Hype vs. Reality: How Crypto Became a $4 Trillion Roller-Coaster (#259)

Summary

3 Takeaways Podcast Summary

Episode Title: Hype vs. Reality: How Crypto Became a $4 Trillion Roller-Coaster (#259)
Host: Lynn Thoman
Guest: Zeke Fox, Award-Winning Investigative Journalist at Bloomberg and National Fellow at New America
Release Date: July 22, 2025

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Introduction

In this enlightening episode of 3 Takeaways, host Lynn Thoman delves deep into the tumultuous world of cryptocurrencies with esteemed investigative journalist Zeke Fox. Together, they explore the evolution of crypto from its inception to its current status as a multi-trillion-dollar industry, dissecting the hype, uncovering the realities, and forecasting its future trajectory.

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Bitcoin Explained

Lynn Thoman initiates the conversation by seeking a foundational understanding of Bitcoin.

Key Discussion Points:

• Zeke Fox simplifies Bitcoin by likening it to a massive, decentralized spreadsheet:

  "You can think of bitcoin as like a big spreadsheet in the sky and it's got two columns. Column A is the names of the account holders, you know, like Lynn and Zeke. And in column B, it's how much each of us has." ([00:02])

• Clarifies Bitcoin's semi-anonymous nature through alphanumeric strings representing users instead of real names.

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Original Vision vs. Current Reality

The conversation transitions to Bitcoin's initial purpose compared to its present-day usage.

Key Discussion Points:

• Original Vision:

  "Originally, bitcoin proponents thought that bitcoin would be like an alternative to the dollar and we would use it to conduct everyday transactions free from fees charged by financial middlemen or government surveillance." ([02:24])

• Current Usage:
  Bitcoin is predominantly used for speculative investments rather than everyday transactions, with users primarily motivated by potential price appreciation.

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The Shift in Bitcoin's Valuation and Early Adopters

Lynn Thoman probes into the factors that spurred Bitcoin's surge in value and identifies its early user base.

Key Discussion Points:

• Initial low valuation changed as early adopters, including nerdy hobbyists and users of platforms like Silk Road, increased demand.

• Silk Road's role in legitimizing and popularizing Bitcoin:

  "The first real consumer application was a dark web drug marketplace called Silk Road... the price started going up." ([03:08])

• Ross Ulbricht, founder of Silk Road, became a notable figure in the crypto community despite legal repercussions:

  "Ross Albright... became kind of a car celeb in bitcoin circles and was recently pardoned..." ([04:22])

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Understanding Stablecoins and Tether's Controversies

The discussion shifts to stablecoins, particularly Tether, highlighting their intended purpose and the controversies surrounding them.

Key Discussion Points:

• Stablecoins Defined:

  "Stablecoins are kind of a special type. And these are coins that are supposed to always be worth a dollar because each coin is backed by a real dollar held in a bank somewhere." ([04:32])

• Tether's Operations and Scrutiny:
  Despite lacking audited financial statements, Tether claims substantial reserves, bolstered by endorsements from figures like Howard Lutnick:

  "Howard Lutnick... he checked it out and the company had the money it claimed." ([05:19])

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Scale and Impact of the Cryptocurrency Market

Zeke Fox provides insights into the vastness and influence of the crypto ecosystem.

Key Discussion Points:

• Market Capitalization:
  Approximately $3 trillion, though this figure may overstate the industry's actual size due to the proliferation of new cryptocurrencies.

• Political Influence:
  Crypto surpassed industries like oil and gas in political donations during the last election cycle, indicating its growing sway.

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Strategies to Inflate Cryptocurrency Values

The conversation explores the tactics used to generate buzz and investment in new cryptocurrencies.

Key Discussion Points:

• Endorsements by Celebrities:
  Utilizing famous personalities to gain attention, exemplified by the Centra cryptocurrency case:

  "They paid the boxing legend Floyd Mayweather to endorse it, and they were able to sell $30 million of Centra coins." ([06:52])

• Consequences of Deceptive Practices:
  Centra's collapse led to legal repercussions, highlighting the risks of unregulated endorsements:

  "Some of the people behind it ended up going to jail." ([07:XX])

• Speculative Nature:
  The primary utility of cryptocurrencies remains financial speculation ("number go up"), lacking inherent value for everyday use.

