Before we get started, I want to thank Avast for supporting this episode of Too Good to Be True.

With Avast One, you can confidently take control of your online world by helping you stay safe from viruses, phishing attacks, ransomware, hacking attempts, and other cyber crimes. Learn more about Avast One at avast.com. [MUSIC PLAYING] Welcome to Too Good to Be True, an investigative podcast about exposing the scams, schemes, and financial cults trying to separate you from your money.

I am Julia Lorenz-Olson. I'm the co-host of PBS's Two Cents and an accredited financial counselor. And I'm journalist and editor Ryan Houlihan.

What dank hole are we going to be burrowing into today, my friend? Oh, I hope you're in the mood for ones and zeros, because today is cryptocurrency day. No.

OK, can I just say, so on my show that I produced for PBS, we have done at least two episodes on cryptocurrency. And I swear to god, I still don't-- You don't get it. I still don't feel like I really understand it.

I am a professional day-to-day financial planner and advisor. I have been around this for so long. And I still don't feel like I fully have my hands around it, like I could explain the core concept easily to people like I could a stock or a bond.

Like, it just seems so ephemeral and elusive and weird. Yeah. I think the thing about cryptocurrency is that it is technically-- like, from an engineering standpoint, it's a simple concept.

But it's a complicated execution. And it's a very foreign concept. But also the people in the cryptocurrency world, as we'll come to find out in the next hour, aren't exactly motivated to explain how it works to you.

Exactly. Like, it feels like they want to keep it a Smart Guys Only club so that they can keep the Smart Guys Only club. And I think at this point in the crypto evolution, there's a baked-in defensiveness of crypto.

And the less you talk about specifics, the less you have to be accountable for what your ideas are. Oh, ouch. So let's actually throw to Stephen Diehl, who's a software engineer in London.

And let's have him explain to us quickly how cryptocurrency works, because he'll do a better job of it than I can. Thank goodness, me too. So I'm Stephen Diehl.

I'm a software engineer here in London. I work at the intersection of software engineering and financial services. For a couple of years, I've been an outspoken critic of the cryptocurrency sector.

And you can find my writing on stephendiehl.com. So cryptocurrency is, well, it's about issuing financial assets. On a technical level, you can think of it as basically a very large spreadsheet, where you have a bunch of columns, and they record like debits and credits between people, just like you would in kind of like a balance sheet.

Except that the spreadsheet is only like-- you can only append data to it. You can only add more rows. And the spreadsheet is basically kept in sync across the globe by a lot of computers that do a lot of computational work to kind of verify the integrity of this ledger.

And it means that no one specific computer has complete control over the entire system. So this is a property called censorship resistance. And allegedly, people want to create a form of private money on top of this spreadsheet.

And they do this by basically dominating the values in the spreadsheet, in terms of a private money. And that's called like either a Bitcoin or a unit of Ether or a Dogecoin or something, right? And it's basically a native currency of this computer network that people can trade, except wrapped in a lot of mythmaking about the creation of a new financial system or a new form of money.

In practice, not a lot of the kind of narratives that these things are wrapped in actually make a whole lot of sense. And to first approximation, you can kind of regard most crypto assets being not all that indistinguishable from like level-marketing schemes. They're basically like Silicon Valley's version of a multi-level marketing scheme, because these are financial assets that are not based on any kind of actual underlying business or economic activity.

They're only based on one thing, which is recruiting more fools into the scheme to kind of buy out the current shareholders of these schemes. And so since they have no income and they have no actual underlying value, they're kind of a deeply predatory investment. It doesn't really work as a currency, because unlike national currencies like the pound sterling, the euro, the dollar, there's no actual backing behind it, which means that it's basically a hyper volatile instrument that kind of just goes up and down randomly based on how many people think that there's going to be somebody else to buy it off them in the future.

And so it doesn't work very well as money. And so since it doesn't work very well as money, people will try to basically say like, oh, it's actually kind of a new form of investment. Because it's so volatile, people can basically kind of like speculate on the random movements of it.

