Digging Crypto With Author Zeke Faux

Zeke Faux is the author of Number Go Up: Inside Crypto’s Wild Rise and Staggering Fall. Motley Fool host 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.

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This video was recorded on Nov. 10, 2024.

Zeke Faux: 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. They’re making more than $5 billion a year, and have been the real winners of crypto lately. Tether is more profitable than Nike.

Ricky Mulvey: I’m Ricky Mulvey, and that’s Zeke Faux. 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 Faux is just an incredible storyteller. 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. 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. As a heads up, this conversation was recorded on Monday, November 4th before the election.

Mary Long: 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. I am admittedly a more casual observer of crypto markets, but it seems like that world has gone quiet in the two years post-FTX. 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. How can both of those things be true? Has crypto really gone quiet or is something else happening here?

Zeke Faux: It’s really weird. Back in November 2022, when FTX failed, I was down with Sam Bankman-Fried interviewing him in the Bahamas about what had gone wrong, and it felt like it was time to write an obituary for this whole crypto market. The face of crypto had been discredited as a fraud. Yet, pretty much most coin prices are back up to their highs, and it feels to me like there’s not the same level of buzz, behind it as there was last time. No one’s talking about Web 3. No one’s saying, oh, we need to put Taylor Swift tickets on the blockchain to stop scalping or showing off their hot new NFT. But the prices are back up on. The big buzz was around the Bitcoin ETF, and that was hyped as this big milestone for the market. But if you think about it, it’s not really that new. It’s just a different way to buy Bitcoin, and there’s already so many. But the crypto industry is really great at creating this narrative that crypto is the future, is right around the corner. The big money is about to come in, and it’s still early, so you should get in too.

Mary Long: That narrative piece is so fascinating to me. I have a friend who works as an engineer at a crypto trading platform. We were catching up recently and I was trying to get his take on that paradox that we’ve discussed. I’m like, what is the vibe? He was at this company before FTX’s downfall, he’s still there now, and I was like, what is the vibe? Is it just doom and gloom, with this larger crypto is dead? Narrative that’s in the more mainstream media he’s like, he laughed in response and was like, no, I talked to the traders, and everybody thinks crypto’s best days are ahead of it. Is that is that truly believed by the people that you’re talking to, and what gives them that sense that crypto’s best days are ahead of it rather than behind? Or is that just like furthering this narrative of you got to buy now. It’s still the beginning.

Zeke Faux: 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. But at this point, Bitcoin’s 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 consumer app that has gotten usage from normal people. The value of all these currencies in the long run has to come from people using them, paying fees. It can’t just be magic Internet money. My first Bitcoin conference I ever went to, I heard this pitch for why you should buy Bitcoin, and this guy said that the real technology was number go up technology, and he said, the price will go up, and that’ll get people excited, more people will buy. The price will go up more. Pretty soon we’ll all be trillionaires or whatever.

I thought that was so funny that I used that line as a title of my book Number Go up. But it seems like he was right. If you’re not paying attention to crypto, you might think, there’s got to be something to it. 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, 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 financial rules. That was actually the most useful thing that I found that people were doing with crypto.

Mary Long: Was evading financial rules.

Zeke Faux: Yes. That’s like a positive case for crypto. If regulators continue to allow it to be used to get around the rules, then it’ll continue to have some appeal.

Mary Long: I might just be asking you to double down on what you just said, but I am one of those people who’s similar to you. I want to understand what the most genuine vision for the possibilities of this stuff actually is, because part of me has to believe that yes, of course, there are people that are interested in the number go up technology of this stuff. 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? Or is that argument just all noise?

Zeke Faux: 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, and there’s so much money in the crypto world that these weird things that only exist within the crypto world can still be quite profitable. I was just listening to a crypto lawyer the other night at this very pro crypto event. He was talking and saying all these good things about crypto. He was like, 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. You put the cart before the horse. We’ve gambled billions of dollars on crypto and have yet to come up with their product.

But I think that the most genuine argument for crypto, whichever cryptocurrency you’re talking about is, let’s say, there’s some small possibility that in the future, everyone is going to use crypto to launch companies, to make cross border payments to track their digital identity, and even if that’s far fetched, if it does happen, just imagine how valuable all these coins would be. That small possibility of this being 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.

