games like Mind Puzzles, Chess, and League of Legends, a multiplayer online battle video game. At Epsilon Theta, Sam proved to be a charismatic alpha nerd, and he'd eventually become president of the house. In his coursework, he majored in physics with a minor in mathematics.

And so I went to MIT and quickly learned there. I wasn't going to be a physicist. I mean, like. the sort of least favorite things that I'd done were try and do physics research. But that doesn't sort of answer the question of what I will do.

By sophomore year, he'd stumble into what would become the cornerstone of his personal brand.

My colleagues and I have developed a philosophy and research program that we call effective altruism. It uses evidence and careful reasoning to try to answer this question. How can we do the most good?

That's Scottish philosopher, Will MacAskill, thought to be one of the founders of the effective altruism movement.

So effective. altruism is about using your time and money as effectively as possible to make the world a better place. It's about going with high-quality evidence, careful reasoning, and in-depth research to make good decisions, rather than merely going with kind of what's emotional or what's sexy at the time.

Sam Bankman-Freed caught one of Will MacAskill's online presentations on effective altruism, and it deeply resonated with him, not only because it aligned with his parents' utilitarianism, but because it could also help him decide on a career path.

If you want to use your life to make the world a better place, what career should you pursue? When I was a student, I was concerned by some of the big problems in the world, global poverty, climate change, gender inequality. So I wanted to know the answer to that question. I tried asking friends and family what I should do. I tried going to the university career service.

Will MacAskill came to a conclusion that to do the most good sometimes meant entering a career field with the highest earning potential.

We've come up with a framework that enables young people to help them make decisions about what career they should pursue if they want to really make a difference. And this research has led to some fairly big changes in my life. I've changed the focus of my research quite considerably. I've altered what I do in my spare time, dedicating that to social entrepreneurship. And I've changed what I do with my money, committing to donate at least 50% of what I earn over the course of my life.

If you listen to Sam Bankman-Fried, the philosophy was like a religious awakening for him. According to his mother, the philosophy was what Sam had been thinking about since his teen years, and now he had a name for it, effective altruism. Sam attended a talk by Will MacAskill, and it was around this time that his career path came into focus. As a physics major, an academic life is often the most logical path. But Sam despised schoolwork.

Ultimately met a group of people who were thinking about similar things to the effective altruism community. Sometime around my junior year, sophomore year, I guess, of college, and they sort of said, like, suggested, like, you know, hey, if this is what you're thinking, like, you know, obviously there are a lot of things you can do, but one thing you should ask is, like, if there's some charity you think is cool, would they rather have, you know, you working for them or you donating money to them?

According to Sam, he thought he could do more good by leveraging his math skills.

And ended up at, I, thinking about how I could donate, you know, as much as I could, and that sort of led me to Quant Finance.

So he began asking around to people he knew working on Wall Street.

And I had some friends who had interned at Jane Street, said good things about it.

Jane Street Capital is an influential global trading firm.

And so I just sort of decided, I don't know, let's, you know, try interviewing. See how it is, see if it seems like a good fit. And sort of really like the interview, and now, all of a sudden, this seems like really high value. Like, it seems like I could potentially donate a lot of money this way, and that seems great.

So after MIT, he began working at Jane Street Capital in 2014.

So I was a trader at Jane Street Capital for about three years in New York, which is a blast. And I just really had fun there. It was really, really nice. And then, you know, sort of after three years or so, I had a, you know, sort of a fork in the path of like, am I going to sort of do this for the rest of my life, or am I going to try and do other stuff? And it was a tough call.

And he couldn't have picked a better time to get antsy. You see, in 2017, all eyes were on the startling rise of the cryptocurrency industry.

Do you own any Bitcoin or Ethereum? The recent spike in the prices of the cryptocurrencies has gotten everyone, from your average Joe to hedge fund managers, very interested in getting a piece of the action. Something about the psychology of the market and the way investors are approaching Bitcoin, significantly changed in the past couple months. Bitcoin, the original cryptocurrency, was worth $1,000 per Bitcoin at the beginning of this year, but it is now priced at about $2,600.. Listen, Bitcoin traded more than Apple did last week.

And a newer cryptocurrency called Ethereum has seen even crazier growth.

It's appreciated in value more than 4,000% this year alone.

A decade from now, are we going to look at this and think, oh my, this is now worth $10,000 to Bitcoin.

or $20,000 to Bitcoin? The so-called cryptocurrency is soaring in value. At the start of the year, one Bitcoin was worth about $1,000.. As of today, they are changing hands for more than $13,300.. Some of these exchanges are trading above $15,000..

Shortly after Sam Bankman-Fried left Jane Street Capital, he noticed the action happening in the cryptocurrency space.

And so, you know, I left, and shortly thereafter, I mean, sort of checked out crypto markets, which this is late 2017.

That's when he noticed an opportunity.

So, late 2017, early 2018, Japanese Bitcoins were just trading like 5 to 15% higher than American Bitcoins.

So, theoretically, he could buy Bitcoin in America and sell it in Japan for a profit. It's a standard trading technique known as arbitrage.

And the arbitrages were just gigantic, and that's sort of my background.

Sam did arbitrage trading at Jane Street Capital. An idea sparked. Instead of trading stocks on a stock exchange, why not trade cryptocurrency on a cryptocurrency exchange?

