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

by Zeke Faux

THE RUN ON Celsius was part of a crisis that engulfed almost the entire crypto industry in the summer of 2022. It took months to unfold. Watching it was like seeing a house of cards collapse in slow motion. The whole time, I was watching Tether prices to see if a run would start on the stablecoin. The crisis started in May. Token prices had been falling, along with tech stocks and other day-trader favorites. Then a crypto company run by an obnoxious thirty-year-old South Korean named Do Kwon exploded. It wasn’t obvious at the time, but this would bring down a huge portion of the crypto economy. Kwon’s main coin was called TerraUSD. It was a stablecoin like Tether, intended to always trade for one dollar. But Kwon didn’t promise to back his coins with dollars in a bank account. Instead, TerraUSD was backed with a second coin that Kwon made up, called Luna. Since Kwon controlled the supply of Luna, he could simply create as many as needed out of thin air. If you’re having trouble following this, that’s actually a good sign about your investing instincts. Comedian John Oliver later summarized Do Kwon’s nonsensical business plan: “One blorp is always worth one dollar. And the reason I can guarantee that is I’ll sell as many fleezels as it takes to make that happen. Also, I make the fleezels.” The reason people bought into Kwon’s Terra-Luna plan is that TerraUSD coins could be deposited in a special crypto bank called Anchor, also controlled by Kwon, which paid a 20 percent ann...

On a corporate Slack channel, one Celsius executive had joked that his job title should have been “Ponzi Consultant.” Another executive explained the company’s problematic business model. “Pay unsustainable yields so you can grow [assets under management], forcing you to take on more risk, experience losses bc of those risks + bad controls / judgment and you are where you are,” he wrote on June 9. (Mashinsky and his lawyers have called allegations of fraud “baseless.” They said Celsius was undone by “a series of calamitous, external events.”)

Some compared crypto’s credit crisis to the 2008 financial crisis, when many U.S. banks had bet big on risky mortgage securities. But I felt like that was giving crypto too much credit. It reminded me more of the network of “feeder funds” that collected money from investors and pushed it into Bernie Madoff’s Ponzi scheme, skimming off fees for themselves. As crypto skeptics David Gerard and Amy Castor wrote, the industry was like an inverted pyramid whose tip rested on a box of hot air—Kwon’s Ponzi scheme. When the box crumpled, the pyramid came falling down.

“You wouldn’t normally show your bank account, but people do show their crypto wallets,” a partner at the nightclub E11EVEN told a reporter. “I’ve seen more crypto wallets in a year than I’ve seen bank accounts in a lifetime.”

Newspapers filled with stories about people who’d lost their life savings. I spoke to Odosa Iyamuosa, a twenty-eight-year-old who lived in Abuja, Nigeria, who told me he’d thought Terra-Luna was his best hope to get out of a city where he said many jobs paid just two dollars a day, or less. He’d scraped together a little money selling knockoff Nike and Adidas sneakers to local buyers he found on Instagram. He wanted to increase his savings to $16,000 and enroll in a data-analytics program at a college in Toronto so he could get a job at a big American company, like Netflix or Google. For a few months, it looked like his plan was working. But after the crash, he was down to his last twenty dollars. He told me he was still on Twitter and the chat app Discord, hunting for a crypto project to make his money back. “There’s literally nothing else for me again,” he told me. “I don’t know, man. Honestly, there’s no job. There’s no nothing.” Many investors wrote letters to the judge overseeing Celsius’s bankruptcy, pleading for access to their funds. They didn’t understand the money was gone, gambled away by Mashinsky. A thirty-six-year-old regional bank manager in Lancaster, Pennsylvania, with two small children, said that he’d lost $205,000, his entire retirement savings. A shepherd in Ireland said he had lost his farm. And a stunt double in Los Angeles said he was facing eviction. “No person would ever allow a financial company to hold their money under the pretense they could t...

“There are some third-tier exchanges that are already secretly insolvent,”

From the scammer’s perspective, Tether was a clear improvement on bribing bankers or money mules. It was instant, there was no recourse for refunds, and it didn’t ask for anyone’s name or address. And

SCAMMING WAS THE one industry where the blockchain was living up to the limitless potential touted by crypto bros.

When I mentioned Bitcoin at the first store I entered, the clerk snatched the bottle of water I was trying to pay for out of my hands. “Trash,” he said. “I will never use it.” My hotel wouldn’t accept it either, and a beachfront restaurant next door displayed a handmade sign saying No Bitcoin.

