Crazy for crypto — from billion-dollar mania to the fall of FTX

As Sam Bankman-Fried went on trial this week on charges of fraud and money laundering related to the collapse of FTX, his $32bn cryptocurrency exchange, it feels like the right time to step back and take a hard look at the digital assets mania that has vaporised billions of investor dollars over the past five years.

What is it about financial markets that made the promoters and the promises of bitcoin and other cryptocurrencies so appealing? Why did it all go so badly wrong, and what are the consequences for society? Academics, journalists and even a moderately famous former teen idol have all tackled the subject with varying perspectives and degrees of success.

Few authors should be better positioned to take on crypto than Michael Lewis. In bestsellers such as The Big Short and Moneyball, Lewis has previously woven together the stories of compelling characters with clear explanations of market failures and other complex ideas. Asked by a friend to check out Bankman-Fried ahead of a potential investment in late 2021, Lewis frankly admits he was “totally sold” on the dishevelled wunderkind. Going Infinite became the result.

Structured as a biography-cum-fly-on-the-wall tale, the book traces Bankman-Fried’s journey from friendless nerd to unflappable Wall Street trader, business tycoon and finally accused felon — all by the age of 31. Engagingly written with the comedic touches and telling details that have long been Lewis’s stock-in-trade, it is an easy but ultimately unsatisfying read.

We learn about Bankman-Fried’s fondness for puzzles and vegan snacks, his seventh-grade views about abortion and — in one really interesting sideshow — Lewis also quotes extensively from his romantic correspondence with Caroline Ellison, the former head of his Alameda trading business. She has pleaded guilty to fraud and is expected to be a star witness against him.

Going Infinite reconstructs his subject’s peripatetic existence as he refused to give FTX employees job titles or clear reporting lines, and shifted its headquarters literally overnight from California to Hong Kong and finally the Bahamas. Lewis even rode with Bankman-Fried in his plane as the entrepreneur sought to convince Washington policymakers in July 2022 that he was the face of “responsible” crypto. Yet at the same time, FTX employees were losing track of investments and catastrophically allowing Alameda to “borrow” client money to make risky trading bets.

It’s great detail. But the author’s microscope is trained so narrowly that the book suffers. Bankman-Fried’s saga provides a window into a global crusade to shake up conventional finance that sweeps in libertarian conspiracy nuts, greedy finance bros and central bankers.

Readers would have benefited from a Lewis-style exploration of stablecoins, which are supposed to be backed one-to-one by hard currency, highly volatile currencies such as bitcoin and dogecoin and non-fungible tokens (NFTs), a kind of online art that has no real-world existence. Backers envision a freer world where decentralised digital assets will replace national currencies; sceptics fear a modern repeat of the 1630s Dutch tulip mania that will further erode social trust.

But there’s little of that in Going Infinite. Instead, Lewis dismisses the weirdly complex technology behind bitcoin, which still accounts for half of all crypto’s value, with a single broad brush paragraph. “That’s about all that Sam Bankman-Fried knew about crypto, or for that matter needed to know, to trade billions of dollars’ worth of it,” he writes in a footnote. One hopes that BlackRock, Invesco and other big companies seeking to offer bitcoin funds to retail investors understand it a bit better.

It feels as if Lewis had originally picked Bankman-Fried as a misunderstood hero and can’t quite let go of that idea

The author’s fascination with Bankman-Fried also seems to have blinded him to the man’s broader responsibilities. When FTX splashes out millions on endorsement deals, stadium naming rights and political campaigns, Lewis blithely refers to it as “Sam’s money”. Yet the company’s accounting was so poor that much of the funds allegedly came from accounts that held customer deposits. Investigators said shortly after FTX’s collapse that $9bn belonging to more than 1mn customers had gone missing, but the first sympathetic mention of someone who has suffered financial losses doesn’t occur until page 194, and even then she works for FTX.

Lewis uncovers and then excuses Bankman-Fried of multiple episodes where he kept people in the dark or promised one thing and did another: “Sam’s employees had always known that he preferred games in which the rules could change in the middle.”

It feels, in the end, as if Lewis had originally picked Bankman-Fried as a misunderstood hero and can’t quite let go of that idea. The entrepreneur’s lawyers must be hoping that his jury can be persuaded to agree.

Readers who want a broader view should turn to several other recent books that tackle the digital currency craze. Journalist Zeke Faux turns out one of the best in the form of a mystery story. Much of the charm of Number Go Up lies in Faux’s willingness to cast himself as the bumbling detective.

