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Episode: “Pretty soon we’ll all be trillionaires, or whatever.”

Author: The Motley Fool
Duration: 00:28:12

Episode Shownotes

While the storylines in crypto have gone quieter, coin prices have not. Zeke Faux is the author of “Number Go Up: Inside Crypto's Wild Rise and Staggering Fall”. Mary Long caught up with Faux for a conversation about: - The most genuine argument for crypto adoption. - Why more politicians

have warmed up to the space. - What you have to believe, to be a Bitcoin maximalist. - A shoestring crypto operation that’s more profitable than Nike. Coins discussed: BTC, SOL, ETH, DOGE, WIF, USDT Host: Mary Long Guest: Zeke Faux Producer: Ricky Mulvey Engineer: Desireé Jones Learn more about your ad choices. Visit megaphone.fm/adchoices

Full Transcript

00:00:01 Speaker_00
So they're sitting on $100 billion. It's earning 5% interest. And it's like a real shoestring operation. There's not that many people that work there. So they're making more than $5 billion a year and have been the real winners of crypto lately.

00:00:21 Speaker_00
I mean, the Tether is more profitable than Nike.

00:00:28 Speaker_01
I'm Ricky Mulvey, and that's Zeke Fox. He's the author of Number Go Up, Inside Crypto's Wild Rise and Staggering Fall. The book was one of my favorites of 2023, and Fox is just an incredible storyteller.

00:00:39 Speaker_01
I'm delighted that he joined us again on Motley Fool Money, this time to check in on the crypto space with my colleague, Mary Long.

00:00:45 Speaker_01
They discuss how the crypto industry continues to tell a compelling narrative about its future, the most useful thing that people are using digital currencies for, and how meme coins catch on.

00:00:56 Speaker_01
As a heads up, this conversation was recorded on Monday, November 4th, before the election.

00:01:11 Speaker_02
Zeke, I really wanted to talk with you because I've noticed what feels to be a bit like a paradox in the crypto universe.

00:01:17 Speaker_02
I am admittedly a more casual observer of crypto markets, but it seems like that world has kind of gone quiet in the two years post FTX.

00:01:27 Speaker_02
But while I'm sitting over here thinking, oh, crypto's gone quiet, you actually look at the prices of these things and they've handily outpaced the S&P 500. So what is How can both of those things be true? Has crypto really gone quiet?

00:01:41 Speaker_02
Or is something else happening here?

00:01:44 Speaker_00
Yeah, it's really weird. I mean, when back in November 2022, when I FTX failed, I was down with Sam Beckman Freed interviewing him in the Bahamas about what had gone wrong. And it felt like, um,

00:02:00 Speaker_00
this was it was time to write an obituary for this whole crypto market. I mean, like the the face of crypto had been discredited as a fraud. And yet, pretty much most coin prices are back up to their highs. And it feels to me like

00:02:20 Speaker_00
There's not the same level of buzz behind it as there was last time. Like no one's talking about Web3. No one's saying like, oh, we need to put Taylor Swift tickets on the blockchain to stop scalping or like showing off their hot new NFT.

00:02:34 Speaker_00
But the prices are back up on the I mean, the big buzz was around the Bitcoin ETF on And that was sort of hyped as this big milestone for the market. But if you think about it, it's not really that new.

00:02:56 Speaker_00
I mean, it's just like a different way to buy Bitcoin. And there's already so many. But the crypto industry is really great at creating this narrative that like crypto is the future is right around the corner.

00:03:08 Speaker_00
The big money is about to come in and it's still early. So you should get into.

00:03:15 Speaker_02
Yeah, that narrative piece is so fascinating to me. I have a friend who works as an engineer at a crypto trading platform and I was like, we were catching up recently and I was trying to get his take on that paradox that we've discussed.

00:03:27 Speaker_02
And I'm like, what is the vibe? He was at this company before FTX. he's still there before FTX's downfall. He's still there now. And I was like, what what is the vibe? Is it just kind of doom and gloom?

