Sam Bankman-Fried (aka SBF) of FTX fame has been sent to Brooklyn’s Metropolitan Detention Center (MDC) for attempted witness tapering. These accommodations are a far cry from the comfy confines of his parent’s 3,000 sf home in Palo Alto. Just last December the crypto wiz was living in a $40 million beachside penthouse in the Bahamas.
The new digs “will also present a challenge for his legal team, who have leaned on Bankman-Fried on a daily basis to sift through company documents and explain the complex inner-workings of his former cryptocurrency exchange,” writes Ava Benny-Morrison for Bloomberg. MDC doesn’t allow laptops in prisoner cells, making it a chore for SBF to clue his lawyers in on the workings of FTX.
To read Ben McKenzie’s book (with Jacob Silverman) Easy Money: Cryptocurrency, Casino Capitalism, and the Golden Age of Fraud there is no sense trying to understand what was going on at FTX or with crypto period because even after researching and writing the book McKenzie wrote, “It’s confusing to me even now. If it makes you feel any better, most people who own Bitcoin can’t accurately explain it (although they always swear they can).”
McKenzie made the morning show rounds earlier this summer pitching his book. He is an actor who during COVID got hooked on speculating on crypto and other speculative vehicles. Instead of taking his losses like a big boy, he decided crypto and capitalism itself is all a big fraud and decided to write some articles with Mr. Silverman and ultimately the book Easy Money.
The author mentions plenty of times that he has an economics degree. But, there is little in the way of economic insight in his book. He calls Bitcoin a “direct attack on state authority and the shared public good that is our monetary system.” So, don’t pick up Easy Money expecting to read about Ludwig von Mises’s Regression Theorem, F.A. Hayek’s currency competition, or Rothbard’s 100 percent gold dollar. McKenzie claims “Money is not real; we make it up. It’s a social contract, like government or religion. Like all social constructs, money relies on consensus.” He says a trusted third party is needed and then makes the claim that no one has ever lost a penny of FDIC insured deposits. Tell that to Silicon Valley Bank’s depositors in the Cayman Islands that have been left out in the cold.
The actor turned author makes plenty of assertions with no explanations backing them. For instance, “The technology behind Bitcoin sucks. It doesn’t scale.” He then launches into the number of transactions compared to Visa (apples to oranges) and then wrings his hands over Bitcoin’s energy consumption. According to McKenzie .01 percent of Bitcoin holders control 27 percent of all the coins. Later the author wrote that 44 percent of crypto traders were people of color.
The back half of the book does get interesting when the author and his writer hit the road and interview crypto players including Sam Bankman-Fried (Chapter 9: “The Emperor Is Butt-Ass Naked” is the book’s best). By this time, crypto exchanges were going bankrupt right and left which convinces the author that he is right, crypto is just one big ponzi scheme. Alex Mashinsky told McKenzie that only ten to fifteen percent of the crypto market was real money, with the rest being leverage presumably. Bloomberg’s Matt Levine questioned SBF about circular flows of fake money in crypto. SBF described DeFi staking pools as magic boxes which created money. The Odd Lot’s hosts said that sounded like a ponzi scheme, to which SBF agreed.
John Reed Stark, retired from the SEC, told the authors, “There really is no legitimate side to crypto.” It’s just another get-rich-quick scheme.
Online poker becomes part of McKenzie’s story near the book’s end. The poker boom surged in the early 2000’s only to be crushed by the government on April 15, 2011. Online poker’s end and crypto’s beginning may or may not be a coincidence. But, poker in McKenzie’s view was replaced by crypto. “It would only be fitting if online poker lay at the foundation of it all.”
Ultimately, McKenzie blames capitalism for the crypto mess and the shenanigans of SBF and others. He’s blind to the Fed’s zero interest rate policy and to the Trump and Biden helicopter money fiscal policies. Government is not to blame, the folks at the FDIC are heroes, it’s capitalism that must be fixed, McKenzie writes.
Real capitalism. If only we had such a thing.
Meanwhile, at MDC Bankman-Fried’s parents can deposit money into his inmate account at a facility described as “disgusting and inhuman,” according to Bloomberg, to buy small luxuries, like peanut butter, instant grits and playing cards.
