Number Go Up: Inside Crypto's Wild Rise and Staggering Fall

by Zeke Faux

“I’m not going to lie,” Sam Bankman-Fried told me. This was a lie.

It was an irresistible story. The problem was that it was not true. While the media, politicians, venture capitalists, and investment bankers lauded him as a benevolent prodigy—a Warren Buffett or J. P. Morgan for the digital age—he was secretly embezzling billions of dollars of his customers’ money and blowing it on bad trades, celebrity endorsements, and an island real-estate shopping spree to rival any drug kingpin’s.

to be even dumber than I imagined. Never before has so much wealth been generated with such flimsy schemes. But what shocked me was not the vapidity of the crypto bros. It was how their heedlessness had devastating consequences for people across the world.

“It’s like the narrative would be way sexier if it was like, ‘Holy shit, this is the world’s biggest Ponzi scheme,’ right?” Right.

“In a panic, everything collapses and they look to the federal government to bail them out,” one attendee at Yellen’s meeting told me. “If the crypto market was isolated, maybe we could live with that. But hiccups in one market start to translate into other markets. These are the things we’re paid to worry about.”

The system depends on economic incentives. The miners who confirm transactions have made such a large financial investment—in buying computers to compete in the guessing game—that it wouldn’t make economic sense to undermine Bitcoin by entering false transactions. But that also means it does make economic sense to run tons of computers to guess random numbers in hopes of winning the Bitcoin reward. As one person famously put it on Twitter, “Imagine if keeping your car idling 24/7 produced solved Sudokus you could trade for heroin.”

By some estimates, Bitcoin mining consumed as much energy as the entire country of Argentina, population 46 million.

There was no profit in being skeptical.

Willett had essentially invented an easy way to create new cryptocurrencies and pioneered a new way to use them to raise millions of dollars. This was what later came to be known as an “initial coin offering,” and it would be the way the entire cryptocurrency industry funded itself. Willett’s plan was innovative. It was also illegal. What Willett did was a textbook example of what the U.S. Securities and Exchange Commission calls an “unregistered securities offering,” meaning that Willett was selling an investment opportunity without any of the usual safeguards. Willett told me that the agency probably would have fined him hundreds of thousands of dollars if it had noticed what he was up to. But luckily, the regulators weren’t reading Bitcoin message boards. “They would have made a terrible example out of me if they’d known what was coming,” Willett said, laughing. “Never heard anything from them.”

“I don’t care about money,” Pierce said in an interview around that time. “If I need money, I just make a token.”

A pump-and-dump promoter creates a company that’s at least nominally involved in some kind of hot business—whether that’s railroads and bicycles in the 1800s or dot-com companies a century later. The business plan doesn’t matter, as long as there’s a mishmash of buzzwords in the mix. As the organizer of the South Sea Company, one of history’s first stock scams, told his associates around 1720: “The more confusion the better; People must not know what they do, which will make them the more eager to come into our measures.”

Shares—or in the case of crypto, coins—are distributed at low prices to insiders, who trade them back and forth at higher and higher prices to create the appearance of demand. An aggressive sales pitch coupled with the rising share price brings in new investors. Some of the people who buy in are gullible. But most think they understand the game: Buy early, ride the wave, and sell before the inevitable crash. As the poet Alexander Pope, a South Sea investor, explained to his stockbroker in a letter in 1720: “Let but Fortune favor us, & the World will be sure to admire our Prudence. If we fail, let’s e’en keep the mishap to ourselves: But tis Ignominious (in this Age of Hope and Golden Mountains) not to Venture.” Or, put more simply by Mike Novogratz, an ex–Wall Street fund manager turned crypto investor: “This is going to be the largest bubble of our lifetimes. You can make a whole lot of money on the way up, and we plan on it.” Pump-and-dump scams were particularly popular in the 1980s and ’90s when discount brokers brought a new group of unsophisticated investors to the stock market. In that era, depicted in the movie The Wolf of Wall Street, annual losses to the schemes were as high as $2 billion a year. Of course, that’s $2 billion in gains, if you were the one doing the scamming. The money was so good that the Mafia even muscled in on the action. Gangsters would hand brokers paper bags of cash as bribes for pushing shares of their worthless companies to retirees. New Y...

Crypto didn’t require any of that. All it takes is some rudimentary programming, which can be done by freelancers hired online, and some posts by a social media influencer.

With help from Mayweather, Centra raised about $25 million. But like most of the companies that raised money with ICOs, it was a total scam. It never issued its crypto debit card, or anything else at all. Even the CEO listed on its website didn’t exist—his picture was a stock photo. It would later be revealed that its founders, including a pot-smoking, opioid-addled twenty-six-year-old who ran a Miami exotic car rental business, had paid Mayweather $100,000 for his endorsement. This kind of scheme was definitely not legal. But promoters figured—in most cases, correctly—it would take the authorities years to uncover what was going on. One group of researchers would later estimate that 80 percent of ICOs were fraudulent.