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Emergence of Crypto-Enabled Frauds

Lynn Thoman and Zeke Fox delve into the dark side of the crypto boom, particularly focusing on new forms of financial scams.

Key Discussion Points:

• Pig Butchering Scams:
  Elaborate financial scams involving deceptive communications to lure individuals into fraudulent investments:

  "It may sound kind of ridiculous, but people are losing billions of dollars to these scams every year." ([08:28])

• Operational Mechanics:
  Scammers, often trapped and coerced from regions like Southeast Asia, exploit the semi-anonymous nature of crypto to siphon funds:

  "You can send $100,000 instantly to a scammer... without any refunds." ([09:XX])

• Traceability Issues:
  Cryptocurrency addresses offer minimal traceability, complicating law enforcement efforts:

  "...all they'll have to go off of is this 32 digit string of random letters and numbers that represents the scammers crypto address." ([09:XX])

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Political Figures and Crypto Ventures

The episode discusses the involvement of high-profile individuals and their ventures into the cryptocurrency space.

Key Discussion Points:

• World Liberty Financial:
  Launched by the Trump family as their cryptocurrency initiative:

  "They ended up selling $550 million worth of world liberty tokens." ([10:24])

• Financial Gains and Political Influence:
  A significant portion of funds raised via World Liberty tokens flowed directly to the Trumps, raising ethical and legal questions:

  "Three quarters of all the money that World Liberty takes in... goes right to the Trumps." ([10:24])

• Justin Sun's Investment:
  Notable crypto billionaire Justin Sun's substantial investment in World Liberty tokens and the subsequent legal developments:

  "Justin Sun... bought $75 million worth of these World Liberty tokens..." ([11:53])

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Regulatory Landscape and Future Outlook

Zeke Fox shares his perspective on the evolving regulatory environment and the future of cryptocurrency.

Key Discussion Points:

• Shift in Regulatory Stance:
  Under the Biden administration, crypto leaders faced legal challenges, whereas the Trump administration adopted a more lenient approach:

  "All the lawsuits have been dropped and the leaders of the crypto industry have been invited to the White House..." ([11:57])

• Implications for Traditional Companies:
  Major corporations like Walmart, Amazon, Facebook, and X (formerly Twitter) are contemplating entry into the stablecoin market, leveraging looser regulatory frameworks:

  "It's been reported recently that Walmart, Amazon, Facebook and X or Twitter have all been considering getting into the stablecoin business." ([12:XX])

• Ease of Launching Cryptocurrencies:
  Cryptocurrencies offer a less regulated and cost-effective alternative to traditional financial instruments like IPOs.

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Surprising Insights from Investigative Reporting

Zeke Fox shares unexpected findings from his investigative journey into the crypto realm.

Key Discussion Points:

• Non-Existent Crypto Projects:
  Encountering deceptive practices where substantial investments are made into projects that lack tangible products:

  "He said it was about spaceships... but the game doesn't actually exist." ([13:29])

• Highlights the prevalence of illusory projects designed to extract funds without delivering real value.

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Three Key Takeaways

As the episode concludes, Zeke Fox imparts three essential lessons gleaned from his exploration of the cryptocurrency landscape.

1. Skepticism in Investments:

   "If something seems too good to be true in the world of investing... trust your instinct." ([14:31])

2. Value of Financial Regulations: Appreciates the robustness of the U.S. financial regulatory system in fostering trust and stability, cautioning against dismantling these safeguards in favor of unregulated crypto markets.

3. Engagement with Crypto: Despite initial doubts, recognizes the allure of crypto as a fertile ground for compelling narratives and character studies, underscoring its cultural and societal impact.

