The Only Crypto Story You Need? A Response to Matt Levine’s The Crypto Story

Yves here. I hope readers will welcome Sal Bayat, who graciously has allowed us to publish his latest piece on the world according to crypto. He uses a recent extensive piece by former Goldman lawyer, now Bloomberg columnist Matt Levine as a point of departure.

I must confess to finding Levine maddening. He’s a fantastically skilled writer, able to gear shift rapidly from entertaining baby-talk level overviews (way harder to do than they look, you need to remain accurate when dumbing down) to very technical detail. But it’s not Levine’s control of his register or his mastery of arcana that I find frustrating, but his default posture. Levine affects an airy lack of concern, even when discussing clear misconduct. Surely everyone got the memo that you need to watch your wallet?

Bayat takes a dim view of the entire crypto enterprise. And if you add in one assumption, which is looking like a fact, it’s not hard to see why. Yes, crypto came out of a libertarian rebellion against traditional money and banking regimes (as in aside, they are finding they need to recreate all the pieces of old fashioned banking, and often less efficiently, witness for instance transaction speeds). The crypto rebels hoped that their new creation would rival fiat currencies. But they are barely being used in real world commerce.1 Their connection to tax avoidance/evasion suggest that even using them for large transactions might attract undue attention of the anti-money-laundering police.

So crypto has its own ecosystem of wallets, exchanges, even funds. But you can barely use it to buy real world stuff. Users hopefully make money in crypto-land, cash in their winnings, and spend it in fiat land.

But have you missed the joke? All the costs of that crypto infrastructure, the hardware, energy cost of mining, the office rent, the connectivity, the lawyering, the employees, the investors, the accountants (assuming they exist), the taxes, ultimately have to be paid in fiat even if initially paid in coin. That makes the entire system a predator of the real economy. Yes, traditional finance is also a rentier activity if not regulated into being nearly entirely dull and not very profitable. But don’t kid yourself into thinking that crypto is any less extractive.

By Sal Bayat, a technologist and 15 year veteran of the telecom industry who designed and built out a wide array of infrastructure. Originally published at his website

“Unbearabull” – 1st place – 2022 Parksville Sand Sculpting Competition – by Susanne Ruseler (NL) & Sue McGrew (US)

Matt Levine’s witty and engaging ‘The Crypto Story’ ultimately fails to grasp crypto’s fatal flaw.  He comes perilously close to revelation, but frustratingly remains mired in illusions and disinformation that have been internalized by the public.  Levine, at length, paints the portrait of a new economic frontier.  Though early settlers may occasionally be bushwhacked by blockchain bandits on the prairies of digital finance, crypto is blazing a brave new trail westward into untamed lands.

The stated goal for the piece is to convince the reader that crypto is interesting, that we can learn from it, that it has potential.  The author and I agree on the first two points.

“Conversely, I didn’t sit down and write 40,000 words to tell you that crypto is dumb and worthless and will now vanish without a trace. That would be an odd use of time. My goal here is not to convince you that crypto is building the future and that if you don’t get on board you’ll stay poor. My goal is to convince you that crypto is interesting, that it has found some new things to say about some old problems, and that even when those things are wrong, they’re wrong in illuminating ways.”

Levine’s overall conclusion? With so many exceptional hands tilling crypto’s fertile soil, you should pay attention, the future of finance may be blossoming as we speak.  Crypto matters, not only for what it teaches us, but for what it might become.

“The crypto system has attracted a lot of smart people who want to solve these problems, in part because they’re intellectually interesting problems and in part because solving them will make these people rich.”

As a general picture of crypto, Levine brilliantly covers the broad brush strokes, but something about the shading leaves me deeply uneasy.  Relevant criticisms are omitted, misplaced, and generally diluted by a torrent of prose, making it all too easy for readers to drown their doubts in the bathtub.


Let’s consider speculation. Crypto is entirely speculative, people mine or buy digital tokens because they think they can profit.  Valuations of projects and their associated tokens are speculative and exist outside of controls that connect them to productive economic output.  Levine uses some version of the word speculation 15 times in the article, but only once as a very strong unequivocal criticism:

“It turns out that crypto is basically a speculative asset and that it’s not particularly a hedge for stock market volatility.”

This quote comes almost 9/10ths of the way into the article and is given within the context of Terra, one of the industry’s most obvious and famous grifts.  Why is the most forceful statement about speculation made in the context of Kwon artists?  When discussing speculation in relation to Bitcoin words like “might be” and “big business” are used.  This characterization seems odd to me.  If this is The Only Crypto Story You read, you would be forgiven for thinking that the issue of speculative mania applies more to web3 than it does to Bitcoin or Ethereum.

In contrast, speculation is used twice to promote crypto and bookends the article.  Near the start,

“Whatever is left in crypto is not just speculation and get-rich-quick schemes.”

and close to the end.

“Now the speculative frenzy has, if not disappeared, at least cooled.”​

The implicit assertion here is that what’s left in crypto is worthwhile and valuable.  Yes there were scams and speculation, but that’s been dealt with.  This framing doesn’t let the reader consider the possibility that crypto is still a giant dumpsterfire full of swindlers.

Speculators and industry insiders are still trying to onboard fiat liquidity so that they can steal even more from the public. There’s even a campaign of political bribery (lobbying) attempting to loosen regulation so new fiat in-flows can be created.  There’s no mention of this, instead it’s implied that the blaze of crypto winter had scoured away the rot in the industry.  Usually I would roll my eyes and move on, but combined with other issues and omissions, it makes me think Matt’s perspective on crypto is deeply flawed.

Market Cap

Disinformation is dangerous and harmful not just because it’s dishonest, but because it’s deceptive.  It attempts to implant falsehoods into the unconscious mind of the victim.  If successful, the perception of reality shifts, and the target is more easily manipulated.