Mary Long: 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. 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. 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.

Zeke Faux: If you really want to be a Bitcoiner, you 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. They allow you to program in transactions, they are faster, the fees are lower. 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. You have to 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. The president tried to get everyone in this country to use Bitcoin. It was a total disaster. I went down there and it was a big joke in this country. I felt embarrassed to try and use my Bitcoin to buy stuff around there, 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.

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. It’s a crazy argument, to me, but I was down at the Bitcoin conference this year, and presidential candidate Donald Trump was the headliner, and he gave this speech where he endorsed this view and said, the United States should build a strategic stockpile of Bitcoins.

Mary Long: Again, with the paradoxes there seems to be an interesting tension in that for me that, 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. Is there a sense that Bitcoin is still stuck with older technologies, while newer coins are able to adapt to faster, better crypto stuff?

Zeke Faux: Yeah, the advocates of the newer coins would make that argument, and they’d point to the better DeFi applications you can make on Solana or Ethereum. But what the Bitcoiners would say, which this criticism I would agree with, they’d say, let’s look what you’re really doing with the new technology and what it is, in many cases, is just coming up with stupider and stupider joke coins. In preparation for talking with you, I was looking at some of the returns of different cryptocurrencies year to date. Bitcoins up 60%. Dogecoin, which is the oldest Blue Chip meme coins up 74%, Pepe coin 500%, and then this was really hot this year. They took the Dogecoin. They put a hat on the dog, dog whiff hat coin. That’s up 1,200%, and there’s nothing to this. It’s just like a chain letter. You’re like, hey, buddy, how about you get some of this funny dog coin? I bet other people will. It’s going go up. It’s accessible to people in the US and around the world, and it’s like this gambling game that some percentage of people seem to enjoy.

Mary Long: Blue Chip meme is not a phrase that I fully expected to hear.

Zeke Faux: Yeah, I’m in this way too deep. I’m sorry. [laughs]

Mary Long: Well, you’re in deep on Tether, too, and I want to talk about that for a bit. Tether is a stable coin. So they were fined by the US Commodities Futures Trading Commission in 2021, because they claim to be fully backed by US dollars when that wasn’t actually true. Tether paid up the fine, but they did not admit or deny those allegations. What is Tether actually backed by? If it’s a stable coin, it’s supposed to be pegged to the US dollar, but how does that actually work?

Zeke Faux: This is what got me into crypto, and when I started looking into it, Tether, the way that it works is that you make some crypto trader, send Tether, let’s say, $10, they send you 10 Tether tokens that live on the block chain, and you can go do stuff with those tokens. 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. Because Tether, is backed by hard assets, its value does stay in general, very close to $1. People in the crypto world find this useful, because one of the reasons other cryptocurrencies haven’t gotten a foothold in paying for transactions is that the value goes up and down so much. If you actually wanting to use crypto to do normal stuff, you might prefer to use a cryptocurrency with a stable value like Tether. If you’re in the US, this isn’t really that exciting for you, there’s plenty of ways to send money.

The positive use case for Tether is that you can buy Tether on crypto exchanges like finance or other popular ones. 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. 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 Number Go Up, is that in the banking system, there’s a rule that the bank needs to know their customer, and this enables the authorities to track money laundering and criminals using the banking system. It’s not perfect, but it helps them a lot. 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.

It’s insane, but there are these whole office towers in Cambodia and Myanmar where thousands of people are running scams, like romance scams where they try to befriend people in richer countries and then convince them to send money, and there’s credible estimates that people in the US alone are sending five or $10 billion a year to these scammers, and it’s made a lot easier with crypto. If you tried to wire money to a Chinese gangster in Cambodia from your Bank of America account, it would trigger all red flags, and they’d probably call you and tell you to watch out. 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 number to account to that number to account, and the trail goes dead. All sorts of criminals have started using Tether to do their transactions. 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 US dollar based accounts if you were some random person abroad, and now you can have, this anonymous wallet that holds Tethers and move money instantly, no refunds, no identity needed.