He couldn’t believe what he was reading. Tether was supposed to be backed by real U.S. dollars in a bank. But in the lawsuit, the company itself admitted it had no access to the banking system. What was especially odd was that even after filing the case, Tether kept issuing coins. It created 200 million new ones that summer. But was anyone even sending in the corresponding $200 million, if the company didn’t have a functional bank account?

It’s not a stablecoin, it’s a high-risk offshore hedge fund,” Betts said. “Even their own banking partners don’t know the extent of their holdings, or if they exist.”

Banks face the same conflict. They profit by investing customers’ deposits. But their deposits are insured; they have regulators to keep them in check.

They sent over papers documenting a $900 million line of credit from Tether to Bitfinex. Signing on behalf of Tether was Giancarlo Devasini. And on behalf of Bitfinex: Giancarlo Devasini.

“Executives at Bitfinex, who also own and operate Tether, took hundreds of millions of dollars from Tether’s cash reserves, and used those reserves to prop up the Bitfinex trading platform,”

ON WALL STREET, my report caught the attention of hedge funds. In particular, short sellers. These are funds that make money by betting against shaky companies, then waiting for them to fail. Some of them try to hurry the process along by publishing reports exposing frauds.

Some of the critics compared Tether to the banks that sprung up in the 1800s on the American frontier, which failed all the time. The U.S. government didn’t issue paper money back then, only gold and silver coins, because its early leaders were fearful of inflation—“an infinity of successive felonious larcenies,” according to President John Adams. This led to a currency shortage. But there was a workaround: States allowed banks to print their own notes, redeemable for U.S. coins on demand. Few banks kept enough hard currency on hand to redeem all the banknotes. Instead, they simply printed as much paper money as they wanted, and used it to buy real assets, like property. As long as the notes stayed in circulation instead of being redeemed, the scheme could continue. These institutions came to be called “wildcats,” supposedly because they discouraged anyone from bringing paper money in to exchange for coins by locating their branches in remote areas where wild animals roamed. These wildcatters would borrow reserves for the day when examiners were coming to visit. Carriages bearing gold would literally rush to beat examiners to branches, or piles of coins would be handed in through the back door during an inspection. One bank in Michigan filled boxes with nails and glass, then covered them with a thin layer of silver coins to fool examiners, who weren’t fooled. “What a temptation was this for the unscrupulous speculator, the adventurer, dreaming only of wealth, and ready to ...

was easy to see the parallels between the wildcats and crypto companies like Tether. Imagine controlling a machine that could print free money. Who would have the self-control not to run off a few extra million dollars? Tether’s bosses had that power.

More recently, in March 2023, California’s Silicon Valley Bank collapsed after worry about its investment portfolio, amplified by a prominent podcaster, caused its customers, mostly start-up executives, to freak out. Many of the short sellers said it was surprising that Tether hadn’t suffered a run already.

“What’s the point of having fuck-you money if you never say, ‘Fuck you’?” I agreed with the sentiment. But maybe you didn’t even need to have fuck-you money to say fuck you.

I couldn’t believe that every day, people sent millions of perfectly good U.S. dollars to the Inspector Gadget creator’s Bahamian bank in exchange for digital tokens conjured by the Mighty Ducks guy and run by executives who were targets of a U.S. criminal investigation.

Among their complaints were that he was a bad manager, failed to keep track of important details, and was so aggressive about trying to make a giant score that he overlooked what could have been consistent profits.

Sitting across from Bankman-Fried and listening to him talk about effective altruism, I couldn’t help thinking that pushing people to gamble seemed at odds with his pledge to have a positive impact on the world. Bankman-Fried was a sophisticated trader, and he acknowledged to me that many cryptocurrencies had unsustainably high prices, and that some were scams. But here he was, telling regular people to drop what they were doing, open an FTX account, and start clicking buy. “Aren’t you leading people to probably not do that well financially?” I asked. Bankman-Fried, unconvincingly, tried to argue the ad was only intended to raise FTX’s profile, not to get people to sign up and trade.

Bankman-Fried had become one of Washington’s biggest political donors. He gave $5 million to a committee supporting Joe Biden in the 2020 presidential election, and FTX and its executives spread around at least $90 million in campaign contributions, making them one of the biggest donors for the 2022 midterm elections. Most went to Democrats, but FTX executives also gave at least $20 million to Republicans. One in three members of Congress received donations. If Bankman-Fried was trying to buy his way to a new version of U.S. regulations that favored him and boxed out his competitors, it seemed to be working. In Washington, he was treated like a financial innovator, not a crypto pirate. A week before our meeting in Nassau, he’d testified at a congressional hearing, offering advice about how the industry should be regulated. Senator Cory Booker, who’d received a $5,700 donation, fawned over him, even joking: “I’m offended you have a much more glorious Afro than I once had.”