And so people treat it more like a stock than it is a money. And it's wrapped in all of this very complex mythmaking. But unfortunately, at the end of the day, not a lot of that myths actually make any sense.

Because it doesn't really work very well as money, because it moves up and down too frequently. And as an investment, it's not an investment in anything. It's basically an investment based on the assumption that in the future, there's going to be somebody who will buy the thing off of you, detached from any kind of economic reality.

And so most of the narratives about crypto are kind of based on absurdities, and they don't actually make any sense. So essentially, cryptocurrency is an innovative idea with an innovative engineering solution for a problem that we haven't exactly nailed down. It sounds almost like a ledger, right?

Yeah. It's a ledger that's tracking blobs of code and saying, that's the original and unique blob of code and it can't be reproduced. So you can ascribe value to it in a way that you can't a file that you infinitely copy and can redistribute, like an MP3.

Oh, I see. You know the old ad, "You Wouldn't Steal a Car"? Well, I mean, if I could double click a car and have another car and then you could keep your car, yeah, I would totally do that.

And that's the benefit of the internet, is that there's infinite copies. Everyone can get a copy of this podcast. It's infinitely reproducible.

And cryptocurrency has created a way for that to not be true, where the only way you can identify something is by verifying it in this trustless environment, where you don't necessarily need to-- the engineering solution is baked in to prove that it is unique. So you don't need to trust the person saying it. The proof is right there.

That's the concept. It's tough, though, because these are just systems built by regular people. And these are systems that we've never tested economically, like as a society.

And these are all unregulated experiments. And basically, the rules of these systems are set when these products are created. And then how they run-- basically, what Bitcoin people like to say is code is law.

And how they run is how they're going to run. The only way to stop what you're doing would be like a legal system to regulate it. This makes me nervous, though.

Like, technology is not infallible, right? And so it's not a physical-- like, I'm not opening a safe and seeing the physical manifestation of my assets there anymore. But for some reason, that is much easier to countenance than this.

So the difference with a fiat currency-- which is what we call something that's got a sovereign state backing it. So like the US dollar or the British pound or any of these different currencies, those are fiat currencies. A fiat currency has value because governments require you to pay your taxes in it.

And that describes a certain value that isn't based entirely on speculation. That makes a ton of sense. And so if you have to pay your taxes in dollars, you're eventually going to have to come back to dollars, no matter what speculative asset you've put your money into.

And that's what cryptocurrencies are. They're entirely speculative markets, completely based on how many other people, they think will get into it, and what people think other people think that it is worth. And if we were that many layers of obfuscation deep, how does this be a functioning system?

And it's what makes that market in particular-- like, if you wanted to contrast the crypto market with something, it would be like the stock market, where you're purchasing a share in a company, and a company has capital. A company is productive. A company can offer goods and services and it has value, as opposed to just the power of belief.

Yes. I think that's something that I often just try and impart to my clients is, even though we don't necessarily believe in single stock holding or anything like that, I always come back to, what is the value that is being created by this company or this service? Right?

Like, what is the value? That's what a business should be based upon. So I'm getting some like pyramid schemy vibes, where it's like, is there any value being generated?

Or is this just a coach teaching how to coach other coaches? You know what I'm saying? It's like this loop.

Actually, software engineer Stephen Diehl best explained the value of crypto and what it can actually offer in utility. So some cryptocurrencies, not all, involve a process known as proof-of-work mining, which basically means you have computers which do a lot of basically redundant computations to basically confirm that giant spreadsheet that I talked about. So it basically runs like a lottery, in which a bunch of computers basically race to solve some problems.

And the first one to finish the problem basically gets a small reward in the network. And they get to confirm the next block of transactions. So this is a really inefficient system, because you have all these computers basically wasting lots and lots of time to basically do computation that is effectively worthless.

It's useless, right? It's basically sitting there spinning and doing really, really, really hard, useless problems over and over again to basically run a lottery system. And it turns out people are running these massive farms of computers that are using massive amounts of electricity running these computers.

