It was the middle of the coronavirus lockdowns and actor Ben McKenzie was out of work and depressed.
So McKenzie – perhaps best known for his role as heartthrob Ryan in the early 2000s teen drama “The OC” – curiously becomes a journalist, at least temporarily, thanks to an old friend named Dave.
The pal suggested McKenzie invest in cryptocurrencies, technology’s new-fangled twist on money that was the hot bet of the early pandemic days. Due to a bad experience with a previous tip from Dave – an ill-fated medical company – research was in order, and it wasn’t like McKenzie had anything else to do.
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That homework was an eye-opener for McKenzie, who got an economics degree from the University of Virginia before going into acting. He found crypto to be a wild industry filled with tall promises, crazy characters and a meek economic foundation.
This knowledge nudged the unemployed actor to team up with journalist Jacob Silverman on a quest to dig deeper into why an unproven and unregulated financial transaction system was creating immense wealth. The discoveries – including interviews with many of crypto’s leading proponents and critics – became a series of magazine stories, testimony before the Senate Banking Committee, and now “Easy Money: Cryptocurrency, Casino Capitalism, and the Golden Age of Fraud.”
This book is not simply a harsh criticism of crypto’s swift rise and sharp tumble. You see, McKenzie essentially sees no value in crypto. The book also puts this investment mania into its place among history’s grand economic bubbles. And it explores how the many inequities of the traditional financial world made crypto’s sales pitch alluring.
“You can manipulate people quite easily because they’re so predisposed to hate the regulated system,” McKenzie says.
This Q&A, edited for length and clarity, gives you McKenzie’s insight into the cryptocurrency rollercoaster.
Q. What do you think is wrong with crypto?
A. Crypto says they’re currency and they aren’t. You can’t buy anything with crypto. You can trade crypto and hope to cash out of crypto and then use the money to buy things. But that’s an investment.
So crypto is the future of money, even though it’s the past of money? It’s private money, but we’ve tried private money and it failed. Why? Because when companies issue their own money, what’s to stop them from defrauding you?
We all might have gripes with the government. But would you rather the government issue the money or … pick your least favorite corporation?
Q: Crypto does fit the anti-government/anti-institution mindset.
A: The timing was perfect because the Bitcoin “white paper” came out amid the subprime crisis of 2008. At that point, we hated banks even more than we normally do.
The story of crypto’s “peer-to-peer currency” is compelling. But that doesn’t work. Trust is what money is.
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If I wrote down “20 dollars issued by Ben McKenzie Inc.” and gave it to you, you’d probably throw it back in my face. If it says the United States government on it, that gives the paper its value.
Q: Crypto is digital money, no?
A: Crypto fans talk about digital money. I got it right here (McKenzie points to his cell phone). I use Apple Pay. So you’re not talking about digital money.
You’re talking about pseudonymity, obscuring who is trading. I understand the appeal of secrecy, but that comes with a massive cost. If the good guys can use it, then the bad guys can use it.
Q: Isn’t what powers crypto – blockchain technology – a cutting-edge improvement on transactions?
A: Blockchain has been around since 1991. It’s just a distributed ledger, not revolutionary. You can’t name a single company that uses blockchain technology other than the ones in crypto.
This was the issue that I was most concerned about. That I had wrong. That I didn’t understand the technology. I’m not a cryptographer, I’m not a computer scientist. I came at it from economics. I came at it as an actor.
Q: Your acting career helped you understand crypto?
A: They’re just putting on a show. It’s just the emperor’s new clothes. The only person who can see these clothes is the person of the highest status. Jonathan, if you can’t understand crypto, then you’re stupid. It’s one of the world’s oldest cons. And it’s very successful.
Then just add on the trappings of things we know to be true – our financial system sucks. And crypto can fix it.
Q: It bothers you that top celebrities were pitching crypto.
A: It’s infuriating. The crypto companies made a bunch of money and bought the services of famous people. It culminates in the biggest advertising event of the year, the 2022 Super Bowl. You got the most famous people in the world selling it. You just get depressed.
Because if you think of crypto as a Ponzi scheme, you have to get more people in to keep the thing going.
Q: So what happened?
A: Crypto hit the top — the Super Bowl with the most famous people on Earth. And interestingly enough, we now know a year later that as much money as crypto spent, not that many people entered.
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Just a few months after the Super Bowl, the Fed started raising interest rates. It’s just insane how quickly crypto evaporated. Now correlation isn’t causality – so I’m not saying it’s directly the result of the Fed – but it makes perfect sense economically.
Q: We’ve had a harsh crypto price correction. Is it enough?
A: No. The business works much like the online casino business. You need regular people to set up an account and gamble on your website. But the charts don’t lie: People aren’t coming back because they lost.
The industry will slowly circle down the drain. Even for a bubble, this is falling apart so quickly. I mean we’re only talking about a year and a half? Maybe another six months or a year and see where we are.
Q: Is there a lesson here?
A: It’s a wonderful testament to the power of a story, but also the perils of a story. The power of a false story to manipulate and deceive. The takeaway here is not a good idea that was squandered. It was a dumb idea or deeply flawed idea, that got dumber and dumber as it went along.
The only positive of crypto is that it did shine a light on the actual problems in our system. The power of the banks. The power of legacy financial institutions. And the inequities in our system. That lent the story of crypto so much power.
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at firstname.lastname@example.org