There's a billion dollars a day trading on each side. So, if you could do it, it sort of seemed like maybe you could do it big, which is pretty exciting, because it's also like 10% a day is a lot. And so, that's sort of how I ended up in crypto.

In late 2017, Sam set up a cryptocurrency trading company. He'd eventually call it Alameda Research. And how he came up with the name hints at a behavior that would eventually get him into a lot of trouble.

Since the start of the war in Israel on October 7th, we have seen death and destruction in the Holy Land. For more than 40 years, the International Fellowship of Christians and Jews has been on the ground in Israel. And within hours of the war starting, and every day since, they've been feeding the hungry and protecting the vulnerable. The attacks continue in the north and the south in Israel. But there are resilient survivors who bravely share their stories.

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I felt like I discovered my sexuality late. I now look back and go, God, I wasn't that old. And I think people carry a lot of shame and guilt for not having figured things out, and then they feel like it's too late to start or try or change things. And we both, I think, were really drawn to just that idea of going, you know what? You can do whatever you want, whenever, and your life will be forever greater for having done it.

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Welcome back to Red Pilled America. So, in late 2017, Sam Bankman-Fried wanted to ride the crypto wave sweeping the globe. He decided on tapping his Wall Street experience by setting up a cryptocurrency trading firm. But the industry had a shady reputation within the banking community, making it hard for a crypto business to open a banking account. So, Sam chose to conceal the nature of his business.

Really, where the name come from, we're like, all right, we want a bank account. And if we're a Bitcoin arbitrage trading shop founded by a bunch of 20-year-olds, if that's the name of our company, we're not getting our bank account. The compliance department's going to take one look at that and just like, that's it. We knew banks were going to shut us down. There were not yet US banks that were happy with crypto.

Sam ultimately wanted to avoid scrutiny.

What name is never going to give us grief? You know, what name is not going to stop us from being able to do anything like research? No one doesn't like research. You know, no one's like, I don't know, research, I don't know if we can deal with that. That's where it came from.

Sam was concealing the true nature of his business, a trait he'd seem to continue over the coming years.

I mean, it was like people I knew from high school, from college, from Effective Altruism. We had like 50 interns coming in and out over the first few months. I mean, it was just like hordes of people.

One of those people was a 24-year-old woman named Caroline Ellison. Caroline was a co-worker of Sam's at Jane Street Capital. She was, well, let's just say she looked homely. She was white, had curly dark hair that reached down to her chest, and she wore big tortoise-framed glasses. If Sam embodied the male alpha nerd, Caroline was his female counterpart.

After we close today,

I'm going to visit one of my sons.

who has a startup in Berkeley.

That's Sam's father, Joe Bankman. At the time, in early 2018,, Joe was a respected professor at Stanford Law School. He began assisting his son where he could.

It was clear at the start that on things like law,

I mean, the company didn't have any lawyers,

so I think my utility there was pretty obvious.

No one in the company had any experience in crypto, including Sam.

They come from basically software developers from Google and Facebook, and then quantitative traders from Wall Street who had never touched crypto before, and then some friends of mine on the operational side as well, but none of us had traded crypto before this.

They were learning. as they went. Sam began exploiting the Bitcoin price differences between Asia and America, at some points shifting as much as $25 million a day. But it wasn't long before the price differences started to shrink, shrinking his profits along with it. Buying Bitcoin low and selling high was no longer the cash cow it once was.

He went to work on Wall Street.

and then was early in the crypto trading space, you know, post-2017, 2018, and the rebirth of Bitcoin after the 2017 collapse, he seems to have ridden that wave, and it was a wild, wild west.

No regulation whatsoever,

and fortunes made and lost overnight, and anytime. you have such a mania, a gold rush, a crypto gold rush. in this case, you have opportunities to commit fraud.

The type of fraud that would put the entire cryptocurrency industry in jeopardy of a complete collapse.

Coming up on Red Pilled America.

Extortion was involved, counterfeiting, coins was involved. It was unbelievable what they were doing, and we came to realize that they created a fake market on their site.

You're just like, well, I'm in the Ponzi business, at it. And it's pretty good.

And did any of this require.

any sort of economic case? It's just like, other people put money in the box, and so I'm going to too, and then it's more valuable, so I'm going to put more money in. And at no point in the cycle did it seem to describe any sort of economic purpose.

Steph Curry is now a brand ambassador,

has a share in Your Exchange FTX.

Tom Brady is also a brand ambassador.

So that apartment in the Bahamas.

that Sam Bankman freed was very vocal about living in with all of his roommates.

Reports are questioning what the dynamics were between the roommates. Here's the thing. If you're running any kind of currency operation, and you're involved in a polyamorous relationship with seven other people, I've got to think you're whack. Ten. Ten total.

They all lived together in the same place, in the Bahamas. And they all just banged each other?

I mean, I didn't know just how bad it was. There's just so much fraud in this space. And the prices of all these things are determined almost exclusively by entities like FTX.

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I'm Jacob Goldstein. I used to host Planet Money. Now I'm starting a new show. It's called What's Your Problem? Every week on What's Your Problem, entrepreneurs and engineers describe the future they're going to build.