And the amount of electricity being consumed is roughly the equivalent of like Argentina at this point-- it's a country of like 223 million people or something-- just to basically build this really, really inefficient payment system for something that doesn't even function as money. And so naturally, a lot of people look at this and say, what's going on here? Why are we wasting all of this electricity and having all these carbon emissions in a time when global warming is obviously a very real concern, for something that's basically kind of a failure?

I think the sensible thing-- how to look at it is you should treat it like gambling. And people like to gamble. And if you go to a casino and play slots or play poker or something, and you treat it as consumption, then that's fine, if you get some entertainment out of it.

But people have to realize that in gambling, these are a negative expected return activity, right? If you're treating going to the casino and playing roulette as an investment, then that's a problem. And I think really the only use case of cryptocurrency is basically gambling.

It has no narrative that makes sense, because it doesn't make sense as an investment. It doesn't make sense as money. It doesn't make sense as a decentralized platform for digital assets.

Pretty much, when you dig into all of the narratives, none of them actually make any sense, when you kind of run to the logical conclusions. And so I think the only conclusion we have left is basically just to treat it as a form of gambling that has a certain negative connotation associated with it. And so I would be wary about looking at crypto assets as anything else and be very wary about somebody that tells you these things are an investment, because I think they should probably be treated in the same category as just slot machines or roulette.

Nothing about cryptocurrency actually makes any sense. It's a lot of elaborate mythmaking to enable a very, very large game of musical chairs. And there's a lot of people who have invested a lot of money to make the game of musical chairs last a lot longer.

And unfortunately, a lot of people are going to lose a lot of money on this, because it doesn't make any sense economically. The technology doesn't make sense and the economics of it don't make any sense. And so I would be very wary about getting involved in these things, because if it seems too good to be true, it probably is.

So essentially, if there isn't a ton of current value and these products aren't actually solving any problem, it means that as an investment, it makes it harder to say, well, this is an inevitable future. Just because something is new and technologically innovative and interesting doesn't mean that it's going to create value or have utility in your life. And it's not inevitable that this system is better because it can be decentralized.

Yes, that would solve a problem of centralization, but it would create tons and tons of new and way more complicated problems that have much bigger effects across an economy. Yes. So can I tell you a phenomenon I've noticed?

So as somebody who works with individuals on personal finance all the time, the vast majority, almost to a person, of potential clients that come to me and are explaining where they're at and what they're interested in, the ones that are harping on crypto are men between 25 and 35, maybe even pushing 40. Yeah. And they're pretty much all white.

What is happening? What is this? Am I making this up?

Well, that is a perfect segue for me, because I have some stats here about who the crypto bro really is. And that's who we need to talk about, is the crypto bro. The crypto bro.

Oh my gosh, so this is a thing. Yeah. This is a term.

Demographically, a cryptocurrency user, like the typical ones, over 70% of them are male. Which is a really big number, but it is not representative of-- the media image we have of a crypto bro is like a young white guy who lives in Miami. And that is not the entire market.

The one that you do not want to be, like nursing a beer next to at a party. Like, please, shut up. OK, so who are they?

What do they look like? So 62% of them are white. But 24% of crypto users are Hispanic.

And that's way out of proportion with the general population, because the general population is only 16% Hispanic. I had no idea. Yeah.

Asian and Black communities are also proportionally much more likely to have participated in crypto than white counterparts in studies. That is fascinating. But the interesting thing is that the politics of this demographic and of people who are interested in crypto tend to align with other institutions that are white dominated, such as right wing, libertarian.

There's a certain kind of free market evangelist to whom crypto seems really attractive. Well, but that kind of makes sense, in my mind, when you think about the culture of people who seem to believe that they are in on a secret or they have access to information that the general sheep-like population doesn't. And it allows them to set themselves apart, like label basically all systems as like inherently corrupt, and divorces them from any engagement or accountability for changing systems as a whole.

They're like, my way of dealing with this is I'm just going to set myself apart, know that I'm the smartest person in the room, and rail against any sort of centralization, regulation. It seems like a way to identify yourself, right? Well, so the cryptocurrency idea, like the concept for this, first emerged in the late '80s.

Oh really? That long ago? Yeah.