00:03:38 Speaker_02
Like with this larger crypto is dead narrative that's in the more mainstream media? And he's like, he kind of laughed in response and was like, no, I talked to the traders and everybody thinks crypto's best days are ahead of it.

00:03:50 Speaker_02
I mean, is that is that truly believed by the people that you're talking to and what gives them that that sense that crypto's best days are ahead of it rather than behind?

00:04:00 Speaker_02
Or is that just like furthering this narrative of, you got to buy now, it's still the beginning.

00:04:05 Speaker_00
Uh, well, so I think that there's a lot of people who it's a lot of, it's like a fun game for coders and people love to use their imagination to think of what cool products they could design with the blockchain and how that could change the world of finance.

00:04:22 Speaker_00
But at this point, uh, Bitcoin has been around for 15 years. It's as old as Uber or WhatsApp. And all of these smart people have totally failed to come up with any sort of consumer app that has gotten usage from normal people.

00:04:41 Speaker_00
And the value of all these currencies in the long run has to come from people using them, paying fees. I mean, it can't just be magic internet money. But so far,

00:04:55 Speaker_00
I mean, the at my first Bitcoin conference I ever went to, I heard this pitch for why you should buy Bitcoin. And it was this guy said that Bitcoin, the real technology was number go up technology.

00:05:09 Speaker_00
And he said the price will go up and that'll get people excited. More people will buy. The price will go up more. You know, pretty soon we'll all be trillionaires or whatever.

00:05:18 Speaker_00
And I thought that was so funny that I used that line as the title of my book, Number Go Up. But It seems like he was kind of right. I mean, if you're not paying attention to crypto, you might think there's got to be something to it.

00:05:35 Speaker_00
People are making so much real money. There must be something that I don't really know about, some cool tech thing that people are actually doing with it.

00:05:42 Speaker_00
And I'm here to say, I spent years looking into this, trying to figure out if people are actually doing anything cool with it. And what I found was just gambling, speculation, evading all sorts of financial rules.

00:05:58 Speaker_00
That was actually the most useful thing that I found that people were doing with crypto.

00:06:03 Speaker_02
Was evading financial rules.

00:06:06 Speaker_00
Yes. That's like a positive case for crypto. I mean, if regulators continue to allow it to be used to get around the rules, then it'll continue to have some appeal.

00:06:17 Speaker_02
So I might just be asking you to double down on what you just said. But I am one of those people who, similar to you, I'm like, wait, what is? I want to understand what the best, the most genuine vision for the possibilities of this stuff actually is?

00:06:37 Speaker_02
Because part of me has to believe that there are people that, yes, of course, there are people that are interested in the number-go-up technology of this stuff.

00:06:45 Speaker_02
But is there anyone who also believes, oh, no, there is really a genuine use case for the technology underlying this stuff, and that's what I believe in? Is that argument just kind of all noise?

00:07:02 Speaker_00
I think a lot of people really do believe in it, and they get really excited about, oh, I've started this company that's going to allow me to bridge my Solana-based tokens onto the Ethereum blockchain.

00:07:15 Speaker_00
And there's so much money in the crypto world that these kind of weird things that only exist within the crypto world can still be quite profitable.

00:07:26 Speaker_00
Honestly, the buzz that I've seen within crypto is people are, I mean, I was just listening to a crypto lawyer the other night at this very pro-crypto event. He was talking and he was saying all these good things about crypto.

00:07:39 Speaker_00
And he was like, one kind of drawback or one shortcoming of the crypto world, we really haven't gotten very far with the products. I think we should try and come up with something that people want to use crypto for.

00:07:53 Speaker_00
And it's like, yes, you kind of put the cart before the horse. We've, you know, gambled billions of dollars on crypto and have yet to come up with a product.