Mary Long: We kicked off this conversation by talking about this paradoxical spot that we’re in the sense that oh, the crypto world has gone quiet in the two years post FTX, but also there’s been a lot of upward movement in the industry as well. 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, like pre FTX, even while there were many celebrity endorsements of crypto, politicians seemed much more skeptical, seemingly thinking that, OK, this is exactly what you just described with Tether.

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 green lighting Bitcoin ETFs, and since then, a change in how many politicians approach and talk about crypto and crypto regulation. Let’s focus on the ETF piece of this for a second. Why did the SEC decide to legitimize crypto in this way? Does that make a substantive difference in how the public perceives these kinds of currencies?

Zeke Faux: 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. There were a lot of legal ways for people to buy Bitcoin. 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. I think in reality, that didn’t signal that the SEC had changed its opinion overall. In fact, the SEC has sued all sorts of cryptocmpanies, 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, and if the SEC wins these cases and wins these lawsuits, it would make it very difficult to do most of the stuff that crypto people want to do in the US. Again, what they want to do is put new hats on the dog and gamble on it [laughs] or create anonymous wallets where we can send money around the world, or in the most positive sense, they want to create some new start-up company and finance it by selling coins to the public, and the SEC is saying, We’ve got rules for that, you’re not following them. This isn’t allowed.

This SEC campaign is partly why so many crypto companies now have put a lot of money into political donations, 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, and if you endorse crypto they just might give you a couple million bucks for your campaign. You’re not going to offend too many people, and if you start saying negative things about crypto, they might give your opponent five or $10 million. They’ve done this in a few races. You’ve seen traditionally in the last few years, the Democrats were more tough on crypto, but quite a few of them have started saying more positive things, and 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 a looser framework where it could still be regulated.

Mary Long: Do those payments are they paid out in crypto or are they cold hard cash?

Zeke Faux: 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. But I think the Super PACs are paying in US dollars still.

Mary Long: If we rewind back to, again, the peak crypto-mania 2020, 2021, there were two central figures, one of them Sam Bankman-Fried, now disgraced, another, headed up Binance, Cheng Peng Zhao, or CZ shortly after Sam Bankman-Fried was convicted, he pled guilty to money laundering charges at quite a massive scale. These were two massively prominent figures in the crypto world. 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?

Zeke Faux: The head of coin base, the US exchange, Brian Armstrong has become more prominent, but 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. Because you had mentioned there were these questions about its backing. Tether has now grown to more than $100 billion, and before it was unclear where they were keeping their money, now, Caner Fitzgerald, a big Wall Street firm that’s well known, its CEO has said that he is holding nearly all of Tether’s money and that it’s invested in treasury bills that yield 5%. These Tether guys, they don’t pay interest to people who hold Tether tokens. They’re sitting on $100 billion. It’s earning 5% interest, and it’s like a real shoe string 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. Tether is more profitable than Nike. It’s wild, and that coin gets used more than nearly any other cryptocurrency, because it turns out that having a stable value at $1 is something that people prefer.

Mary Long: The paperback version of your book Number Go Up, just recently came out. In that, you include an afterword that checks more in with where crypto’s been and gone since the book was originally published. You write in that that cryptos 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 so you decided to write to Warren Buffett and ask him how such a thing could happen. What did Buffett tell you? What did he say about all this stuff?

Zeke Faux: He didn’t want to get into it too much, but he pointed me to a essay written about the stock market 100 years ago. In this essay, it was 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. At this time, 100 years ago, in the stock market, that casino thinking had taken hold, and the essay was a critique of that. I think what Buffett would say is that, at that time, it was actually very hard for regular people to trade on the stock market, and it was a very small percentage of people actually traded. 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 mania has gotten out of control. 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. I think in the long run, Buffett, or his former partner, Charlie Bunger who called crypto rat poison, I think. I think either they’ll be proven right or the crypto guys will find some use case that we haven’t seen yet and justify all this excitement that they’ve failed to justify for years and years.

Mary Long: Zeke Faux, 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.

Zeke Faux: Thanks, Mary.

Ricky Mulvey: 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 yourself sell stocks based solely on what you hear. 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. We’ll be back tomorrow.