So this was during the original computer boom. And the dream, the blue sky-- like, wouldn't it be great if we the whole world was made of sunshine and daisies? Was that, what if there was a currency that could be sent completely untraceable, and didn't require a bank or financial institution that can game the system?

So Evan Jones, writing for CryptoVantage noted that in, quote, 1995 American cryptographer David Chaum implemented an anonymous cryptographic electronic money called DigiCash. It was an early form of cryptographic electronic payments which required user software to withdraw from a bank and required specific encrypted keys before it could be sent to a recipient. BitGold, often called a direct precursor to Bitcoin, was designed in 1998 by Nick Szabo.

It required a participant to dedicate computing power to solve cryptographic puzzles. And those who solved the puzzle received an award. If you put Chaum's and Szabo's concepts together, you have something that resembles Bitcoin.

Why do-- I don't know. I mean, DigiCash, for some reason, I just see like myself in middle school with like this little Tamagotchi. I want some DigiCash.

It sounds a lot less insidious than it in fact ends up being. Totally. You know, it's interesting, the kind of terminology that's being used around this, like BitGold, mining.

And I mean, how many advertisements have I heard when I just happened to turn my dial in the car for these right wing radio shows all about gold, right? Like, the gold standard. And that is the way out.

And so I think it's so interesting. It's almost like two sides of the pole, where it's like people who are like, gold, the thing you can hold and actually has value, are the same people touching the extremes on the other side of purely digital, no cash. So the unifying idea there is that it would be a deflationary market, where you-- Can you explain that term for me?

So a deflationary market is like, there is a limited amount of this currency. Like, the market ends when we're out of stuff. I see.

Whereas you can print more money if you are-- Dollars, right? For example, dollars are no longer backed by the gold standard, and we can print more money if that-- we keep that tool in our toolbox. And I will say that in my experience, when I have clients who come to me who have made a lot of money-- real money in this world-- it's almost always because they were early adopters.

So similar to an MLM, the goal of the early adopter is to get as many people in. And the more people that come in, the earlier of an adopter you were, and the more profit you'll be seeing from the system. And that's true of all deflationary markets.

Or if I start out with a ton of gold at the beginning of a system, I'm at such an advantage over everybody else-- That's fascinating. --to set the value there. So the people who get in early on these systems and set those rules are why it feels so right wing and libertarian, because demographically, it's right wing and libertarian white guy. And these are the people who are going to be talking about the loudest, that have the largest platforms to even begin with, right?

So that, again, makes sense. But they're so incentivized to grow this market outside of that demographic. So they're going to do everything that they can to bring in other groups of people and other communities.

Because the bigger that they can get this market, the more they'll have when they eventually cash out. Thanks again to our friends at Avast for sponsoring today's episode. As you can probably tell from today's episode, protecting yourself and your online presence is incredibly important.

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That's A-V-A-S-T.com. So something tells me that this marketing is going to be targeted in a very specific way towards economically-disadvantaged communities. Yeah, they're essentially saying, if you don't get in now, you'll be left behind like you were by the other system.

And so you should rush and turn all of your fiat currency and all of your assets into these speculative financial instruments that are not backed-- they're not FDIC insured. So if a bank runs out of money, the government will insure up to $250,000 of that money. One other thing to note is obviously there's cash in a bank that is FDIC insured.

But also just your normal everyday brokerage accounts, those are SITC insured, right? Up to, again, a certain amount. But there are investments that have backing, should a brokerage firm go down.

But obviously, this world, there is zero safety net when it comes to this. Yeah. I mean, at the end of the day, if a cryptocurrency completely crashes down to zero or if, for example, you have something like a rug pull-- which is an industry term for a type of scam where you bring in a whole bunch of people and you create a market worth a certain amount of money, and the people who hold the majority of the asset, which is the people who got in early, the investors, the investors, cash out for that full value as quickly as possible.

Well, that sounds like classic pump and dump, right? Yes, it's very similar to a pump and dump scenario. So a pump and dump, just to be clear, is a form of securities fraud.

So it involves artificially inflating the price of a stock, usually specifically, and then getting a bunch of people to buy into that so that the early adopters can then cash out, right? Yeah. So I think what's important to note here is the reason that someone would be motivated to even invest in something like this.