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Conclusion

Lynn Thoman wraps up the episode by expressing gratitude towards Zeke Fox and endorsing his book, Number Go Up. She encourages listeners to engage further with the podcast through reviews, newsletters, and social media platforms.

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This episode offers a comprehensive exploration of the cryptocurrency ecosystem, balancing technical explanations with investigative insights. Zeke Fox's expert analysis provides listeners with a nuanced understanding of the complexities, challenges, and future possibilities within the crypto space.

Transcript

[Lynn Thoman]

Cryptocurrencies have gone from Internet curiosity to trillion dollar valuations. But what's hype, what's real, and what's coming next? Hi, everyone, I'm Lynn Thoman and this is three takeaways. On three Takeaways, I talk with some of the world's best thinkers, business leaders, writers, politicians, newsmakers and scientists. Each episode ends with three key takeaways. Help us understand the world and maybe even ourselves a little better. Today I'm excited to be with Zeke Fox. Zeke is an award winning investigative journalist at Bloomberg and a national fellow at New America. He literally traveled the world to follow the money behind cryptocurrencies, chasing down elusive founders, exposing hidden players, and uncovering what's real behind the crypto hype. He's the author of the very entertaining book number Go up, which tracks crypto's rise. Today I'm thrilled to go behind the headlines and find out what's real, what's hype, and what's next. Zeke, welcome and thanks so much for joining three takeaways today.

[Zeke Fox]

Thanks a lot, Lynn.

[Lynn Thoman]

It is my pleasure. Zeke, can you explain very briefly what bitcoin is?

[Zeke Fox]

You can think of bitcoin as like a big spreadsheet in the sky and it's got two columns. Column A is the names of the account holders, you know, like Lynn and Zeke. And in column B, it's how much each of us has. So maybe you've got five and I've got 10. And those numbers represent how many bitcoins we have. That's basically it. When you pay $100,000 for a bitcoin, you are just paying for that number on your line in the spreadsheet to be increased by one. There's nothing else. And instead of having your actual name in that spreadsheet, you're represented by a long string of random letters and numbers. That's what makes it semi anonymous.

[Lynn Thoman]

And what was the original vision behind bitcoin and how has that changed?

[Zeke Fox]

Originally, bitcoin proponents thought that bitcoin would be like an alternative to the dollar and we would use it to conduct everyday transactions free from fees charged by financial middlemen or government surveillance. Now, bitcoin's been around for 15 years. It's as old as Uber, it's as old as WhatsApp. But pretty much no one uses it for that. Instead, people buy bitcoin because want to make money. They want to see the price go up even more. And for the last couple of years, that's what's been happening.

[Lynn Thoman]

So the price of bitcoin was basically zero for many years until something shifted. What happened and who were the early adopters?

[Zeke Fox]

At first, it was kind of a fun thing for nerdy hobbyists. The first real consumer application was a dark web drug marketplace called Silk Road. And this was a website that worked kind of like craigslist. But dark web just means you can only access it from a special browser. And you could order all kinds of drugs and other things to be delivered to your home. And the dealers that were on this marketplace accepted payment in bitcoin. The prospect of ordering drugs with home delivery was enough to get a lot of otherwise uninterested people to give this bitcoin thing a try. And because there was new demand for bitcoin to use this website, the price started going up. Interestingly, the guy behind Silk road, Ross Albright, who was eventually caught and sentenced to prison, became kind of a car celeb in bitcoin circles and was recently pardoned and freed from prison by president Trump after extensive lobbying by bitcoiners who appreciate his early contributions to the industry.

[Lynn Thoman]

So interesting. I did not know that he was released from prison. We hear about bitcoin and also about what are called stablecoins, like tether.

[Zeke Fox]

What's the difference between of all these different cryptocurrencies? Stablecoins are kind of a special type. And these are coins that are supposed to always be worth a dollar because each coin is backed by a real dollar held in a bank somewhere. So the idea is that you send in 100 bucks to the company, Tether, they issue the biggest stablecoin, and then tether will issue you 100 digital tokens, which you can then go and use in cryptoland.