Nowhere in ‘The Crypto Story’ is the concept of crypto market cap challenged or explained in detail.  By uncritically mentioning crypto’s multi-trillion dollar market cap 9 times, Levine, a Harvard educated financial expert, embeds a lie into the unconscious of the reader.  Levine remarks:

“But it’s striking how little effect the loss of $2 trillion of crypto wealth had on anything else.”

Yes.  That’s because the industry’s market cap was and still is a lie.  Crypto market cap is fictional, it’s not analogous to market capitalization for equities.  While the calculation is the same, share (token) price * # of shares (tokens) = market cap, token and share prices are determined in vastly different ways.  Unlike tokens, share price is supported by a company’s underlying cash flow.

Stocks are governed by a legal and regulatory framework that incents the production of positive economic output (utility).  Publicly traded companies have requirements around financial disclosure, auditing, governance and must demonstrate existing, or future potential, cash flow.  The rules provide a reasonable guarantee that you aren’t being scammed and that useful work is occurring.  Thanks to this regulation, share price, and hence market cap, for a stock is justified because the company’s current or potential cash flow supports it.  There is an underlying connection between cash flow and the utility provided to the market.  This is why a company’s market cap is roughly equivalent to what it’s worth.  It’s not hard to find buyers for an undervalued stock with solid earnings, investors like dividends.

As Levine points out, crypto projects lack typical regulatory mechanisms, requirements for cash flow, and in many cases a product.  How then are crypto’s speculative digital tokens priced? As it turns out, the important question here is not just how, but who.

“Crypto exchanges are companies—Coinbase, Gemini, Binance, FTX, Kraken, and Bitfinex are some big ones—that accept regular money for crypto.”

“In the olden days, the stereotype was that a lot of crypto exchanges were run by criminals or incompetent teenagers, or incompetent teenage criminals.”

“Modern crypto exchanges are less like that. For one thing, they’re more careful and technically adept, so they’re less likely to lose your Bitcoin. For another thing, though, they’re big companies, regulators are aware of them, and they try to be good corporate citizens.”

Token prices are determined by what Levine calls ‘good corporate citizens’, also known as centralized crypto exchanges, such as Coinbase, FTX, and Binance.  We can’t know how the sausage is made short of an audit, but in theory buy/sell orders on the exchange set token prices.  These under- and un-regulated exchanges set token prices which then determine market cap.  For Bitcoin, the current ~$17k $21k price (at time of writing) puts the market cap at around $320B $400B.  But is Bitcoin actually worth that much?

Estimates put the number of unrecoverable tokens, tokens that can never be sold, at anywhere from 10% to 25%, but even if you could sell all 19M tokens, the demand for the tokens doesn’t exist because its based on finding a greater fool.

While market cap is a useful measurement in the world of equities because cash flow is tethered to real world utility, crypto has no such anchor.  Token price is supported by the belief that you can fob off your magic beans to someone else for more than you paid for them.  Market cap in the world of crypto is blisteringly stupid as it’s impossible to measure what supports it:  the willingness of people to buy a useless speculative digital token that doesn’t even qualify as an asset.

Amazingly though, it gets worse!


Centralized exchanges are responsible for the majority of the fiat money being ingested by crypto.  The very same people setting token prices that determine market cap have a vested interest in seeing the value of these tokens increase by as much as possible.  Even excluding the money extracted from the public by exchange owners through the sale of personal crypto holdings or outright embezzlement, greater valuations serve as a recruitment tool to ingest more fiat liquidity, and more marks (customers) result in more fees.

As there is no underlying source of economic productivity and cash flow in crypto, Exchanges view customer deposits as cash flow.  This is the inevitable result as crypto is a negative sum game where fiat liquidity is ingested from the real economy, redistributed through ‘tokenomics’ to whales and industry insiders, then deposited back into different bank accounts in the fiat financial system.  The goal of the exchange is to seize client funds, either explicitly by betting against them and charging high fees, or implicitly, by gambling with funds without the consent of the depositor.

Much to the shock of libertarians, combining a profit motive with lawlessness and anonymity creates a steaming pile of corruption the size of Kevin O’Leary’s ego.  This intrinsic conflict of interest helps explain why exchanges are subject to Saylor’s law: In the absence of regulation, whatever unethical behaviour that can occur, will occur.

Lack of regulation means that exchanges can lend to customers to create leveraged positions and then use inside information to front run their clients and liquidate them.  Exchanges can steal client assets because they have the power to order transactions and manipulate prices.  It’s painfully easy to obscure this behaviour by colluding with outside parties or by disguising yourself as one.  The same tactic is used by loan sharks – extend credit and sabotage the borrower so that you can exploit them and turn a healthy profit.

Levine focuses on the most famous cons and never mentions that crypto’s biggest players might currently be engaged in bad behaviour.  Exchanges potential involvement in the price manipulation that continues to occur in the crypto ‘ecosystem’ is never mentioned.

Instead, Levine legitimizes crypto’s market cap, its centralized exchanges, and even the biggest scammiest elephant in the room, Tether.


The lack of critical discussion about ‘The Crypto Story‘ is shocking, more so when you consider gems like this:

“They also go around promising to publish an audit but never do it. They probably have the money, more or less, but they seem to be going out of their way to seem untrustworthy. Still, people trust them.”

Believe it or not, that’s a comment on Tether and it’s a bold departure from what most crypto industry observers think.

Many would argue that the folks at Tether are liars and criminals who applied the lessons of creative writing courses to their balance sheets and spawned a digital token used to manipulate and prop up the price of cryptocurrencies.  But Levine doesn’t discuss Tether as a blight on the industry, it’s just another little quirky crypto factoid.  Bloomberg should consider notifying the NY State Attorney General’s office to let them know they made a grave error about Tether’s trustworthy owners.

