Ben McKenzie on Crypto Scams, SBF IRL and the Hollywood of It All
In this episode of Money Rehab with Nicole Lapin, actor and economics graduate Ben McKenzie shares his journey from initial curiosity to skepticism regarding cryptocurrencies. He reflects on resisting FOMO during Bitcoin's surge by applying economic principles, highlighting systemic issues and red flags within the crypto industry.
McKenzie also recounts his uneasy interview with Sam Bankman-Fried, the founder of the now-collapsed FTX exchange. The conversation touches on the implications of FTX's lack of oversight and dubious practices, sparking regulatory crackdowns and calls for greater consumer protection in the digital asset realm.
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1-Page Summary
Ben McKenzie's Journey from Crypto Curiosity to Skepticism
The actor and economics graduate Ben McKenzie recounts his transition from initial curiosity about investing in Bitcoin to growing skepticism, guided by his academic background and encounters with dubious investment advice.
McKenzie Fought Off Crypto FOMO Due to Economics Training
In 2021, McKenzie resisted FOMO over Bitcoin's surging value, drawing on his economics education to identify red flags. His college friend Dave, who'd once advised an ill-fated investment, again urged McKenzie to buy Bitcoin—prompting caution.
As an economics graduate, McKenzie recognized the speculative nature of cryptocurrencies and their lack of real utility beyond subjective investment. He saw the market as driven more by the "greater fool theory" than organic demand.
Systemic Issues and Red Flags in the Crypto Industry
McKenzie criticizes cryptocurrencies' failure to function as practical currencies for transactions. He notes centralization, with few "whales" controlling most supply—contradicting claims of decentralization.
McKenzie highlights crypto exchanges abruptly closing and disappearing with customer funds, lack of transparency, and technical difficulties using cryptocurrencies for purchases like buying a hot dog.
McKenzie's Uneasy Interview with Sam Bankman-Fried, FTX Founder
McKenzie's interview with Sam Bankman-Fried, whose exchange FTX operated with lax oversight in the Bahamas, left him uneasy. Bankman-Fried gave evasive responses to questions, foreshadowing FTX's later collapse.
FTX's Collapse and Broader Implications
FTX's dubious practices—commingling customer funds, using QuickBooks for a multi-billion firm—severely damaged crypto's credibility. McKenzie notes alleged fraud by Bankman-Fried directly stealing funds.
The fallout sparked regulatory crackdowns. Binance, the largest exchange, faces lawsuits and investigations. McKenzie predicts intensified scrutiny to protect consumers, restoring security in the digital asset realm.
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Counterarguments
- Cryptocurrencies have real utility in certain contexts, such as enabling financial transactions in countries with unstable currencies or where people lack access to traditional banking.
- The "greater fool theory" may not fully account for the entire market's behavior, as there are long-term investors who believe in the underlying blockchain technology's potential.
- While there are centralization concerns, the crypto industry also has numerous decentralized projects and cryptocurrencies that aim to address these issues.
- Technical difficulties in using cryptocurrencies are being addressed over time, with improvements in user interfaces and the development of more user-friendly wallets and services.
- Not all crypto exchanges engage in malpractices, and many operate with a high degree of transparency and security measures in place.
- The interview with Sam Bankman-Fried represents a single perspective, and there may be additional context or information that was not covered in the interview.
- The collapse of FTX, while significant, does not represent the entire cryptocurrency industry, and there are many projects and companies within the space that adhere to higher standards of conduct and governance.
- Regulatory crackdowns, while aimed at consumer protection, could also stifle innovation and the growth of legitimate crypto businesses.
- Intensified scrutiny could lead to overregulation, which may push the crypto industry to jurisdictions with less oversight, potentially increasing risks for consumers.
Actionables
- You can create a personal investment checklist that includes red flags for speculative assets, ensuring you make informed decisions before investing. Start by researching common warning signs of investment bubbles and speculative markets, such as rapid price increases without underlying value, market behavior driven by investor sentiment rather than fundamentals, and over-promotion on social media. Use this information to draft a checklist that you can refer to whenever you consider a new investment, helping you to avoid decisions based purely on fear of missing out (FOMO).
- Develop a habit of conducting due diligence on the transparency and governance of any financial platform you use. This could involve checking for clear information on ownership, regulatory compliance, and user reviews before you commit your money. For example, if you're considering using a new financial app or exchange, look for their terms of service, audit reports, and any news about their operational practices to ensure they align with your standards for transparency and accountability.
- Educate yourself on the basics of consumer protection laws and regulations in the financial sector to better safeguard your investments. Take advantage of free online resources or community workshops that explain your rights and what to look for in terms of regulatory compliance. This knowledge will empower you to ask the right questions when engaging with financial services and to recognize when a service may not have your best interests at heart, thus helping you to avoid platforms with lax oversight.
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Ben McKenzie's personal journey of becoming skeptical of cryptocurrency
The actor and economics graduate Ben McKenzie articulates his journey from initial curiosity to skepticism regarding the world of cryptocurrency, influenced by his academic background and personal encounters with investment advice.