But a week after I got back to New York, a seemingly innocuous tweet sent by Sam Bankman-Fried set off an unpredictable chain of events that would finally reveal the rot at the center of crypto.

CZ also ran one of the shadiest operations in crypto. Binance had long refused to say where it was headquartered, making it tough for any country to claim jurisdiction. The U.S. investigations into Binance related to evading sanctions on Iran and Russia, trading unregistered securities, and violating money-laundering rules. Reuters called Binance “a hub for hackers, fraudsters and drug traffickers.” In 2018, Binance’s own chief compliance officer admitted bluntly in a message to a colleague, “we are operating as a fking unlicensed securities exchange in the USA bro.” Pig-butchering

concern. He announced on November 6 that because of “recent revelations,” Binance would be selling off its stash of FTT tokens, which it had acquired due to its early investment in Bankman-Fried’s company. “We won’t pretend to make love after divorce,” he wrote on Twitter. “We won’t support people who lobby against other industry players behind their backs.” Other investors piled on, dumping their FTT tokens and withdrawing their money from Bankman-Fried’s exchange. Rumors flew that FTX might not have enough money to cover users’ deposits. The withdrawals—some of which were publicly trackable on the blockchain—accelerated like a snowball. The more money was pulled, the more other investors decided it might be a good idea to withdraw theirs too. It was a case of reverse FOMO. It wasn’t so much that investors were sure FTX was in trouble. It was more that they figured they might as well pull their money in case CZ was right. They’d seen what happened to investors who left their money at Celsius or the other crypto firms that failed. Bankman-Fried took to Twitter to try and stem the withdrawals. “FTX is fine,” he posted, a bit feebly. “Assets are fine. We don’t invest client assets (even in treasuries).”

But the rivals he called to ask for a loan were surprised by how much he was seeking. Lennix Lai, an executive at the exchange OKX in Hong Kong, later told a reporter that Bankman-Fried said to him on Tuesday morning he needed a few billion dollars immediately to avoid “very serious consequences.” On a conference call, Bankman-Fried reportedly told investors FTX would go bankrupt if he didn’t raise at least $4 billion. “I fucked up,” Bankman-Fried reportedly said on the call, adding that he would be “incredibly, unbelievably grateful” to anyone who could help. This didn’t really make sense. An exchange like FTX was supposed to hold onto customers’ deposits and return them if asked. Like a casino, it made its money by collecting a small cut of every bet. It wasn’t supposed to gamble itself, and no matter how many gamblers wanted to cash in their chips at once, it shouldn’t have had any trouble paying out. Amid the crisis, U.S. regulators opened investigations into whether FTX had misused customer funds. Later on Tuesday, Bankman-Fried made a shocking announcement: He was selling the exchange. And the buyer would be CZ. “I know that there have been rumors in media of conflict between our two exchanges,

“polycule.” Conservative media seized on Bankman-Fried’s huge donations to Democratic

In other words, an alumnus of both MIT and the elite Wall Street trading firm Jane Street was arguing that he was just dumb with the numbers—not pulling a conscious fraud. Talking in detail to journalists about what was certain to be the subject of extensive litigation seemed like an unusual strategy, but it made sense: The press helped him create his only-honest-man-in-crypto image, so why not use them to talk his way out of trouble?

He didn’t say so, but one reason he might have been willing to speak with me was that I was one of the reporters who helped build him up. After my trip to FTX’s offices in February, I flew past the bright red flags at his company—its lack of corporate governance, the ties to his hedge fund, its profligate spending on marketing, the fact that it operated largely outside U.S. jurisdiction. I wrote a story focused on whether Bankman-Fried would follow through on his plans to donate huge sums to charity. It wasn’t the most embarrassingly puffy of the many puff pieces that came out about him. (“After my interview with SBF, I was convinced: I was talking to a future trillionaire,” one writer said in an article commissioned by a venture capital firm.) But my tone wasn’t entirely dissimilar. “Bankman-Fried is a thought experiment from a college philosophy seminar come to life,” I wrote. “Should someone who wants to save the world first amass as much money and power as possible, or will the pursuit corrupt him along the way?” Now it seemed pretty clear that a better question would’ve been whether the business was a scam from the start.

WHAT EXACTLY HAD happened to all the money? By the time I arrived at Bankman-Fried’s penthouse, multiple news reports had emerged alleging that FTX had secretly lent billions of dollars of customer money to Alameda Research, which had lost it in some mix of bad bets, insane spending, and perhaps something even sketchier. John Ray III, the lawyer who was appointed CEO of the bankrupt exchange, alleged in court that FTX covered up the loans using secret software. Bankman-Fried denied this again to me. Returning to the framework of expected value, I asked him if the decisions he made were correct.