Scammers don’t plan on getting caught.

“We’re not a bank,” he said. “We take a loan from you with the promise of repayment, and then we lend it to an institution, charge them interest, give you most of that interest.” “It sounds very similar to a bank,” I said. Mashinsky tried to explain with a metaphor. “Let’s say we’re neighbors, and I came to you and I borrowed sugar because I’m out of sugar,” he said. “And then I came back later, and I gave it back to you. And I said, ‘You know, you were so nice to lend me your sugar, here is your original sugar, plus here’s a little bucket of sugar that I got you as a present.’ Sugar is a commodity. I don’t need a regulator.”

Instead of providing a new way for poor people to earn cash, Axie Infinity funneled their savings to a dictator’s weapons program.

It seemed like Lewis saw him as another one of the truth-telling, system-disrupting outsiders he liked to write about. But the author’s questions were so fawning, they seemed inappropriate for a journalist.

“Yes, it is a Ponzi structure. But it is not a Ponzi,” he said. Rong explained that in a true Ponzi scheme, the organizer would have to handle the “fraud money.” Instead, he gave the sneakers away and then only took a small cut of each trade. “The users are trading between each other. They are not going through me, right?” Rong said. Essentially, he was arguing that by downloading the Stepn app and walking to earn tokens, crypto bros were Ponzi’ing themselves.

It reminded me of a maxim called the “bullshit asymmetry principle,” coined by an Italian programmer. He was describing the challenge of debunking falsehoods in the internet age. “The amount of energy needed to refute bullshit is an order of magnitude bigger than to produce it,” the programmer, Alberto Brandolini, wrote in 2013.

“You start with a company that builds a box,” Bankman-Fried said. “They probably dress it up to look like a life-changing, you know, world-altering protocol that’s gonna replace all the big banks in thirty-eight days or whatever. Maybe for now actually ignore what it does, or pretend it does literally nothing.” Bankman-Fried explained that it would take very little effort for this box to issue a token that would share in the profits from the box. “Of course, so far, we haven’t exactly given a compelling reason for why there ever would be any proceeds from this box, but I don’t know, you know, maybe there will be,” Bankman-Fried said. Levine said that the box and its “box token” should be worth nothing. Bankman-Fried didn’t disagree. But he said, “In the world that we’re in, if you do this, everyone’s gonna be like, ‘Ooh, box token. Maybe it’s cool.’ ” Curious people would start buying box token. And the box could start giving out free box token to anyone who put money inside, just as Axie had rewarded players with Smooth Love Potions. Crypto investors would see they could earn a higher yield by putting their money in the box than in a bank. Before long, Bankman-Fried said, the box would be stuffed with hundreds of millions of dollars, and the price of box token would be rising. “This is a pretty cool box, right? Like this is a valuable box, as demonstrated by all the money that people have apparently decided should be in the box. And who are we to say that they’re wrong ab...

Maybe it was more fun not to care if Tether was lying, or if the infrastructure underlying this entire industry was fraudulent.

For stars, it was a way to show they knew about the latest investing trend, even if that was a questionable distinction. For crypto bros, it was a way to join the same club as celebrities, who, even if they weren’t the coolest, definitely had more social cachet than them. And for people from Wall Street, it was a way to do both—though it also gave off a try-hard vibe. “It’s a way to signal you are a Web3 native person. You are one of the cool kids,” one ex–Goldman Sachs banker told a reporter, sounding very much like he wasn’t.

A COMMON MISCONCEPTION about NFTs is that the buyer owns a unique, verifiable digital image. That’s not the case. There’s nothing stopping anyone from simply right-clicking Justin Bieber’s ape and downloading the image file to their computer. The replica is indistinguishable from the $1.3 million original, and perfectly usable for a profile picture. What a Bored Ape buyer pays hundreds of thousands of dollars for is not a digital ape cartoon—it’s the ability to prove they are the one who paid hundreds of thousands of dollars for a digital ape cartoon.

Who else would be dumb enough to buy one of these? What if I’m this industry’s final sucker? Then I checked my fox-head browser extension to see what I’d purchased. My ape was not there. After frantically searching the internet, I learned that MetaMask, despite being the industry standard wallet, didn’t automatically display NFTs. Only when I navigated to OpenSea, the NFT marketplace, and then clicked the fox head, could I see evidence the ape was mine.