McKenzie was initially tempted to invest in Bitcoin due to FOMO, but his economics background made him skeptical
In 2021, under the sway of heightened Bitcoin valuations and at the urging of his friend Dave, Ben McKenzie fought off feelings of FOMO regarding Bitcoin investment. With his collegiate background in economics, McKenzie took to research, recognizing red flags that further fueled his skepticism.
McKenzie's college friend encouraged him to invest in Bitcoin, but his past experience with bad investment advice from this friend made him cautious
His friend Dave, who during their college years had advised McKenzie on a regrettable investment in a company producing synthetic blood that resulted in financial loss, was the same person suggesting he buy Bitcoin.
Remembering the outcomes of heeding Dave's past advice, McKenzie approached the prospect of investing in Bitcoin with due caution. He understood that while some people like Dave might dabble in crypto with disposable income, there were many others who invested heavily and endured severe losses.
As an economics graduate, McKenzie was able to identify major red flags with cryptocurrency, such as the lack of real utility and the crypto industry being driven more by speculation than organic demand
Ben McKenzie's grounding in economics provided him with the lens to evaluate cryptocurrencies ...
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Ben McKenzie's personal journey of becoming skeptical of cryptocurrency
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Counterarguments
- While McKenzie's skepticism is rooted in his economics background, it's worth noting that economics as a field does not have a consensus on cryptocurrencies, and some economists argue that they represent a new asset class with potential for diversification.
- The idea that cryptocurrencies lack real utility may be contested by pointing out the development of blockchain technology and smart contracts, which have found use cases in various industries beyond simple transactions.
- The characterization of the crypto industry as driven more by speculation than organic demand could be countered by highlighting the growing number of merchants accepting cryptocurrencies and the increasing use of cryptocurrencies in countries with unstable currencies.
- The greater fool theory, while it may apply to some speculative bubbles, doesn't necessarily account for the long-term ...
Actionables
- You can develop a healthy skepticism by creating a 'red flag' checklist for investments, which includes points such as unclear utility, over-reliance on speculation, and past performance of similar investments. When evaluating a new investment opportunity, use the checklist to identify potential concerns that might warrant a more cautious approach.
- Enhance your financial literacy by enrolling in a basic economics or personal finance course online, which will provide you with the tools to critically assess investment advice from friends or trends like cryptocurrency. This knowledge will empower you to make more informed decisions based on economic principles rather than hype or fear of missing out.
- Start ...
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The systemic issues and red flags in the crypto industry
Ben McKenzie scrutinizes the crypto industry, shedding light on its inefficiencies and warning of the dangers within a market driven more by speculation than utility.
The crypto industry lacks real utility and is primarily driven by speculation rather than addressing genuine economic needs
McKenzie criticizes the crypto industry for marketing cryptocurrencies as "digital currencies" when they do not function as true currency. They are rarely used as a medium of exchange, which is a basic function of money. The so-called scarcity of cryptocurrencies is called into question, as tactics like wash trading can artificially inflate demand, making the supply limitations misleading.
The crypto industry is highly centralized, with a small number of players controlling a disproportionate amount of the market
The industry's centralization is concerning, as McKenzie identifies a minuscule fraction of Bitcoin wallets holding a majority of the total cryptocurrency supply, granting these "whales" significant control over market dynamics. Adding to the red flags, McKenzie highlights the history of crypto exchanges abruptly closing and disappearing with customer funds, showcasing the absence of trust and transparency in the sector.
The dysfunctional reality of cryptocurrencies as currency
For cryptocurrencies to function as legitimate currency, widespread acceptance and usability for transactions are necessary. Yet, McKenzie’s experiences, such as attempting to buy a hot dog or a beer with Bitcoin and encountering confusion or technical issues, illustrate that cryptocurrencies are not broadly acc ...
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The systemic issues and red flags in the crypto industry
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Clarifications
- Wash trading in cryptocurrency markets involves artificially inflating trading volumes by buying and selling the same asset to create a false impression of high activity. This practice can deceive investors into thinking there is more demand for a particular cryptocurrency than there actually is. It can lead to misleading perceptions of market interest and liquidity, impacting price movements and potentially attracting unwary traders. Wash trading is considered a manipulative tactic that can distort market information and undermine the integrity of the crypto industry.
- "Whales" in the context of the crypto industry are individuals or entities that hold significant amounts of cryptocurrency. These holders have the potential to influence market prices due to the size of their holdings. Their actions, such as large buy or sell orders, can cause significant fluctuations in the market. Whales are often associated with a high level of control and influence over the cryptocurrency market dynamics.
- Cryptocurrencies face challenges as a medium of exchange due to limited acceptance for everyday transactions, leading to usability issues. Despite being marketed as digital currencies, they often lack widespread adoption for purchasing goods and services. This lack of practical utility hinders their ability to function effectively as traditional currency. Additionally, encounters with confusion and technical barriers when attempting to use cryptocurrencies for everyday transactions highlight the current limitations in their role as a medium of exchange.