Tether is worth discussing in detail because it’s integral to crypto’s dependence on recruitment for new fiat money inflows.  Glossing over Tether’s effect on crypto is like skipping over the subject of cocaine at a seminar on drug cartels.

If you’re running an investment fraud, you have a few problems. The first is that you’re a shitty person.  Next is that you better make damn well sure that the amount of money being removed from the scheme doesn’t exceed the total amount of liquidity available.  This can get tricky, you want to service withdrawals so people can be seen making money from your scheme, but you can’t have too many people taking out their money or the whole thing will come crashing down faster than an algorithmic stablecoin.

The whole point is to keep the scam running for as long as possible.  Duration drives credibility, and credibility drives recruitment.  More suckers means more money, which means greater ‘returns’, which means more people, which means more money… and voilà.  A beautiful ‘positive feedback loop’ of value is created.  To sustain it we must minimize withdrawals and maximize deposits.  If only we weren’t subject to the limitations of fiat currency that are imposed by reality and the demands for cold hard cash.  Enter Tether, stage left.

Tether helps minimize outflows and maximize inflows in our investment fraud.  Fiat withdrawals are limited, instead of walking away with cash, participants are given digital tokens ‘valued’ at a dollar, and incentives are created to encourage investment into new scams (tokens).  Tether also helps with inflows, exchanges don’t need to cook their books with fake fiat deposits and risk investor confidence or the ire of law enforcement should they be discovered.  There’s a better way to create buy/sell orders that manipulate token prices.

If I accept deposits in a fake currency (Tether) and consider those deposits to be equivalent to fiat, then I’m not breaking any laws.  Better yet, I don’t have to worry about real cash deposits needed to pump my scam and I don’t have to move fiat around when wash trading.  So Tether fulfils the function of maximizing deposits as well.  Not only does it create synthetic liquidity, but by manipulating the prices of tokens skyward, Tether helps create fiat inflows from new suckers.  Is anyone else reminded of Galbraith’s bezzle?

Imagine colluding with the only grocery store in town to raise prices.  The store owner needs to justify price increases to the Mayor, so instead of arbitrarily raising prices, you agree to use monopoly money to buy groceries and increase demand.  More ‘money’ chasing after a finite amount of groceries increases the price (fraudulently and arbitrarily), and you and the owner split the excess fiat profits.  The store owner has plausible deniability, you have a bunch of free money, and the public is left holding the grocery bag.

In return for providing fake liquidity to the industry, Tether can buy tokens through intermediaries and sell them for real fiat currency, exchanging their funny money for the real thing.

Of course, this only applies if Tether is a criminal enterprise and their reserves are fraudulent.  So take what I said with a grain of salt, but you start to understand why people are so interested in the details of Tether’s holdings and business operations.

If I wrote an all encompassing Crypto Story, I might be inclined to discuss the possibility for a vast criminal conspiracy at the heart of the industry, but that’s just me. Levine on the other hand may consider it to be another one of those things that’s an “odd use of time”.

Et Cetera

Speaking of criminality not worth mentioning, Levine doesn’t appear to cover wash trading in crypto, despite it being rampant.  Amazingly, this topic is avoided even in the context of “Rare monkey JPEGs”, or NFTs.

Painting the tape is a common enough occurrence with standard crypto tokens, but I didn’t think it was possible to talk about NFTs and avoid the subject of wash trading entirely.  It’s as if someone wrote a comprehensive biography about the life of Rick Astley without ever letting the words “Never Gonna Give You Up” touch the page.  You’re missing the point of the whole thing.

Levine’s article is positioned as “The Only Crypto Story You Need” but it rarely peers at what lay beneath crypto’s surface. On the other hand, I enjoy Matt’s writing, and some of his insights are valuable and informative, one of my favorites is from the section on trust:

“Crypto is in a way about rejecting the institutions of society, about being trustless and censorship-resistant. But it quietly free-rides on people’s deep reservoir of trust in those institutions.”

Levine hits it out of the park on that one.

Which makes me scratch my head as to why he can’t call the industry on their bullshit in so many other cases.  Speculation, market cap, exchanges, front running, wash trading, Tether, these are just a few of the things that are wrong with the article, but there’s so much more.

Not least among them the belief that blockchain has desirable properties as a database, the idea that blockchain or crypto is somehow useful for video games, the quoting Poleg’s technological pseudo profundity to imply that there are web3 use cases, or the implication that crypto fraud isn’t THAT effective when it’s managed to fund the DPRK’s nuclear weapons program.

After reading through my notes, there’s at least another dozen problems worth covering, but I can’t because this article already risks being longer than ‘The Crypto Story’.  The issues range from minor misunderstandings, to the flat wrong, to internalized crypto propaganda.

Money For Nothing

The thing that bothers me the most is that Matt gets it. He understands what the economy and financial system should be, he knows the difference between real wealth and simulated value, but there’s some invisible force stopping him from taking the final logical step.

“A financial system is good if it makes it easier for farmers to grow food and families to own houses and businesses to make awesome computer games, if it helps to create and distribute abundance in real life. A financial system is bad if it trades abstract claims in ways that enrich the people doing the trading but don’t help anyone else.”

“Crypto, meanwhile, has built a financial system from first principles, pure and pleasing on its own, unsullied by contact with the real world.”

Levine identifies what’s good for the economy and he points out that crypto doesn’t do these good things, but he never manages connect the two facts and just say out loud that crypto is bad for the economy and for the civilization that depends on people doing useful things.