This was supposed to be the future of the internet and art and commerce. Instead, it had turned online shopping—a process so seamless and fun that some use it for self-soothing—into a terrifying ordeal. I could see how it all might make sense if I was planning to get rich and then hide my winnings from the IRS. The fox icon did not ask for my name or Social Security number. But I couldn’t imagine that anyone would be willing to go through this risky and ridiculously complicated process without the hope of generational wealth on the other end. And I definitely didn’t believe that Jimmy Fallon or Steph Curry had done it themselves.

He seemed depressed. When he went to snort a bump of ketamine, he made only a half-hearted attempt to bend down and hide under the table. He

Comedian Amy Schumer’s set early in the evening was not a hit. She seemed embarrassed to be there and called the attendees nerds. “I don’t know what NFT stands for,” she said. “I’m assuming it’s, looking out, not fucking tonight, is that correct? Do I have that right?”

The investment round, announced in March 2022, valued Yuga Labs at $4 billion. That was as much as Disney paid to acquire Lucasfilm and the Star Wars and Indiana Jones franchises. The Bored Apes, of course, were not the stars of a popular movie, or the stars of anything at all. But in an amazing bit of chutzpah, NFT promoters claimed that was a good thing.

I later learned from a legal document that Snoop allegedly owned a stake in Yuga Labs. I was almost relieved to find out he may have been shilling his own investment. The alternative—that one of my favorite rappers actually thought the Bored Ape Yacht Club was cool—would have been worse.

The recent decline in Bored Ape prices meant that almost anyone I’d spoken to at ApeFest had just lost hundreds of thousands of dollars. They mostly didn’t complain about it—anyone who had lost faith would have sold their ape and not come. But I felt angry on their behalf. I wondered if Fallon felt any responsibility for promoting Bored Apes in his segment with Paris Hilton.

“I wanted to come see the community, see what happens,” he said. “I feel like you really helped NFTs go mainstream,” I said, reminding him of how influential his interview with Paris Hilton had been. “Oh really?” Fallon said. “You know people have lost real money,” I said. “I have no idea about investing,” he said. “I bought it for the community.”

For most of the day, I turned on my computer every few hours to check if he had sold, balancing my anxiousness to unload Dr. Scum with my fear that I would be hacked. These were some of the worst hours of my life. That evening, I realized the website hadn’t been working properly and someone had already paid me $19,896.20 worth of Ethereum. Then I had to repeat the excruciating process of sending those coins to Coinbase and converting them back to dollars without losing my money due to typos or hacks. At one point, Coinbase’s access to the Ethereum network went down. My money was in limbo for hours.

Had I been trading apes in U.S. dollars, I would have lost about $800. But in crypto, there’s a fee associated with every transaction. I ended up wasting at least another $1,160: $36 to Coinbase, $497 to Yuga Labs for their 2.5 percent cut on all ape sales, another $497 to the NFT marketplace, $90 to Bank of America, and about $40 in Ethereum fees. Because some people tag their blockchain address with their real name, I could see that Dr. Scum’s new owner was an Armenian man named David Movsisyan. On Twitter, he said he’d thought Dr. Scum would get him into ApeFest. He had tried and failed to get into the last night of the festival a few hours after buying the Mutant Ape. I started to feel guilty. I’d lost money, but I’d also taken advantage of the Bored Ape hype to sell an ugly cartoon that I knew no one liked to some poor guy for $20,000. I contacted Movsisyan, and when we spoke three weeks later, the Armenian wasn’t angry. He told me that he was a freelancer who would generate cartoons for people who wanted to sell NFT collections. His first project was called Gambling Apes—an obvious Bored Ape rip-off—and the creators had sold them out for at least $2 million. Owning a real ape would help him generate more business. He told me he’d make a collection of ten thousand cartoons for me for as little as $15,000. When I apologized, he told me that Dr. Scum had actually gone up in value by $5,000 in the weeks since I sold him. “You didn’t scam me,” Movsisyan said. “I was the o...

“Shit’s going down,” Stone said to me. “I’m a wreck. I need to do more drugs.” He told me and one of his friends that the call had been from his lawyer. Investigators were looking into Celsius, he was told. “Is it federal?” the friend asked. “It’s the FBI,” Stone said.

Celsius had made an announcement that customers would no longer be able to withdraw their funds. The crypto bank euphemistically termed it “pausing all withdrawals” but it was the digital equivalent of a bank branch locking its doors to keep people from taking their money out—the primitive technique some actually used during 1920s bank runs. Celsius founder Alex Mashinsky had assured me that his company was safer than any bank. When I’d asked why his interest rates were so much higher than banks paid, he’d said that bankers were dishonest and greedy.