And the reason I think why we saw these demographics flock to this opportunity is that an article from IQfy.com entitled "The Coming Death of Crypto Will Spark the Rise of Fascism" said, quote, to a generation of these under-socialized white boys, crypto isn't just the best investment they ever made. It's how they make sense of the world. Read around in the crypto space and you'll get treatises about how crypto is going to solve everything and be their everything.

They thought crypto would free them from the old systems of money and power, now finally getting some much needed diversity to create whole new ones, dominated by an even more glaringly white cadre. So you see, the blood bath when it all eventually comes crashing down and crushes their entire worldview will rival the rise of the Third Reich. That sounds like a great bedtime read.

These are groups of people who watched the financial collapse in 2008 and saw just how rigged the system really is in favor of the wealthy and wanted a different system. And there's nothing wrong with having a critical lens at our system. It's what we need.

Yeah, yeah, yeah. It's someone selling you a pipe dream replacement that says, this thing is different, and therefore will solve all your problems. This is so interesting, because now that I think about it, I tend to serve in my clientele people who are about my same age, right?

And I just turned 35. Hey. And I graduated in 2008 out of college.

So I'm coming into this world of trying to make money in the midst of an economic collapse. And I think my sort of compatriots were really shaped by this. And so I'm just thinking about these people who are so interested-- tend to be interested.

They are also extremely skeptical of the stock market. Because when they're coming out, when they're formative-- like, they're having to make a relationship to their money and they're finally being pushed out into the real world for the first time and having to navigate financial systems for the first time. Their parents aren't there anymore.

That really forms your relationship to the economic system as a whole. So I just think it's fascinating that this-- like, take the stock market, for example, that has over 100 years of history and patterns and context to put around this. But that isn't trustworthy.

And this thing that sort of came out of nowhere, doesn't really provide material value to everybody, somehow that is considered more trustworthy. You know, psychologically it feels like 50/50 bet. It could go well or it could go poorly.

Whereas the other system feels like there's almost no chance you'll succeed. So if you're a young, disillusioned person and your financial future to you is still entirely intangible, you might think it's easier or more exciting or more interesting or more ethical to put your money into a new system, rather than to participate in the existing system. But eventually, these systems which are already-- we're seeing people be completely take advantage of.

We've seen people scammed out of their money. We've seen rug pulls are a huge, extremely frequent phenomena. And there's no recourse, because these systems don't have government agencies keeping them in check.

So when I'm advising these clients who are kind of in that mental space, I feel like I have to do a lot of education when we think about timelines, right? And so many of them come to me and they're like, well, picking stocks feels like I'm going to Vegas. And I'm like, actually, it's the exact opposite.

In Vegas, the longer you play-- and this is speculative, right? This is gambling. In gambling, the longer and more you play, the less likely it is get ahead.

The house always wins. The house always wins. But with specifically the stock market, the longer you play, the much more likely it is that you are going to end up ahead.

So I have to talk to people a lot about that. And that's a totally new concept to them. And it was for me.

So I do think that stocks, thanks to compound interest, are a much better way-- a more stable way, really-- to build wealth, but over time. Right? So if you look at the general trajectory of the stock market over the last 90 years, it has a very definitive physical pattern.

You see a line starting here and going up. So you can see, like, OK, we started here, go here. There's a visual on that pattern.

But if you zoom in to any 15 year, any 10 year, five year, it looks a lot less predictable. And so I just think it's really helpful for people to think of things really more on a long-term basis. And I mean, with crypto, if you look at the visual of what that market as a whole is doing, it is all over the place.

Eventually, someone's going to be left holding the bag when the musical chairs stop. And it's not likely that that's going to be the people who got in early. The people who would cause a crash are the people who will be taking the money from the people who got in late and are losing the money.