00:08:03 Speaker_00
But I think that the most genuine argument for crypto, which you can sort of, whichever cryptocurrency you're talking about, is let's say there's some small possibility that in the future,

00:08:20 Speaker_00
everyone is going to use crypto to launch companies, to make cross-border payments, to track their digital identity. And even if that's sort of far-fetched, if it does happen, just imagine how valuable all these coins would be.

00:08:39 Speaker_00
that small possibility of this being like the future of money could justify them having a high valuation right now, even if the odds are none of this comes to pass and the price drops.

00:08:53 Speaker_02
So there are all these different coins and platforms and all these different ways that you can play in this space, if that's of interest. But Bitcoin is perhaps the most well-known, and that's also the oldest of these digital currencies.

00:09:10 Speaker_02
We talk about this possible future world in which digital currencies are the currencies But there are also people that believe that Bitcoin is the way and is the only way, these Bitcoin maximalists.

00:09:23 Speaker_02
Why is it that those maximalists believe no, Bitcoin is the path? It can only be Bitcoin, that the world is not, in fact, large enough for all these different kinds of currencies that are being made?

00:09:34 Speaker_00
So I think, I mean, if you really want to be a Bitcoiner, you kind of have to make that argument because if you're comparing Bitcoin to other digital currencies, there's a lot of ways that the newer currencies are better.

00:09:48 Speaker_00
They allow you to program in transactions to do, they're faster, the fees are lower. So The argument for Bitcoin has to be this is the one true coin. Those other ones are just imitators. That's not the real coin.

00:10:08 Speaker_00
You have to sort of have this religious belief because the Bitcoiners have almost stopped trying to argue that people will use Bitcoin for anything. They love to talk about how El Salvador adopted Bitcoin.

00:10:22 Speaker_00
The president tried to get everyone in this country to use Bitcoin. It was a total disaster. I went down there and it was like a it was like a big joke in this country. I felt embarrassed to try and use my Bitcoin to buy stuff around there.

00:10:37 Speaker_00
And now Bitcoiners are just like, it's digital gold. And because there can only ever be 21 million Bitcoins. So it's hard money. It can't be inflated away.

00:10:49 Speaker_00
But if you want to believe that, you have to believe that the other digital currencies are not competitors for Bitcoin. And that no one could create a better Bitcoin and undermine the value of this original Bitcoin.

00:11:03 Speaker_00
And it's kind of a crazy argument to me. But I was down at the Bitcoin conference this year. And presidential candidate Donald Trump was the headliner.

00:11:14 Speaker_00
And he gave this speech where he kind of endorsed this view and said the United States should build a stockpile, a strategic stockpile of bitcoins.

00:11:24 Speaker_02
Yeah, again, with the paradoxes, there seems to be an interesting tension in that for me that, okay, Bitcoin is the oldest of these digital currencies, but I would think that if you're building a digital currency, you want to be able to use the latest and greatest technology.

00:11:42 Speaker_02
Is there a sense that Bitcoin is still stuck in the past and stuck with older technologies while newer coins are able to adapt to faster, better crypto stuff?

00:11:59 Speaker_00
the advocates of the newer coins would make that argument and they'd point to, you know, the better DeFi applications you could make on Solana or Ethereum.

00:12:12 Speaker_00
But what the Bitcoiners would say, which I would, this criticism I would agree with, they'd say, all right, let's look what you're really doing with that. the new technology.

00:12:22 Speaker_00
And what it is, in many cases, is just coming up with stupider and stupider joke coins. And, you know, in preparation for talking with you, I was looking at some of the returns of different cryptocurrencies year to date. You know, Bitcoin's up 60%.

00:12:41 Speaker_00
Dogecoin, which is like the oldest Blue chip meme coins up 74% Pepe coin 500% and then this was really hot this year. They took the doge coin They put a hat on the dog dog with hat coin. That's up 1200% on and like There's nothing to this.

00:13:01 Speaker_00
It's just sort of like a chain letter like you're like, hey, buddy How about you get some of this funny dog coin? I bet other people will it's gonna go up I'm And it's accessible to people in the US and around the world.