“Before the rise of Bitcoin, the conventional thing to say about a share of stock was that its price represented the market’s expectation of the present value of the future cash flows of the business. But Bitcoin has no cash flows; its price represents what people are willing to pay for it. Still, it has a high and fluctuating market price; people have gotten rich buying Bitcoin. So people copied that model, and the creation of and speculation on pure, abstract, scarce electronic tokens became a big business”

Not only does he understand that providing utility to a market is what underpins value, but Levine even identifies HOW crypto undermines productive economic output.  Its network effects have NOTHING to do with being useful, and everything to do with demanding money up front!

“It’s hard to build a network-effects business from scratch. Early users of a network-effects business won’t get much out of it, because there’s no network yet. You might as well just wait until there are more users. The economics of crypto tokens reverse that.”

Networks are useful to users, that’s why they spread, and it’s also the reason why users value the network. The network is valuable because it is useful, that incentivizes network operators to make useful things and do useful work. “The economics of crypto tokens reverse that.”

Instead of being incentivized to make something useful that people want to use, crypto is costly, it demands value from users.  The incentive for economic agents in such a system is to onboard as many participants as possible while doing as little real work as is required.  Rather than supply side incentives for the production of positive economic output, we get weird distributed corporate bonds (tokens) where, in the case of PoW, the invested value is destroyed instead of transferred to a corporation (as with PoS).

Utility is what drives real network effects and the production of wealth for our society.  The artificial network effects that crypto creates (the demands for invested value that scale with participation) remove capital and supply side economic incentives from the real economy.  Levine recognizes that finance is anchored to real world utility and that a similar issue of expanding value for the few, and contracting utility for the many has been creeping into our present financial system for decades.

“Over many centuries a financial system grew up, as an adjunct to the real world. That financial system enabled people to do more stuff in the real world. They could build railroads or semiconductor factories or electric cars, because they could raise money from strangers to fund their activities. They could buy bigger houses, because they could borrow money from banks. They could also trade out-of-the-money call options on GameStop, because that’s fun and you can make memes about it, but that’s an accidental feature of a financial system that mostly does serious stuff in the real world.

By 2008, or 2022, that system looked pretty abstract. When you think about modern finance, you often think about things like those GameStop options, or the system of payment for order flow that enables their trading, or synthetic collateralized debt obligations referencing other CDOs referencing pools of mortgage-backed securities. There’s a house there somewhere, under the CDO-squareds. All the sophisticated modern finance can be traced back, step by step, to the real world. Sure, it’s a lot of steps now. But the important point is that sophisticated modern finance was built up, step by step, from the real world. The real world came first, then finance, then the more complicated epiphenomena of finance.

But there’s no realization that crypto is a weaponization of the forces in our economy that extract value without providing meaningful utility.  The truth is that society is impoverished when we allow monopoly rents to be extracted by the already fabulously wealthy.  Rampant economic inequality destroys aggregate societal wealth.

“But another part of the answer might be that the real world—growing food, building houses—is a smaller part of economic life than it used to be, and that manipulating symbolic objects in online databases is a bigger part. “

“A financial system is bad if it trades abstract claims in ways that enrich the people doing the trading but don’t help anyone else.”

The corruption and injustice of the existing financial system, the de-industrialization and financialization of our economy, has driven millions into the waiting arms of crypto con artists.  The public has been made desperate from decades of stagnating or declining real wages, and Cryptovangelists have been quick to inculcate the flock and prepare the faithful for a good fleecing.  Despite identifying all of its pieces, this cruel irony appears to be lost on Levine.

“Also, I have to say, as someone who writes about finance, I have a soft spot for stories of fraud and market manipulation and smart people putting one over on slightly less smart people. Often those stories are interesting and illuminating and, especially, funny.”

The article’s final judgement echoes the liturgical refrain we’ve heard shouted down to us from crypto’s pulpits and rarefied peaks for over a decade. After 40,000 words, the reader is told, ‘We’re still early!

“And the answer is, you know, maybe, give it time.”

“If the world is increasingly software and advertising and online social networking and, good Lord, the metaverse, then the crypto financial system doesn’t have to build all the way back down to the real world to be valuable. The world can come to crypto.”

The ‘Crypto Story’ is a comprehensive tour de force and an excellent general overview of crypto’s past and present, however, its view on crypto’s future is at best naive, and at worst potentially harmful to the unaware.  Despite all of Levine’s warnings, mockery, and colourful language, the failure to identify and highlight crypto disinformation puts those unfamiliar with the industry’s fundamental flaws at risk.  Though I do not think Levine intended it, his portrayal of crypto as the early days of an innovative new technology could cause members of the public to invest money into an industry whose collapse is inevitable.

Far from being “The Only Crypto Story You Need”, Levine has authored what might be the most subtle example of mainstream journalism’s crypto credulity.  This piece should not be consumed by the uninitiated in isolation, rather it should be paired with a hearty dose of more critical voices like Castor, Diehl, Gerard, and White. To those familiar with crypto’s landscape, whether skeptic or true believer, I very much recommend reading ‘The Crypto Story‘.

Unfortunately, Levine has drunk from the poison chalice of accepted crypto industry narratives and in so doing has fallen victim to useful delusions.  Though there is hope, as I have begun to write these last sentences, the story of FTX’s spectacular meltdown has begun breaching the waters of social media and the tide of institutional momentum may finally be turning.  Many journalists, politicians, and investors will soon be forced to confront reality by asking uncomfortable questions, and little room will be spared for convenient excuses.

Long after the last miner lay abandoned and the echoes of cryto punditry have become a scarlet letter, Levine’s Story will remain, a testament to folly and greed’s bitter ashes.  Future pilgrims will come seeking answers about history’s greatest deception, and as they travel through its pages, The Crypto Story will serve as a reminder to ignore the whispers about the future of finance from the devil on our shoulder.