“Why not, like, take some risk off?” “Okay. In retrospect, absolutely. That would’ve been the right, like, unambiguously the right thing to do,” he said. “But also it was just, like, hilariously well-capitalized.” Bankman-Fried’s problems had really started in May 2022, months before the CoinDesk article or CZ’s divestment. That month, the collapse of Do Kwon’s Terra-Luna scheme set off a crypto credit crisis. Some of the biggest crypto funds had invested in the $60 billion Ponzi scheme with borrowed money and went bankrupt. This made those who’d lent billions of dollars to Alameda nervous. They asked Alameda to repay the loans, with real money. But the fund didn’t have enough. Alameda had invested the money in things that were hard to sell—like venture-capital deals and huge amounts of obscure shitcoins. There were two different versions of what happened next. Ellison, by then the sole head of Alameda, had told her side of the story to her staff at an all-hands meeting amid the crisis. Ellison said that she, Bankman-Fried, and his two top lieutenants—Gary Wang and Nishad Singh—had discussed the shortfall. The honest move would have been to admit that Alameda was broke and face the consequences. But, Ellison said, they decided not to. Instead, Ellison told her staff, Alameda borrowed “a bunch of funds” from FTX, which “led to FTX having a shortfall in user funds.” She said this was possible because the way Alameda’s account on FTX was set up, the fund was allowed to “go ne...

“What’s the difference between these two rows here?” he asked. “You didn’t have eight billion in cash that you thought you had,” I said. “That’s correct. Yes.” “You misplaced eight billion dollars?” I asked. “Mis-accounted,” Bankman-Fried said, sounding almost proud of his explanation. Sometimes, he said, customers would wire money to Alameda Research instead of sending it directly to FTX. (Some banks were more willing to work with the hedge fund than the exchange, for some reason.) He claimed that somehow, FTX’s internal accounting system double-counted this money, essentially crediting it to both the exchange and the fund. That still doesn’t explain why the money was gone. “Where did the eight billion go?” I asked. To answer, Bankman-Fried created a new tab on the spreadsheet and started typing. He listed Alameda and FTX’s biggest cash flows. One of the biggest expenses was paying a net $2.5 billion to Binance to buy out its investment in FTX. He also listed $250 million for real estate, $1.5 billion for expenses, $4 billion for venture capital investments, $1.5 billion for acquisitions, and $1 billion labeled “fuckups.” Even accounting for both firms’ profits, and all the venture capital money raised by FTX, it tallied to negative $6.5 billion. Bankman-Fried was telling me that the billions of dollars customers wired to Alameda was gone simply because the companies spent way more than they made. He claimed he paid so little attention to his expenses that he didn’t reali...

“I firmly believe once somebody becomes a certain level of rich, they’re never poor again,” he said. “They don’t go to jail. Nothing bad happens to them.”

Earlier in the week, a Bahamian man who’d served as FTX’s round-the-clock chauffeur and gofer had also told me the reports weren’t true. “People make it seem like this big Wolf of Wall Street thing,” he said. “Bro, it was a bunch of nerds.”

was comfortable taking the risk that, like, I may end up kind of falling flat,” he said, staring at his computer screen, where he was leading an army of cartoon knights and fairies into battle. “But what actually happened was disastrously bad and, like, no significant chance of that happening would’ve made sense to risk, and that was a fuckup. Like, that was a mass miscalculation in downside.” There was something else I needed to ask Bankman-Fried about.

To me, it didn’t really seem like a fuckup. Even if I believed that he misplaced and accidentally spent $8 billion, he had already told me that Alameda had been allowed to violate FTX’s margin rules. This wasn’t some little technical thing. He was so proud of FTX’s margining system that he’d been lobbying regulators for it to be used on U.S. exchanges instead of traditional safeguards. Bankman-Fried himself had said that exchanges should never extend credit to a fund and put other customers’ assets at risk. He wrote on Twitter that the idea an exchange would even have that discretion was “scary.” I read him the tweets and asked: “Isn’t that, like, exactly what you did, right around that time?” “Yeah, I guess that’s kind of fair,” he said. Then he seemed to claim that this was evidence the rules he was lobbying for were a good idea. “I think this is one of the things that would have stopped.” “You had a rule on your platform. You didn’t follow it,” I said.

His opening line, according to a draft of his speech: “I would like to start by formally stating, under oath: I fucked up.”