00:13:17 Speaker_00
And it's kind of like this gambling game that some percentage of people seem to enjoy.

00:13:23 Speaker_02
Blue chip meme coin is not a phrase that I fully expected to hear.

00:13:28 Speaker_00
Yeah, I'm in this way too deep. I'm sorry.

00:13:31 Speaker_02
Well, you're in deep on Tether, too. And I want to talk about that for a bit. Tether is a stablecoin. So they were fined by the U.S. Commodities Future Trading Commission in 2021 because they claimed to be fully backed by U.S.

00:13:45 Speaker_02
dollars when that wasn't actually true. Tether paid up the fine, but they did not admit or deny those allegations. What is Tether or what is Tether actually backed by? If it's a stable coin, it's supposed to be pegged to the US dollar.

00:13:57 Speaker_02
But how does that actually work?

00:14:00 Speaker_00
So this is what got me into crypto. And when I started looking into it, Tether, I mean, just the way that it works is that You, like some sort of crypto trader, send Tether, let's say, $10. They send you 10 Tether tokens that live on the blockchain.

00:14:21 Speaker_00
And you can go do stuff with those tokens. And Tether is supposed to hold your $10 in the bank. And if you ever send your 10 tokens back to Tether, they will give you your $10 back. So because Tether

00:14:35 Speaker_00
is backed by hard assets, its value does stay, in general, very close to $1. And people in the crypto world find this useful, because one of the reasons other cryptocurrencies haven't gotten

00:14:51 Speaker_00
a foothold in paying for transactions so that the value goes up and down so much. So if you're actually wanting to use crypto to do normal stuff, you might prefer to use a cryptocurrency with a stable value like Tether.

00:15:07 Speaker_00
And now, if you're in the US, this isn't really that exciting for you. There's plenty of ways to send money. And the positive use case for Tether is that So you can buy Tether on crypto exchanges like Binance or other popular ones.

00:15:26 Speaker_00
So people in countries that have volatile currencies A lot of like in Argentina or Nigeria, they will download a crypto exchange app, they'll send in their local currency, they can buy tethers.

00:15:41 Speaker_00
So they're essentially, it's a way for them to hold US dollars that wouldn't be available to them otherwise. But the dark side of this, which I looked into in NumberGoUp is that this also like,

00:15:58 Speaker_00
In the banking system, there's a rule that the bank needs to know their customer and that this enables the authorities to track money laundering and criminals using the banking system. It's not perfect, but it helps them a lot.

00:16:12 Speaker_00
With crypto, you can hold it in an anonymous wallet. And so, there's been this epidemic of scams where people in the US are sending tether to Chinese gangsters in Southeast Asia.

00:16:27 Speaker_00
It's insane, but there are these whole office towers in Cambodia and Myanmar where thousands of people are running scams, romance scams, where they try to befriend people in richer countries and then convince them to send money.

00:16:46 Speaker_00
There's credible estimates that people in the US alone are sending $5 or $10 billion a year to these scammers. And it's made a lot easier with crypto.

00:16:55 Speaker_00
Like if you tried to wire money to a Chinese gangster in Cambodia from your Bank of America account, it would trigger all sorts of red flags and they'd probably call you and tell you to watch out.

00:17:06 Speaker_00
Yeah, and if you realize you've been scammed, there'd be records, there might be some clues for the police to go on. With Tether, all you can see is it went from this numbered account to that numbered account, and the trail goes dead. So,

00:17:26 Speaker_00
All sorts of criminals have started using Tether to do their transactions. And it's not that Tether, the company, interacts with these criminals. They've just created this system where in the past it used to be really hard to get U.S.

00:17:41 Speaker_00
dollar-based accounts if you were some random person abroad. And now you can have like this anonymous wallet that holds tethers and move money instantly, no refunds, no identity needed.