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  1. Amfortas the hippie

    maybe i’m too disconnected from finance…no debt, no checkbook(debit card gets loaded with exactly what’s needed and when), leaning towards autarky and the disconnection of as many dependencies as possible…
    and cash, whenever i can.
    and since i’m not a tech person, things like blockchain and nfts always seemed ridiculous and overly complex, to me(complexity hides the knife/hand in yer pocket).
    when the randian libertardians started yammering about crypto… i knew in my bones it was a scam.
    much like when they’d formerly yammer about creating essentially “Government” out of whole cloth, without realising it…
    ive looked at the whole thing as a sort of zen koan/esoteric lesson about how fubar the broader “legitimate” financial ecosystem is.
    crypto is to FIRE economy, as The Matrix is to political economy and who runs the show.
    like a pet rock on meth and bath salts.
    we shouldn’t have needed such a lesson, after 2008…at least he mentions CDO’s and tranches and all…
    i predict that “we” won’t learn a damned thing from all this…and that the actual answer(which he also mentions)…doing real things in the real world, making food and housing and things people need as the fundamental purpose of an “Economy”(gr: household)…will be once again lost in an even greater round of obfuscation and evangelicism that preys of people’s worst instincts.
    i’ll be out here trying to make things and feed myself and my neighbors.

  2. SocalJimObjects

    Maybe it’s just me, but the formatting for the article seems really off starting with this header “Money For Nothing”.

  3. Joe Well

    >>Unlike tokens, share price is supported by a company’s underlying cash flow.

    Someone smarter than me please explain how this is not contradicted by the existence of Uber, Wework, and a hundred other never-profitable public companies.

      1. Chuckychuck

        Care to mention a new technology wave that did not result in a bubble, and rampant scams?

        We give labels and fail to separate the wheat from the chaff, or the apple from the grocery store. Blockchain as a tech can remove enormous amounts of middle layers in a secure manner (eventually), particularly for registries, accounting, financial sector.

        It is ironic that a centralized exchange that did nothing according to good principles of morality and what crypto (essence) is about should lead to the collapse of the “sector”.

        Any product can be built into scams, regulations in general are only as good as smart peoples morales.

        Just waiting for pension funds starting to collapse this decade as a result og regulations that forced them to become superleveraged entities by themselves, holding illiquid crap for higher returns (not too dissimilar to FTX, yet likely with better intentions)

        1. Yves Smith Post author

          Your opening sentence is an assignment, and hence a violation of our written site Policies. Nevertheless, the cotton gin. Indoor plumbing. The Gattling gun. Pulse oximeters, literally the single most important medical device in life-saving terms.

          Crypto and blockchain are not innovations. From the Heisenberg Report:

          In the wake of the FTX fiasco, much of the breathless crypto coverage emanating from the financial media (mainstream, alternative and otherwise), seems to intentionally avoid addressing the elephant in the room. If that’s the case, it’s understandable. Because to address it would be to concede that nearly everyone — from large media conglomerates to the most respected venture capitalists on the planet to storied hedge funds — was duped into believing that all it took to make the private money business viable was a single innovation.

          That’s plainly absurd. For one thing, some experts offer trenchant arguments against the idea that blockchain constitutes a “technology” at all, if technology is supposed to be synonymous with true innovation. Even if it is an innovation, many skeptics argue it’s not an especially useful one. In the interest of brevity, I won’t walk through those arguments, but you can certainly do so yourself if you have Google and half an hour to spare.

          Beyond that, though, the notion of private money at scale, and, more to the point, the notion of private money at scale as an investable proposition, is stupid. Not “misguided,” not “misplaced” and not any other more generous adjective either. Just plain old stupid.

    1. Sal Bayat

      You aren’t incorrect, and while I would have loved to include an indictment of what are existing rent seeking monopolies in the real economy, I wanted to focus on the difference between equities and crypto. So you can take my explanation of market cap and cash flow as a general statement.

    2. Jokerstein

      The underlying tenet here is “If you can’t see who the mark is in any scheme, it’s likely to be you. Beware!”

      I know that’s not a real answer to your request, but bear it in mind ALL THE TIME when looking at things like WeWork, Uber, and other bezzles.

    3. Skip Intro

      I think they are both ‘morbid symptoms’ of too much easy money flooding the financial system. Both supported by the greedy and the gullible (for different reasons), and massive infusions of fiat to keep the appearances attractive. WeWork and Uber do have assets, OTOH, even if they amount to a tiny fraction of their nominal valuations, so those shares have an inherent value. And we know all about them because of the various SEC filings that crypto cons can dodge.

      1. Joe Well

        But IIRC, their liabilities exceed assets. Certainly that’s the case for Wework with all its long-term leases.

  4. Watt4Bob

    This sticks out.

    The public has been made desperate from decades of stagnating or declining real wages, and Cryptovangelists have been quick to inculcate the flock and prepare the faithful for a good fleecing. Despite identifying all of its pieces, this cruel irony appears to be lost on Levine.

    Those celebrity ads in last year’s Super Bowl, and the wave of television marketing since, have given evidence that the crypto grift had its sights on the folks at the bottom of the heap, those desperate for an escape from the clutches of financial capitalists.

    They are being encouraged to jump from frying pan into the fire.

    To me, it looks as if Levine is performing a holding-action in his piece, extending the life of the grift by telling that desperate crowd that it’s possible, so to some extent probable that it’s all going to be alright, when he knows full well that it’s just a matter of time, crypto is going down.

    1. Robert Hahl

      This kind of desperation is why State lotteries are popular too, but nobody puts their savings into lottery tickets because it is easy to understand how foolish that would be. Ponzi schemes in general overcome that problem with obscurity.

      Think of the constant increase of fiat currencies from every country (20 percent a year, for a century now?). It is like contemplating the vastness of outer space. That money is not being taxed away back into the ether, so we need these financialized schemes to keep the larger grift of fiat expansion going. Crypto is just a way for outsiders to get a cut.