And when you look at the demographics and the politics of the people involved in the crypto market, it feels very unlikely that they will take their feelings about being ripped off one day to the institutions that created the system that we are all still living in of Wall Street, banks, the anti-labor movements, politicians who are creating this financial market and not protecting and not passing any legislation that would regulate any of these financial instruments that are taking advantage of them. It's unlikely that they're going to turn their rage there, right? Like, demographically, we have seen after economic crashes, after people lose money, after enormous wealth redistribution, the aggression turns towards minority groups.

It turns towards oppressed groups and it becomes about social issues. Yeah. I mean, you think about the Weimar Republic and the dissolution of that in Germany in the 1920s.

I mean, there you go. I mean, you look at the rise of the Alt Right as wealth inequality has escalated. And it's not a coincidence that the people who have such disdain for the poor have such respect for figures like Elon Musk.

Bingo. That's where I wanted to go. When I'm thinking about personalities that are really sort of churning the cauldron on this, they seem to have so much sway and power.

And you know, I live in Austin. And I was on my way to the airport. And I have to drive by-- I mean, it feels like a quarter mile long building that is Tesla, that is now in my hometown.

So talk to me a little bit about the pull Elon Musk has on this whole world and why he has it. So young men really tend to identify with Elon Musk as this Tony Stark Marvel superhero type figure because he is involved in interesting cool glamorous businesses, like space travel and electric sports cars and stuff like that. Wow, I didn't even think about that, the toys of the little boys in the 1960s of the astronaut, right?

Yeah. He's created a really curated image where he was able to use his money that he made by founding PayPal, a digital payment solution, that you might know from things like eBay. He took that money and he invested into not only different businesses-- that other people had created.

Like, Tesla, he was not involved in the development of Tesla Cars. He's involved in the marketing of choosing specific businesses to fit a media image that could put a halo over these brands and ideas that might not necessarily have gotten the funding they would have otherwise. And then you look.

That's the reason why Tesla is the most valuable car company on Earth. And actually, let's hear from Brianna Wu on this. We got the chance to speak with Brianna Wu, former indie game developer and congressional candidate in Massachusetts, who's now director of the RebellionPAC, on how she made quite a lot of money on crypto before exiting the market, and why she thinks you should run the other way.

I was not always as skeptical about this. When I ran for United States Congress, I ran in 2018, which meant I was asked about cryptocurrency a lot in 2016 and 2017. It was because I ran on kind of a "let's have smarter tech policy" platform.

And it was a question I got so much that I'm like, well, if I have opinions about this, I need to go out and use it. So I got a Coinbase wallet and I bought $300 of Bitcoin on a whim back then, which turned out to be a very good financial decision, right? So I have a Porsche in my driveway because of that.

You know, I did buy Bitcoin on a whim. And I did make an insane amount of money from that, right? I am this dream story, right?

But at the same time, I feel like for all the stories of people making a lot of money on this, we're not telling all these stories that you read on Reddit. This is not new. It's a get rich quick scheme, when it comes right back down to it.

And yeah, a few people are going to get rich. But overall, it's a sucker's game. Like, someone's going to have to lose.

And I unfortunately think that the market is more fully mature at this point. And I think your odds are much higher on losing a lot of money than making a lot of money. And I say this respectfully.

I don't want to get too much into Tesla. But Tesla took out $1.5 billion in Bitcoin to speculate on that. And there is a lot of overlink between the Tesla speculation market and cryptocurrency, not least of which because Elon Musk has been promoting it.

You look at a product like Dogecoin. Dogecoin was developed as a literal joke where it just keeps feeding Dogecoins into the system. It's not a well-designed product, y'all.

And it's just funny to me to have a figure like Elon Musk pumping and dumping it. And there's literally no rules whatsoever about it. I think Musk in my opinion is P.

T. Barnum but in the tech industry, right? And I think he's hyping up a tech product.

He's also been very, very angry when he's been regulated by the SEC, right? And cryptocurrency is completely unregulated by the SEC. I want to be straight with y'all.

Back before I saw the YouTube clip "Line Go Up", which all of your viewers should watch. It's excellent. It's an hour-long examination of all of this.

And I'm like, look, I cannot ethically participate in this, even as a lulls, and just sold all of it. You know, I made a bit of money by just waiting for Elon to tweet about cryptocurrency and just following what he was doing, waiting for it to spike, and selling it, right? It's a pump and dump scheme that's just entirely unregulated.

