Requiem for a Meme

Ed Zitron 6 min read

It’s been about a year since Sam Bankman-Fried’s empire of dirt collapsed, leading to him being found guilty of seven counts of fraud and conspiracy earlier this month. We won’t find out until March 2024 exactly how many of the potential 110 years he’ll serve for defrauding billions of dollars from millions of people, which is around the same time Sam will stand trial again on five counts including bank fraud and bribery. It’s a stunning reversal of fortune for a guy who mere months before FTX’s collapse was being hailed as the next Warren Buffett, lauded as a J. Pierpoint Morgan-style savior of the markets, and asked to “share the secrets” of his “unique investing approach” to a financial media entranced by the siren song of a 30-year-old billionaire.

The “floppy-haired, fidget-spinning” Bankman-Fried beguiled the media by symbolizing exactly what they wanted a billionaire to be — a mild-mannered wunderkind that "wanted to give away 99% of his wealth” yet never quite seemed to do so. Bankman-Fried claimed to have given away $100 million, but it isn’t really obvious how much actual money made it to anyone other than a few six-figure grants and tens of millions of dollars to both Republican and Democrat candidates. Bankman-Fried knew that there would be no follow-ups, no critiques, no requests for further comment from a finance media that would slurp down whatever slop he gave them, cooing at his goldendoodle and lording over his “humble” use of a Toyota Corolla. Bankman-Fried repeated the same lie that he wanted to “give away” all of his money again and again and again, yet nobody appeared to ask whether he had or when he planned to do so.

As I noted soon after the FTX collapse (and had done so back in August 2022), Bankman-Fried — a man worth, at least on paper, billions of dollars — had (through Alameda Research, his “trading arm”) been borrowing heavily from a now-bankrupt crypto company Voyager (which was somehow a public company), and specifically reduced his holdings to avoid having to disclose anything to Canada’s securities regulators. More confusingly, SBF offered Voyager a $500m credit line (along with a very similar offer to another fraudulent enterprise called BlockFi) and then tried to buy it outright.  Nobody seemed to ask whether, perhaps, Bankman-Fried could instead pay back the loan, something he claimed he was “happy to do” if they returned his collateral.

These were already extremely dodgy signs — cognitively dissonant stances that the media happily regurgitated because nobody seemed to want to ask any simple questions. Why did Alameda Research and FTX have such large loans? How many loans were there? How much money do you have in fiat currency versus cryptocurrency, and how do you balance that?

These are basic questions that could easily have been met with lies — and, given SBF’s obfuscation at his recent criminal trial, likely would have been —  but the line of questioning would at least have begun to scrutinize the operation, and perhaps lessen public trust in an institution that the financial media accidentally helped to steal billions of dollars.

SBF took advantage of the speed at which the media has to crank out new content and created exactly the signifiers he needed to stay in the press, chief among them the almost-entirely fake world of cryptocurrency values. He was a master of market manipulation, brokering deals to make sure that the tokens he created and controlled always had massive day-one price pops, and helping juice the liquidity and valuation of freshly-listed tokens (heavily held by FTX, of course) by shilling them with an army of Twitter bots. The media was already asleep at the wheel with cryptocurrency, because there was far more traffic to be had in telling people that somebody was making money in NFTs or the price of Bitcoin than there was in a deep and meaningful investigation into, say, that most cryptocurrency companies didn’t seem to create anything other than increasingly-larger numbers.

Seriously, go and look at any of the most-funded cryptocurrency companies. Katie Haun’s Haun Ventures raised $1.5 billion in March 2022, and invested $200 million into Aptos, a company founded by people who worked on Facebook’s doomed “Diem” cryptocurrency, to build a “more scalable blockchain with faster transactions and lower fees than today’s mainstream networks,” a thing that has been done at least 5 other times. A year later, Aptos has a whole 7.3 million wallets — or roughly 2.9% of the total number of unique addresses on the Ethereum network. I am otherwise unable to tell you what they have done, or what they do. Their website is a word salad buffet, promising that Aptos is “the blockchain network with everything you need to build your big idea,” with a couple of sentences as to what you could, theoretically, do on the network.