  5. Joe Well

    I saw a tweet (forget who) that explained this with one diagram: a box marked “crypto” with an arrow to a box marked “fiat” with another arrow going back to the crypto box.

    1) The arrow going from fiat to crypto has to come first. All that electricity, hardware and labor has to be paid for for the system to even begin.

    2) The arrow from crypto to fiat is never bigger than the fiat-to-crypto arrow. This is just a description of the blockchain of cryptocurrencies. The money out is never greater than the money in. There has to be a Greater Fool to buy your crypto, unlike with for instance, a national currency which that government will always require residents to use to pay taxes. That is to say, while fiat produces value, crypto does not.

  6. mrsyk

    Crypto has a reputation as a money laundering tool. Is this so, is it scalable, does this mean it might have “real world utility”?

    1. Sal Bayat


      I would agree that the only inelastic demand that crypto has is in service of criminal activity. So yes, crypto is valuable to money launderers, tax evaders, and purveyors of fine ransomware because it has real world utility for them.

      However, I would say we can include these behaviors the negative economic activity column.

      Overall crime benefits a minority of individuals at the expense of everyone else, it reduces the amount of utility an economy can produce.

      1. mrsyk

        Thank you for the column and the response. I would agree that this belongs in the negative economic activity column. I’ve been musing on how this particular characteristic might sustain crypto. Considering the financial mechanisms of (US) elections, the normalization, indeed prioritization of profiteering from positions of power and policy making, and the seemingly more and more common examples of (rarely prosecuted) large scale corporate fraud and outright thievery, I would hazard that crypto’s economic benefits may be negligible to negative for most but very beneficial to those who actually have a say in economic policy. Thinking out loud here, nothing more.

      2. Tom Stone

        Sal, you left “{Intelligence” agencies off the list of groups that need to move large sums of money covertly.
        They use the same channels to move Money, Materiel and Personnel as criminal organizations do and it is a mutually beneficial situation, a symbiotic relationship between parasites that share the same host.

        1. fresno dan

          … the only inelastic demand that crypto has is in service of criminal activity
          I think that covers criminal organizations AKA intelligence agencies very well…
          indeed, I wouldn’t be surprised if crypto wasn’t started by an intelligence organization

          1. Acacia

            Check out the 1996 NSA white paper “How to make a Mint: The Cryptography of Anonymous Digital Cash”

      3. Skip Intro

        This too is debatable, since the transactions are all public and traceable. At some point tumblers like Tornado will become legally unviable as prosecutors realize that mixing tokens just makes them all dirty. I think they already conceded that they were somehow all Russian. The utility for criminal transactions is just a transitory leap in the for one side in the cat&mouse game with law enforcement. As the sages say prosecution futures.

    2. Joe Well

      For people in Venezuela and some other sanctioned countries, or even just countries with high inflation like Argentina, or dodgy banking systems like Nigeria, the criminal activity was trying to save money and be part of the global middle class. Just in February of this year I was trying to talk a Venezuelan I know out of crypto. The glow of US/globalized prestige is real. That is what is giving me most pain now.

      A major value of crypto was putting a smiley alternative face on the looting of “Third World” people, sucking in people who would not otherwise have been suckered because these were the smart kids who could read English. They were sophisticated enough to distinguish individual Americans like SBF from the Yankee imperialism their grandparents might rail against. Well done, Yankee imperialism.

    3. JRigs

      Also, the internet had a long reputation (rightly so) as a pornography tool – some argued that fueled a significant amount of innovation for content delivery.

  7. Tom Stone

    Some five or six years ago I had a conversation with a man who was a big crypto enthusiast ( If he got out in time he did REALLY well) that ended with “Tom, you just don’t get it, Crypto is a CONCEPT”.
    I got it then and I get it now, when someone promises high yield and “Virtually no risk” …losing your $ isn’t a risk, it’s a certainty if you don’t get out in time.
    And when they open the door to smaller investors out of the goodness of their hearts the game is in its last innings.

    1. Joe Well

      With this kind of thing, you always wonder how many people always understood it was a scam and were just sociopathically detached. That’s why you have major players rushing to announce how much money they lost. But if they made out big enough they could have hidden it, right?

  8. Mikel

    “Yes, crypto came out of a libertarian rebellion against traditional money and banking regimes..”

    I think there should be further investigation into that bit of the crypto narrative.
    I just have the suspicions of it being more of a result of further merger of a criminal underworld with the white collar criminal.

    “All the costs of that crypto infrastructure, the hardware, energy cost of mining, the office rent, the connectivity, the lawyering, the employees, the investors, the accountants (assuming they exist), the taxes…”

    Yes, all these costs and then just about everything that follows in Bayat’s piece should produce red flags about the crypto origin story.

  9. GG

    Excellent critical piece, thoroughly enjoyed the read thank you.

    I read Matt Levine’s Money Stuff newsletter with extreme regularity (mostly for outsider looking in entertainment value and to keep up with finance news headlines) and I have to say I wonder how edited the crypto story was, it felt almost gentle by his standards.

    This is paraphrasing and perhaps faulty memory, but I feel like Matt Levine’s long term stance on crypto is ‘it has no practical use, it’s mostly used by scammers, but I hope it can be useful someday’. He recently mentioned an old piece on SBF linked to the FTX collapse in which he admitted SBF’s ideas were the closest he came to seeing a potential use case for crypto, yet he wasn’t fully convinced. Given his shtick is critical analysis made accessible to the average reader, it’s rare that he mentions anything without pointing out any gaping financial/legal flaws and mocking those involved… Yet he includes constant disclaimers and caveats that leave the reader to make up their own mind. I always assume this style not only reads well but consciously protects his and Bloomberg’s own reputation/position/ego in the process. He’s very careful to never commit to scenarios in his own speculation. So perhaps the tone here is indeed representative of agendas that need protecting… I wonder how many Bloomberg writers hold crypto?