Back in Palo Alto, he was sleeping in his childhood bedroom, and he was bored. He started a Substack newsletter, where he wrote a lengthy explanation of FTX’s failure, complete with eight charts, which attempted to deflect much of the blame to Binance’s CZ. After Bankman-Fried used a VPN—a service to conceal the user’s location—to access a streaming service to watch the Super Bowl, he was reprimanded by the judge in his case, who eventually forced him to give up his smartphone, and made his parents pledge not to allow him to use the internet on theirs. The Bankman-Frieds purchased a trained German shepherd attack dog, named Sandor. They hired armed guards, at $10,000 a week, after receiving death threats. The guards set up a barrier on their street. His lawyers claimed in court that one day a car drove into it. Three men got out and said, “You won’t be able to keep us out.” They left before they could be identified. Among his visitors were the author Michael Lewis; reporters from Bloomberg News, the Financial Times, Forbes, and Puck; and a twenty-eight-year-old crypto influencer named Tiffany Fong. Bankman-Fried told them he was lonely and understimulated. In his den, Bankman-Fried had a marble table with two chess sets set up side by side for Bughouse chess, one of the games he used to stay up all night playing with his FTX friends. He told one of his visitors he had no one to play with. “It is sort of there prospectively as much as anything else,” he told a reporter. —

FTX’S COLLAPSE IN November 2022 marked the end of the great shitcoin boom of 2020 to 2022. All cryptocurrency prices crashed. Bitcoin dropped as low as $16,000, and Solana, one of Bankman-Fried’s favorites, collapsed 95 percent from its highs. The total value of all cryptocurrencies, which had topped $3 trillion two years earlier, fell below $1 trillion.

think all that’s been a waste of time, and why you guys waste any breath on it is totally beyond me,” J.P. Morgan CEO Jamie Dimon, a longtime crypto critic, gloated in an interview with CNBC. “Bitcoin itself is a hyped-up fraud. It’s a pet rock.”

But no one had invented a mainstream use for cryptocurrency. So many smart people had spent so many thousands of hours working on crypto—and yet shockingly little of use had come of it. Bankman-Fried had discredited the only use anyone had come up with: semi-legal offshore gambling. If you couldn’t even trust the most reputable crypto casino—FTX—who would want to play?

EVEN AT THE peak of the boom, many of the crypto boosters I interviewed would tell me that most coins were scams—just not theirs. Now many of those same people were either in jail, awaiting trial, facing civil lawsuits, or bankrupt. It seemed like practically everyone in the industry was.

By 2023, the hot spots for crypto billionaires had shifted from the Bahamas and Miami Beach to the courthouses of Washington, D.C., and Manhattan. There was the Celsius bankruptcy, the Voyager bankruptcy, the Three Arrows bankruptcy, and the FTX bankruptcy. Do Kwon, the Terra-Luna scammer, was arrested that March at an airport in Montenegro, while trying to fly to Dubai using fake Costa Rican identity papers. (He has denied wrongdoing.) In June, the Securities and Exchange Commission filed giant lawsuits against Binance and Coinbase. The agency basically alleged that much of the crypto trading that went on openly on their websites was in fact illegal. It didn’t explain why it waited out an entire boom and bust and watched countless people lose their shirts before raising any objections.

Simply by surviving, Tether had won, at least for now. The amount of Tether outstanding, which had fallen amid the credit crisis, climbed to an all-time high of 83 billion by June. When I contacted the company one last time and sent over a detailed memo about my findings, a spokesperson declined to respond, saying only that it contained “a large number of errors and misinformation.” All I could do was laugh. I recalled a line Devasini had written in his blog: “Either I am a genius or everyone else, indiscriminately, is insulting your intelligence.” One way or the other, he was right. —

Crypto mythology had imbued these lines with meaning. Each represented an ownership stake in the future of art, the thinking went, or a DeFi investment that would revolutionize the world of finance. People paid millions of perfectly good dollars to add lines to crypto spreadsheets, to record that they owned a stash of Dogecoins, or a rare Bored Ape. By manipulating sheets like these, Sam Bankman-Fried had made himself into one of the world’s richest men. On the screen in the courtroom, the spreadsheet lost its power. It looked like any other financial document, with line after line of random letters and numbers. It was hard to fathom we had ever imagined they were anything else.

“I’m just like click, click, click, make money, make money, make money,” Stone explained of his trading strategy.

I purchased this Mutant Ape NFT for more than $20,000 in cryptocurrency. The process was a convoluted and horrifying ordeal. I named him Dr. Scum and imagined that he was a private detective who gains superintelligence from smoking weed. No one cared. (Zeke Faux)