The book opens with a confession from the Bloomberg reporter that he spent extensive time with Bankman-Fried without noticing any financial misconduct. Faux then devotes the bulk of the saga to investigating the stablecoin Tether, only to have the bigwigs behind it refuse to talk to him and for it to prove to be one of the few survivors of last autumn’s crash.

“Back in 2021, I could have picked a company to investigate by tossing a dart . . . and whichever one I’d hit would have blown up by now. Instead I’d spent more than a year investigating one of the few that hadn’t,” he writes ruefully.

Between those two failures, Faux provides a clearly written narrative of the high and low points of the recent crypto boom and bust. He has a wry eye for details: he talks his wife into letting him buy a discount version of a Bored Ape, the hottest NFT of 2021, and then gets cold feet. “I pictured myself, 20 years in the future telling my son we might have had enough money to send him to [private college] if I hadn’t spent $40,000 on a picture of an ape.”

Number Go Up works best when Faux documents the appalling harm the boom has done to aspiring investors in emerging markets. In the Philippines, thousands of people lost their life savings trying to make money by earning resellable video-game prizes. In Cambodia, he investigates compounds where workers are held captive and forced to work as internet scammers.

Faux’s descriptions of Lewis as he and the more famous author both circle FTX reinforce the concerns about Lewis’s value as an independent observer: “the author’s questions were so fawning, they seemed inappropriate for a journalist,” Faux writes.

Crypto has a knack for attracting unusual people. Ben McKenzie, best known for playing Ryan Atwood on the teen drama The O.C., swaps the screen for the keyboard in something of a personal crusade to reveal the true nature of crypto. “I was a bored, mildly depressed 40-something-year-old man in need of adventure,” he explains in Easy Money, written with journalist Jacob Silverman. So he got stoned and decided to write a book that would warn the unwary by helping “to spread an economic counter narrative to the crypto hype”.

He provides a gallery of larger-than-life figures driven by varying degrees of brilliance and hucksterism, including some of crypto’s most colourful and notorious characters: Alex Mashinsky, chief executive of crypto lender Celsius, Tether co-founder Brock Pierce and, of course, Bankman-Fried. Their meeting, in the summer of 2022, came at the zenith of Bankman-Fried’s influence, but as McKenzie tells it, he was not taken in. “One thing was obvious,” he writes. “Sam wanted me to like him. He was desperate to find common ground . . . If this was the king of crypto, was it a kingdom made of sand?”

And yet the most poignant part of the book is McKenzie’s visit to El Salvador, where he meets ordinary people whose lives have been turned upside down by the government’s pairing of crypto and repression.

Then there is Rachel O’Dwyer’s book, Tokens, which approaches the subject with a more analytical point: for all its digital trappings, crypto rests on the same kind of trust as older methods of exchange. A lecturer in digital cultures at the National College of Art and Design in Dublin, she is primarily interested in what is happening to the way people think about payments and value in a digital age. Her surprisingly readable story takes in the clay shapes used to represent stored grain in 7,500BC, butter vouchers in 1980s Ireland and the virtual loot from World of Warcraft.

While most of the other recent books about digital currencies zoom in on particular platforms and high-profile people, O’Dwyer’s is shot through with references to philosophy, credit scores and sociological treatises on the nature of money. “Tokens are habitually tied to identity . . . to employment, to life choices and social standing,” she observes. “Whose values get written into the tokens. Who writes this script?”

She leavens the theory with interviews and stories of people who have been sucked into the digital token economy in different ways: Will, the 13-year-old who collects Fortnite loot; Jeffrey Berns, who wanted to build a blockchain-powered city in the Nevada desert; and Jérôme Croisier, an art historian turned financier who sells tokenised shares in pieces of art. She doesn’t like what she finds: “This wasn’t some beautiful escape from a grim reality. It seemed like a real shithole.”

Four books, four very different in-depth explorations of what makes the crypto crowd tick. Yet I came out of my reading binge still confused about what drove people to pay $68,000 for a single bitcoin in 2021 and why, after all the revelations and arrests, it is still selling for $27,000 today. If this is more than a collective delusion, the explanation will have to come at a later date.

Going Infinite: The Rise and Fall of a New Tycoon by Michael Lewis Allen Lane £25/Norton $27 272/288 pages 

Number Go Up: Inside Crypto’s Wild Rise and Staggering Fall by Zeke Faux Weidenfeld & Nicolson £25, 304 pages

Easy Money: Cryptocurrency, Casino Capitalism, and the Golden Age of Fraud by Ben McKenzie with Jacob Silverman Abrams Press £19.99/$28, 320 pages

Tokens: The Future of Money in the Age of the Platform by Rachel O’Dwyer Verso £18.99, 320 pages

Brooke Masters is the FT’s US financial editor

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