[Lynn Thoman]

Tether does not have any legal headquarters. It doesn't have any audited financial statements in any country. And yet it claims to have $150 billion that it's received.

[Zeke Fox]

Yeah. In the last year or two, Tether has gained some powerful allies. Howard Lutnick, the head of Cantor Fitzgerald, a well known investment bank, he started vouching for tether and he said his bank had started to hold tether's reserves and that he checked it out and the company had the money it claimed. He's now the secretary of commerce and he owns a stake in tether, like a small percentage of the company. So not quite an audited financial statement. But compared to where tether started, it's definitely come a long way.

[Lynn Thoman]

Zeke, how big is this world now? Can you give a sense of the scale of bitcoin and other digital currencies.

[Zeke Fox]

The market capitalization of all cryptocurrencies put together is something like $3 trillion. That I think overstates the scale of the industry because of the ease of creating new currencies and having them have big market caps. I mean, the industry is big enough that last election cycle it spent more on political donations than any other industry, like more than oil and gas. But it's still, you know, tiny compared to the regular financial industry or the greater tech industry.

[Lynn Thoman]

So let's talk about the strategies used to make what you call number go up. First was paying famous people. So how did that strategy work and who did they pay?

[Zeke Fox]

One of the best ways to make money in crypto is to launch your own cryptocurrency. And at this point it's like trivially easy to do. The problem is that there's so many people doing it, there's new ones every second. How is yours going to get any attention? So in some cases, the creators of the cryptocurrency will pay someone famous to endorse it as a way of getting more attention. And there's one example that I like from the early days back in 2017, where a bunch of hustlers from Florida, like, worked at a car dealership, created a new cryptocurrency called Centra and they claimed it was going to revolutionize banking or something. But the key part was they paid the boxing legend Floyd Mayweather to endorse it, and they were able to sell $30 million of Centra coins. It inevitably collapsed. The people who had bought it were angry and some of the people behind it ended up going to jail. Although not all of the executives, because one of the executives they listed on their website was just a made up guy with a stock photo, so he was safe from prosecution. The problem is that, and even crypto people will acknowledge this, they've really struggled to come up with a reason why regular people would want to use all of this stuff other than financial speculation. Number go up.

[Lynn Thoman]

Crypto has enabled whole new categories of fraud. What kinds of new frauds has it enabled? And is it really as untraceable as people once thought?

[Zeke Fox]

One that I found very disturbing has come to be known as pig butchering. And these are financial scams that, I mean, you may have interacted with them without even realizing it. It's these wrong number text messages that most of us get on the daily. They'll be like, hey, what's up, Daniel? Did you get the milk on your way home? If you interact with These people, they'll try to be your friend, they'll eventually convince you that they're really good at investing in crypto and you should too. And they will try to get you to acquire stablecoins and to send your stable coins to a crypto address. The idea is that this is going to be for some kind of investment, but in reality, you'll never see that money again. It may sound kind of ridiculous, but people are losing billions of dollars to these scams every year. And the worst part is that the people on the other end, the ones sending these text messages, are themselves often victims. They are often from around Southeast Asia and they're lured to generally Cambodia or Myanmar with the offer of a really good job. When they get there, they're trapped, their passports are taken and they're forced to run these scams under threat of beatings or worse. The reason that crypto has made this possible is that, you know, if I fall victim to one of these scammers, I can send $100,000 instantly to a scammer who's working for a Chinese gangster in Cambodia and there's no refunds. You know, when I realize I've been had and I called the cops, they won't have any clues. All they'll have to go off of is this 32 digit string of random letters and numbers that represents the scammers crypto address.

[Lynn Thoman]

In September 2024, just after the election, the Trump sons began promoting something called World Liberty Financial. What is it, how does it work and who are the investors?