00:17:54 Speaker_02
We kicked off this conversation by kind of talking about this paradoxical spot that we're in, this sense that like, oh, the crypto world has kind of gone quiet in the two-ish years post-FTX, but also there's been a lot of upward movement in the industry as well.

00:18:08 Speaker_02
I think you've seen a similarly quiet change, and maybe you'll feel like it's less quiet because you're so close to this stuff, but a similarly quiet change in how a lot of politicians talk and think about crypto.

00:18:22 Speaker_02
Like, pre-FTX, even while there were many celebrity endorsements of crypto, politicians seemed much more skeptical, seemingly thinking that, okay, this is exactly what you just described with Tether.

00:18:34 Speaker_02
This epidemic of scams was how so much of these currencies were going to be used. But then flash forward to January 2024, earlier this year, and you have the SEC greenlighting Bitcoin ETFs.

00:18:47 Speaker_02
And then after that, and kind of since then, a change in how many politicians approach and talk about crypto and crypto regulation. Let's like focus on that, the ETF piece of this for a second. Why did the SEC decide to legitimize crypto in this way?

00:19:04 Speaker_02
Does that make a substantive difference in how the public perceives these kinds of currencies?

00:19:10 Speaker_00
I think it does make people view it as more legitimate. I don't think it should change their opinion very much. I think with the SEC, this is just my opinion, but the cat was out of the bag.

00:19:23 Speaker_00
There were a lot of legal ways for people to buy Bitcoin, and it was becoming increasingly hard for them to justify why they wouldn't allow this way to buy Bitcoin when I can go on Venmo or Cash App and buy it very easily already. And I think

00:19:40 Speaker_00
In reality, that didn't signal that the SEC had changed its opinion overall. And in fact, the SEC has sued all sorts of crypto companies.

00:19:51 Speaker_00
And they're basically making the case that a lot of the things that go on in the crypto world are not legal, that these companies have ignored the rules governing investments in the US.

00:20:05 Speaker_00
And if the you if the SEC wins these cases and wins the these lawsuits, it would make it very difficult to do most of the stuff that crypto people want to do in the US.

00:20:19 Speaker_00
And now again, what they want to do is, you know, put new hats on the dog and gamble on it.

00:20:26 Speaker_00
or create anonymous wallets where we can send money around the world, or in like the most positive sense, they want to create, you know, some sort of new startup company and finance it by selling coins to the public.

00:20:39 Speaker_00
And the SEC is saying, we've got rules for that. You're not following them. This isn't allowed. And that this SEC campaign is partly why so many crypto companies now have put a lot of money into political donations.

00:20:55 Speaker_00
And they've created a political action committee called Fair Shake. And I think it's been very persuasive for a lot of politicians, because crypto is a pretty niche issue.

00:21:08 Speaker_00
And if you endorse crypto, I mean, they just might give you a couple million bucks for your campaign. And it's kind of you're not going to offend too many people. And if you start saying negative things about crypto, they might

00:21:24 Speaker_00
give your opponent five or ten million dollars. They've done this in a few races. So you've seen traditional in the last few years, the Democrats are more they're more tough on crypto.

00:21:36 Speaker_00
But quite a few of them have started saying more positive things in the crypto industry is hopeful that they could get Congress to pass a comprehensive bill that would essentially legalize all the stuff they want to do and create kind of a looser framework where it could still be

00:21:53 Speaker_00
regulated.

00:21:55 Speaker_02
Do those payments come, are they paid out in crypto? Or are they cold hard cash?

00:22:01 Speaker_00
I think, you know what, it's gotten so mainstream, a lot of politicians will take their donations in crypto. If you want to give them money, they'll figure out how to convert it back to dollars.

00:22:12 Speaker_00
Yeah, but I think the super PACs are paying in US dollars still.

00:22:16 Speaker_02
If we rewind back to, again, kind of the peak crypto mania, 2020, 2021, there were two central figures, one of whom, Sam Baikman Freed, now disgraced, another headed up finance, Changpeng Zhao, or CZ.