    Levine’s writing also definitely tends to take a neutral standpoint that feels born from a certain kind of privilege, the place where you don’t NEED to care because you’re not personally at risk (financially, physically, etc.). There’s no one trying to push him off the fence he’s sat on, so he can comfortably sit on it while he follows ‘amusing’ stories of large scale fraud. There’s also a kind of elitism involved. While I appreciate his humor, a central tennet of it is the constant bewilderment at people making the same mistakes over and over – without deriving from these observations any kind of empathic or moral drive to help change this reality.

    This is an odd topic to have thought about a lot I admit… But like Sal Bayat mentions, Matt Levine is an excellent writer so there’s a lot of stylistic choices to think about on top of the subject matter in his columns haha!

  10. Sal Bayat

    Thanks very much GG for your kind words and comments. I’m also curious about the original article as Levine stated that 22k words had been cut.

    Mr. Levine has been critical of crypto, however, it is his credibility and public reputation that make his acceptance of crypto misinformation and talking points more dangerous.

    The front cover of the Bloomberg edition stated:

    “The Crypto Story: Your guide to where it came from, what it all means, and why it still matters.”

    If you’re trying to explain where it came from, what it all means, and why it matters, then to arrive at accurate conclusions, you must discuss Tether, bad behavior by central exchanges, price manipulation, wash trading, and explain how crypto market cap is not analogous to equity market cap.

    Those are facts, not opinions, and the facts should be discussed. I think Levine is deserving of criticism on this front.

    A “neutral” piece on crypto that uses industry talking points and propaganda isn’t much different than a puff piece. I don’t think Levine is parroting disinformation intentionally, but whether it’s intentional or not, it should be called out.

    When we don’t criticize facts that we know are wrong or misstated, we wind up in a situation where the lies spread, the public fails to understand reality, and then everyone is surprised when an FTX happens (except those well versed in crypto).

    Misinformation should be challenged regardless of an article’s ‘Neutrality’. Matt is not as well informed as he should be about crypto. Levine has a large public platform, and if he’s going to be writing articles which influence public opinion, he needs to up his game.

  11. Bobby Gladd

    Ok, well…

    THAT was excellent. Will be forwarding the link around. Very good use of my time. Thank you.

  12. Bob

    We all have blind spots. The author is blind to the fact that Crypto is simply copying an insight that Wall Street has leveraged for years. Value is determined by Price, not value. It’s called the Market.

    The author is blind to the fact that the secondary market for equities (all shares bought and sold after the IPO) are purely speculative bets on price increases for the asset, just like crypto. The article tries to make the case that equities are fundamentally different than equities because the price of equities is a function of future cashflows. That is a tenuous assertion at best. The quarterly reports of publically traded companies are doctored beyond belief and media’s hucksterism for “investing” in stocks is nonstop. The quantity of misinformation and hype about equities dwarfs misinformation about crypto.

    The author comes close when they note that there is an ever greater distance between the financial economy and the real economy, which seems to imply an awareness that the connection of an equity’s price to underlying value is tenuous. Wall Street just like crypto, is constantly scheming to push up or crash prices in order to profit. Pump and dump is how Wall Street has always worked to create massive profits for insiders and Crypto has simply embraced it

      1. Bob

        Yes, my two millennial children believe there is no such thing as intrinsic value or worth. They and many others believe something is worth whatever someone is willing to pay for it. Its all about price, not value or worth. I don’t share this belief but I recognize that this is the modus operendi of both Wall Street and Crypto.

        1. Bobby Gladd

          Recall how Donald Trump loved to say that his “net worth” was simply what he “thought” it was at any given moment on any given day.

          Varying, of course, depending on the audience.

        2. The Rev Kev

          They believe there is no such thing as intrinsic value or worth? Is that a general millennial belief? If so, they have fully taken onboard the values of the market. But even in the 19th century it was recognized the problem of people who know the price of everything and the value of nothing. Not trying to pick on your kids here and I know that even my own daughter does not appreciate the value of money in terms of how it may not always be there.

    1. Yves Smith Post author

      Not correct. Those shares are not purely speculative bets. A weak legal promise is not a purely speculative bet. First, companies can and sometimes even do pay dividends. Second, they are sometimes bought by other companies.

      Third, and most important related to the second, those shares vote. That vote is for most purposes worthless except to buy the company. The ever-present opportunity to buy out shareholders and take over the company prevents the total value from dropping too much below some notion of its fundamental value.

  13. lyman alpha blob

    Great article. A few thoughts –

    Perhaps Levine isn’t credulous or too attached to the existing narrative and is simply talking his book here?

    And Levine is quoted as saying “…people have gotten rich buying Bitcoin…” Well maybe this is a nitpick, but no, no they have not gotten rich by buying bitcoin any more than anyone ever got rich by buying shares of GE. If they got rich, they did so by selling bitcoin for more than the purchase price. Until that part happens, there’s no rich.

    Also, this articles mentions the “unrecoverable” tokens. I’m thinking this is referring to tokens in wallets whose keys have been lost so they can no longer be accessed? Or does it possibly mean any tokens not available to the public?

    I ask because I’ve read extensively about the FTX debacle over the past couple weeks, much like I did with the Gamestop episode. When I read the details of the latter, the scheme the “hodlers” pulled off using a gamma squeeze made sense and was actually quite brilliant. The details of this FTX scam are gobbledegook. Here’s what I think happened there, the best I can tell and greatly simplified.