- Centralization concerns in the crypto industry revolve around a small number of entities holding significant control over the market, such as "whales" with large cryptocurrency holdings. This concentration of power can lead to market manipulation and impact the overall stability and fairness of the industry. Additionally, the history of excha ...
Counterarguments
- Cryptocurrencies offer innovative utility in areas like smart contracts, decentralized finance (DeFi), and non-fungible tokens (NFTs), which go beyond simple currency use.
- Digital currencies are increasingly being used for transactions, with some businesses and online platforms accepting them as payment.
- Market manipulation tactics like wash trading are not exclusive to the crypto industry and can occur in any financial market.
- Decentralization in crypto varies by project, with some cryptocurrencies achieving a higher degree of decentralization than others.
- The concentration of wealth is a phenomenon that exists in traditional financial systems as well, with a small percentage of entities controlling significant assets.
- The crypto industry is still in its infancy, and growing pains are expected as with any emerging technology or financial system.
- There are ongoing efforts to improve security and trust in crypto exchanges, including regulatory compliance and the use of insurance funds to protect customers.
- The adoption of Bitcoin in El Salvador and other places may take time, and initial low usage doesn't necessarily predict long-term outcomes.
- The crypto industry has ...
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Ben's interview with Sam Bankman-Fried and the collapse of FTX
Ben McKenzie's interview with Sam Bankman-Fried, the founder of FTX, left him feeling uneasy about the practices in the crypto industry, which later became evident with the collapse of FTX and its broader implications.
Ben's interview with Sam Bankman-Fried, the founder of FTX, left him feeling uneasy about the practices in the crypto industry
During the interview with Sam Bankman-Fried, Ben McKenzie became wary of the crypto industry's operations. Bankman-Fried, whose exchange FTX was located in the Bahamas—a jurisdiction known for lax regulatory oversight—provided evasive responses to McKenzie's questions, heightening concerns about the legitimacy of his operations. McKenzie had managed to secure the interview perhaps because his assistant was a fan of "The OC," a show McKenzie starred in. The two even interacted on Twitter, with Bankman-Fried responding to a challenge McKenzie tweeted.
Bankman-Fried's exchange, FTX, was located in the Bahamas, a jurisdiction known for lax regulatory oversight, and was operated by a tight-knit group of Bankman-Fried's friends and associates
Ben McKenzie mentions that FTX's location in the Bahamas was not exactly known for its strict regulatory environment and that the exchange's operation by Bankman-Fried's friends and associates made him uncomfortable.
Bankman-Fried's evasive and unsatisfactory responses to Ben's questions further raised concerns about the legitimacy of his operations
In his interview, McKenzie recalls getting unsatisfying answers from Bankman-Fried. Allegations later surfaced that Bankman-Fried had instructed someone to alter a code to create a backdoor to steal customers' funds, pointing to the possibility of fraudulent practices within FTX.
The collapse of FTX and the broader implications for the crypto industry
The revelations of FTX's dubious practices have significantly shaken confidence in the crypto industry. These practices included the commingling of customer funds and the utilization of a surprisingly unsophisticated accounting system such as QuickBooks for a multi-billion dollar firm. Furthermore, employees of FTX were allegedly approving billion-dollar loans through the casual use of emojis.
The revelations about FTX's fraudulent practices, such as commingling customer funds and using an unsophisticated accounting system, have further ero ...
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Ben's interview with Sam Bankman-Fried and the collapse of FTX
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Counterarguments
- The unease felt by Ben McKenzie after interviewing Sam Bankman-Fried may reflect a broader skepticism about innovative financial technologies and industries that challenge traditional systems, rather than specific issues with FTX or Bankman-Fried's practices.
- Operating in the Bahamas or similar jurisdictions does not inherently imply illegitimacy; many legitimate businesses choose such locations for various reasons, including tax benefits and more favorable business environments.
- Evasive responses in an interview could be due to a variety of reasons, including legal advice, privacy concerns, or the complexity of the subject matter, rather than an intent to deceive.
- The use of an unsophisticated accounting system like QuickBooks does not automatically indicate fraudulent practices; it could also suggest a rapid growth phase where the administrative systems had yet to catch up.
- ...
Actionables
- You can enhance your financial literacy by taking a free online course on cryptocurrency and blockchain technology to better understand the risks and operations of crypto businesses.
- Learning the basics of how cryptocurrencies and blockchain work will give you the tools to critically assess the legitimacy of crypto projects and companies. For example, you could sign up for a course offered by a university or a reputable financial education platform that covers topics like the mechanics of crypto exchanges, the importance of regulatory compliance, and how to spot red flags in crypto operations.
- Start a habit of conducting due diligence before investing by creating a checklist of key factors to evaluate, such as the transparency of the company's operations, the qualifications of its leadership team, and the clarity of its communication with investors.
- This checklist can serve as a personal guide to vet potential investments. For instance, you might include items like checking for third-party audits, reading user reviews, and researching the regulatory environment of the country where the company is based. This proactive approach can help you make more informed decisions and potentially avoid companies with questionable practices.
- Encourage open conversations about financial decisions by ...
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