Other large investments from other VCs include Yuga Labs, which raised $450 million in 2022 (as well as $285 million selling land in their “Otherside” metaverse). Over a year later and all that Yuga has done is show off an extremely underwhelming tech demo, launch a quickly-exploited Miniclip-style game, and potentially blind several bored ape NFT holders. Blockchain gaming company Forte raised $725 million almost exactly two years ago, and hasn’t updated their Twitter since August when it announced a Web3 game with Zynga (maker of such rapacious pay-to-win titles as FarmVille) that requires you to buy a $400 NFT to play with middling pickup from the market.

Of the top 50 crypto rounds of all time, the majority are companies raising vast amounts of capital to build “infrastructure” that never seems to go anywhere, products that never seem to launch, or doodads that never find their product-market fit. And while — especially now, when the cryptocurrency market is tainted by scandal and failure — you could occasionally find derisory coverage of trivial consumer Web3 apps (like the aforementioned Yuga Labs games), the majority of “serious” crypto companies received glowing, credulous coverage from people who should have known better. Far too many journalists acted (and continue to act) like stenographers for businesses that, at best, have no real prospects of long-term success, and at worst, are profoundly (and actively) harmful.

The media was complicit in facilitating the rise of Sam Bankman-Fried, and countless other crypto grifters, but it’s not alone in this. Everyone dropped the ball. The informal checks and balances that in a sane ecosystem would act like a quality control mechanism for technology simply don’t exist for crypto.

There is no follow-up, no ombudsman, and no industry figurehead making sure that these cryptocurrency companies don’t just become black holes for capital and user funds. And that’s by design. The industry isn’t interested in stopping another Sam Bankman-Fried, because truly policing itself would require the cryptocurrency industry to admit that billions of dollars are tied up in digital nothingburgers, eternal works-in-progress that shuffle around fiat and digital currencies, and “exciting” new partnerships that never manifest into anything. The cryptocurrency industry continually fools the media and venture capitalists in exactly the same way that SBF did — by saying intelligent-sounding things that sound reasonable to people who lack the domain expertise to actually vet the code or criticize the fundamentals of the projects.

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Bankmen, Freed

Cryptocurrency is one of the Rot Economy’s most persistent cancers. It’s an industry that grows without ever creating anything new other than reasons for venture capitalists to dump millions of dollars into something else that might grow, almost entirely divorced from any consequence or achievement. Besides creating fertile ground for a new brand of fraudster, there are no “killer apps” on the blockchain, no essential websites for us to visit, and no products that we desperately need. It’s a place for companies to “innovate” without changing the world, a place where there’s always something new but never something important, all wrapped in a deeply unhealthy religious fundamentalism that has lost people billions of dollars.

John Griffin, the professor who found that 2017’s bull run was mostly market manipulation, believes that the current market may still be manipulated, a story that was picked up by a few outlets and then quickly dropped. The Winklevosses likely defrauded customers of over a billion dollars as a result of working with another billion-dollar fraudster, and the story has all but disappeared. Web 3 Is Going Just Great regularly publishes stories about the many, many projects that outright defraud people every day in the cryptocurrency world, and that’s likely leaving out millions of dollars from smaller rug-pulls that never make it to the media. Bitcoin has crested over $36,000, and the same outlets that covered the rise of Sam Bankman-Fried are gleefully applauding a potential future bull run.

What I am saying is that there will absolutely be another Sam Bankman-Fried, because absolutely nothing has changed.

The media has continued to cover cryptocurrency in a way that suggests that this is a valid, rigorously-vetted industry, rather than a coterie of charlatans that has crystallized around the vague promise of “decentralization.” The cryptocurrency industry has no interest in changing because they are not being made to change, and if Bitcoin ever goes above $50,000, mark my goddamn words — there will be another series of mewling “perhaps this is the future?” pieces that will encourage us to consider a decentralized world that will never, ever exist.

This new SBF will burn a bigger, more painful hole in retail investors than before, one that takes longer to heal, and this cycle will continue again and again until the world learns that dressing a casino up like a stock exchange is deeply harmful to society.

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