[Zeke Fox]

Yeah, Trump Senior too was promoting it, did a live stream from Mar A Lago. During his first administration, Trump had called bitcoin a scam. But last July he actually appeared at one of these big crypto conferences and endorsed crypto. Said we'll make the US the crypto capital of the planet in just a few weeks later, he and his son started promoting their own cryptocurrency called World Liberty Financial. Like a lot of things in crypto, it wasn't really clear exactly what it was or what it would do, but. But there was a coin and would you like to buy some? And they ended up selling $550 million worth of world liberty tokens. Three quarters of all the money that World Liberty takes in from whatever business it does and also from token sales goes right to the Trumps. So they've made like $400 million in profit from it already. And the biggest investor that we know of in World Liberty is a crypto billionaire named Justin Sun. He runs a Blockchain called Tron. Under the Biden administration, son had been sued for fraud in relation to the creation of his Tron token. So sun bought $75 million worth of these World Liberty tokens, and subsequently the fraud lawsuit was put on hold by the Trump administration.

[Lynn Thoman]

Wow. What do you see next in crypto, Zeke?

[Zeke Fox]

Under Biden, it wasn't just Justin Sun. So many of the biggest players in crypto got sued. And the allegations boil down to, you are illegally marketing investments without following our age old system of financial regulation. And under Trump, that's totally changed. All the lawsuits have been dropped and the leaders of the crypto industry have been invited to the White House to talk about how they'd like financial regulations for crypto to look. So at this point, it seems like the regulations for crypto might be so favorable that it might be in your interest to become a crypto company just to take advantage of the looser rules. It's been reported recently that Walmart, Amazon, Facebook and X or Twitter have all been considering getting into the stablecoin business. So it seems likely that we'll see more and more people issuing cryptocurrencies because it's a cheaper way to raise money. You don't have to follow all the same paperwork requirements that you would if you were doing a initial public offering of stock.

[Lynn Thoman]

Exactly. They don't have to follow the banking rules or any of the financial regulations or protections for investors. Zeke, before I ask for the three takeaways you'd like to leave the audience with today, is there anything else that surprised you and your investigative reporting on crypto?

[Zeke Fox]

When I think about crypto, I often think about one interaction I had at a conference hosted by Sam Bankman Fried at sort of the peak of the last boom in the Bahamas. And I was talking with a guy who made a crypto video game. He said it was about spaceships. He'd sold already $300 million worth of crypto spaceships to people who wanted to play the game. I was pretty impressed and I said, okay, cool, let's try this game out. Let's play. I want to, you know, I'm a writer, I want to see how it works so I can write about it. And he was like, whoa, whoa, whoa there. The game doesn't actually exist. We just sold the spaceships. But like, you can earn interest on your spaceship if you deposited in this lending protocol. And I'm like, oh, I see. And I just feel like that so much of crypto is like these non existent spaceship games.

[Lynn Thoman]

Wow, Zeke, what are the three takeaways you'd like to leave the audience with today.

[Zeke Fox]

First one is if something seems too good to be true in the world of investing, if the person promoting it can't explain what it is properly, trust your instinct. Maybe it is too good to be true. Second one is in all this investigating crypto, I've gained a new respect for our 100-year-old system of financial regulation in the U.S. the rules that require companies to disclose things like who their CEO really is or how much money they made last year. That's actually helped create vibrant capital markets here in the US Investors trust that the companies are generally honest. Even though you can find millions of counterexamples, I'd be hesitant to toss that all out and have us run new, unregulated crypto markets. The third one is my initial skepticism of crypto as a field of inquiry was wrong. In fact, if you are looking for crazy characters to write about, as I always am, a world where you can make up digital tokens and become a billionaire overnight is perfect.

[Lynn Thoman]

Zeke, thank you. I really enjoyed your book. Number go up.

[Zeke Fox]

Thanks a lot, Lynn.

[Lynn Thoman]

If you're enjoying the podcast, and I really hope you are, please review us on Apple Podcasts or Spotify or wherever you get your podcasts. It really helps get the word out. If you're interested, you can also sign up for the Three Takeaways newsletter at 3takeaways.com, where you can also listen to previous episodes. You can also follow us on LinkedIn, X Instagram, and Facebook. I'm Lynne Thoman and this is three Takeaways. Thanks for listening.