00:22:35 Speaker_02
Shortly after Sam Baikman Freed was convicted, he pled guilty to money laundering charges at quite a massive scale. These were like two massively prominent figures in the crypto world.

00:22:46 Speaker_02
In the two years since, has there been a power vacuum for other characters vying to take the place of those two figures? And has anyone actually risen?

00:22:56 Speaker_00
So the head of Coinbase, the US exchange, Brian Armstrong, has become more prominent. There hasn't been anyone to really rival SPF or CZ. The guys behind Tether actually are now some of the richest guys in crypto.

00:23:21 Speaker_00
Because you had mentioned, there were these questions about its backing. Tether has now grown to more than $100 billion. And it Before, it was sort of unclear where they're keeping their money.

00:23:36 Speaker_00
Now, Cantor Fitzgerald, a big Wall Street firm that's well-known, its CEO has said that he's holding nearly all of Tether's money and that it's invested in treasury bills that yield 5%.

00:23:52 Speaker_00
These tether guys, they don't pay interest to people who hold tether tokens. So they're sitting on $100 billion. It's earning 5% interest. And it's like a real shoestring operation. There's not that many people that work there.

00:24:06 Speaker_00
So they're making more than $5 billion a year and have been the real winners of crypto lately. I mean, the tether is more profitable than Nike. It's just, it's wild.

00:24:24 Speaker_00
And that coin gets used more than nearly any other cryptocurrency because it turns out that having a stable value at a dollar is something that people prefer.

00:24:38 Speaker_02
The paperback version of your book, Number Go Up, just recently came out, in that you include an afterword that kind of checks more in with where crypto's been and gone since the book was originally published.

00:24:51 Speaker_02
And you write in that that crypto's kind of weird resurgence, this paradoxical spot that we're in now that we've been talking about throughout today, that this resurgence struck you as weird.

00:25:00 Speaker_02
So you decided to write to Warren Buffett and kind of ask him how such a thing could happen. What did Buffett tell you? What did he say about all this stuff?

00:25:10 Speaker_00
He didn't want to get into it too much, but he pointed me to an essay written about the stock market 100 years ago.

00:25:29 Speaker_00
In this essay, it was sort of about this greater fool theory, and it was explaining that for traders, it often does not make sense to really think about the fundamental value of companies, and that a lot of traders are just trying to guess where other people think the price is headed.

00:25:53 Speaker_00
at this time in the stock, a hundred years ago in the stock market, that kind of casino-like thinking had taken hold and the essay was a critique of that. And I think what Buffett would say is that now,

00:26:05 Speaker_00
I mean, at that time, it was actually very hard for regular people to trade on the stock market, and it was like a very small percentage of people actually traded.

00:26:15 Speaker_00
Now, everybody's got this casino in their pocket, and it's gamified, it's fun, people are tweeting about which coins to buy, they have their silly animal pictures. the, you know, mania has gotten out of control.

00:26:33 Speaker_00
But I think in the long run, the value of something has to come from it generating profits or the users paying fees. And it can't just be purely speculation on a future that never comes forever. So I think in the long run,

00:26:56 Speaker_00
Buffett or his former partner, Charlie Bunger, who called crypto rat poison, I think.

00:27:03 Speaker_00
I think either they'll be proven right or the crypto guys will find some sort of use case that we haven't seen yet and justify all this excitement that they've failed to justify for years and years.

00:27:14 Speaker_02
Zekebox, thanks so much for spending some time with us and for giving us some fascinating and I'll say fun insight into this interesting world of crypto. Really appreciate having you on the show.

00:27:27 Speaker_00
Thanks, Mary.

00:27:37 Speaker_01
As always, people on the program may have interests 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.

00:27:46 Speaker_01
All personal finance content follows Motley Fool editorial standards and are not approved by advertisers. The Motley Fool only picks products that it would personally recommend to friends like you. I'm Ricky Mulvey. Thanks for listening.

00:27:56 Speaker_01
We'll be back tomorrow.