    SBF “minted” some FTT coins he sold on his exchange, except he only made a small percentage available to the general public for trading purposes. Those relatively few coins were bid up by the punters, and quite possibly with some assistance from insider “washing”, which if I understand correctly is when a couple people buy and sell the same coin to each other multiple times, driving up the price, until a mark comes in and pays real money. This had the effect of driving up the price of all the tokens SBF was holding on to that were not public which became worth billions on paper. That “asset” then became the leverage used to get loans to fund his Alameda investments, perhaps along with some or all of the fiat paid by the rubes buying the FTT coins. The crypto muppet never had any actual money, there was never any there there, and this entire “business” was never anything but a scam.

    Sound about right to anyone else, or am I missing something?

  14. David in Santa Cruz

    I was prompted by this excellent piece to read much of Levine’s opus. My impression is that he wrote a puff-piece intended to sooth a growing global panic and to prevent it from spreading to elite-controlled trust-based exchanges like stocks, bonds, real estate, and banks.

    There’s a reason that the top adopters of crypto live in places such as Nigeria, Vietnam, the Philippines, Türkiye, and Peru. Lots of economic activity; not much trust. People in these low-trust economies are always looking for a better mattress in which to stash their earnings.

    Unfortunately, the “idea” of crypto was so appealing to these folks and the actual “supply” of coins so scarce and expensive that unscrupulous players were able to create a massive arbitrage in them. Because “people were getting rich” things metastasized into straight-up fraud, but nobody in the elite western financial press or regulatory regime cared since (as in 2008) most of the victims could easily be “othered.”

    To me the article reads as if Levine’s editors at Bloomberg were looking for a Temple Grandin to calm the feedlot. I found the breezy editorial tone-shifts in Levine’s “Digression” sections to be quite insulting.

  15. Savita

    Thanks Yve and commentariat. And thankyou Sal Bayat not only for your writing but for thoughtfully enriching us with your presence in the comments section.
    Very much appreciated.

    It just occurred to me what a tether is. Designed to restrict movement – ha.

    I’ve listened to pundits on youtube describe, there is clear evidence FTX was largely
    (or solely?) responsible for the demise of Terra stable coin recently. FTX plainly and deliberately attacked its position.

    The following youtube video about NFT’s has received ongoing praise for the clarity and intelligence of its expose. Lambert linked to it recently in Water Cooler.

    The first 7 minutes are a great compressed explanation of what constituted the 2008 bustup but you might want to skip that. Then Bitcoin and Ethereum are discussed for about 30 minutes. Just that section alone is equal to the best critical and high level take down available anywhere.
    NFT’s are discussed after that. Really clever, technically dense, and yet funny in the right places also.

    It will become your ‘go-to’ video to share with the yet-to-be-roused, I assure you!

    ‘Line Goes Up’

    The presenter makes a great observation, along the lines of;

    ‘Cryptocurrency does a terrible job of solving the inherent problems of existing financial structures or mechanisms, and the things it does well are only useful for addressing the problems cryptocurrency introduces.’

  16. Bobby Gladd

    Wonderful discussion today. Thank you all. I gotta study the Levine piece in detail before rendering any rational opinions. This stuff is above my pay grade anyway. I’m a retired, Parkinson’s-addled old school risk analyst who did a stint in subprime (where we made successive record profits every year off our halt-and-lame lawful prey).

    I continue have major dubiety over crypto. But, then, Gramps here is way out to pasture.

    This whole FTX thing has got me howling. “Altruism,” my ‘face.’

  17. Basil Pesto

    Swell piece, thanks

    I’’m reading Melville’s ‘The Confidence-Man’ at the moment. The word “confidence”, in the sense of trust, is repeated, typically by people who inspire no trust themselves, and resonates like a hammer blow every time it is read.

    eg, an old miser and a conman:

    ‘How, how?’ still more bewildered, ‘do you, then, go about the world, gratis, seeking to invest people’s money for them?’
    ‘My humble profession, sir. I live not for myself; but the world will not have confidence in me, and yet confidence in me were great gain.’
    ‘But, but,’ in a kind of vertigo, ‘ what do you—do you do—do with people’s money? [coughing] Ugh, ugh! How is the gain made?’
    ‘To tell that would ruin me. That known, everyone would be going into the business, and it would be over-done. A secret, a mystery-all I have to do with you is to receive your confidence, and all you have to do with me is, in due time, to receive it back, thrice paid in trebling profits.’

    etc. etc. Two pages later, the con-man has made off with the old miser’s money. It is a bracing read in the present day, standing as it does for a remarkable lack of progress, particularly in the United States, which seems to be the crucible of such matters. There are differences with the kinds of con-tricks perpetrated in the book and those of crypto, of course (and note the chapters on the ‘herb doctor’ too), but I’m not sure the details of crypto, and the heady marriage of stupidity and credulousness obfuscated with techno-babble, are something Melville, or anyone writing at the time, could have possibly imagined. But the broad strokes are all there.

  18. Gulag

    Sal, you have presented a really excellent analysis.

    As far as any future political/economic vision do you believe that it is possible to create a polity which is both decentralized and capable of doing public good?

    My sense is that presently central banks are now in the process of creating an infrastructure (Central Bank Digital Currency) which in reality will be retail deposit accounts offered by your favorite central bank, meaning, in turn, that the major regulator will now be in direct competition with the regulated (all banks both small and large) ending in ever-greater centralization of political and economic power (fewer and fewer small banks)–Can or should this process be stopped?

  19. howseth

    Good article. I don’t know crypto.
    I’m reminded now seeing an article somewhere, a couple years ago – showing those hideous ‘Ape-coins’ NFT’s – or whatever you call them — (‘fungible’ tokens?) and those ape images being closely connected to the Crypto/Blockchain world I do not understand. I was shocked they were worth real money. This crapola.
    So, I’m guessing those ape cartoon tokens may be connected to some digital gaming – for their ‘value’?
    My impression – at the time – was nothing of real value could come out of such silly nonsense.

    At least the likeness’s etched on our paper money are pretty good – certainly in comparison.

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