And he can do it. And it kind of brings him in this Tesla army of people that have artificially-- not just the crypto space. But I think if you look at Tesla as a stock, it is currently worth more than every single other car company on Earth combined, which is just insane, if you think about it.

So a lot of the way he's gotten there is by kind of tapping into this meme stock culture. And frankly, the identity that these younger men have, where they want to see themselves as this Iron Man genius, this kind of empowerment fantasy that they're participating in. There's a ritual where every single morning they wake up and they say GM or Good Morning to each other.

There's the diamond hands, right? Diamond hands is like holding on to it no matter what happens to the financial value, which doesn't seem like good advice. There's "we're all going to make it" that is just this reinforced behavior, the "see no evil, hear no evil." I mean, it's the brand he's selling, like this vision of the future.

It's why Tesla stock is so overvalued, because he's really good at selling this idea that eventually the Tesla Supercharger Network is not just going to be solar powered. It's actually going to feed into the grid, and the Tesla Roadster and the Tesla Cybertruck is going to come forward. But when you really start digging into beyond the hype and looking at what critical journalists have-- the history of Tesla in the Elon the man, it is a long history of sky high promises and very, very, very, very, very, very little follow through.

I had a tweet go viral a while back-- I do stand by this-- that I am deeply worried that when NFTs and cryptocurrency eventually crash, that the young men that were so attracted to this, I don't think they're going to turn to regulation. I think they're going to turn to fascism. I mean, I don't think they're going to go launch unions when all of this falls apart and they lose everything.

I just don't see it ending well. So I'm deeply worried about that. So if you've got a media personality whose primary ability and talent at making money is pumping and dumping his biggest stock assets to the degree that the SEC has had to step in, he can look at something like cryptocurrency, which is almost entirely unregulated, and say, what a great place for me to get involved.

It has been a true axiom in my opinion of America for a long time what John August said, that socialism never really took root in America because the poor see themselves not as an exploited proletariat, but as temporarily embarrassed millionaires. And if you live entirely online in a terminally online place, like a lot of these disillusioned men do, and you see Elon Musk sharing memes in the style that your friends share-- He gets you. He's closer to you than a poor person who might have a very different culture or a different way of communicating than you do.

Yeah, or an Elizabeth Warren. Like, out of touch, couldn't probably share a meme, right? Yeah.

Yeah, no, that makes perfect sense. If only Elizabeth Warren dated Grimes. Gosh.

Which, can I just say, that woman is fascinating. But anyway. A separate day.

A separate discussion for a separate day. But yeah. I mean, he just has such sway in this world.

It's honestly kind of frightening. I mean, if you look at the lives that these young men thought that they were entitled to and that they were getting-- this demographic that got in early with crypto and is pushing it as hard as possible-- their parents owned property. They likely thought they would be homeowners.

They didn't know they would be saddled with unmanageable college debt. They didn't realize that we were going to be living through multiple recessions and pandemics. And they feel disillusioned and they feel robbed of the thing that they deserve and rightly should have in what they also feel is a complete meritocracy.

They want to believe in things like hustle culture. If you look at a figure like Elon Musk, his net worth has exploded so quickly that it's like comical. In 2015, he was worth around $13.3 billion.

Oh, only? Yeah. The current GDP of Bhutan, Fiji, and Barbados put together.

Oh, OK. In seven years, that net worth has increased to $252 billion. Oh my god.

OK, true story, when I was in college, I went to a billionaire's house and sang there. And it was the most crazy-- it was just nuts. So out of touch with how regular people live their lives.

Like, I was out of place. I was like 19 and I was like, I just want to sing for rich people my whole life. But I remember-- and this was in Houston in the River Oaks Community, which is one of the wealthiest.

And I think that person was worth maybe $1 billion. So I was like, this doesn't even-- It's a fraction. It just doesn't even compute.

Like, not even close. But it's so funny, because it's so easy for rich people to charm us and ask us to identify with them, because they have all these great things to share. They have the benefit of all the capital and control in a scenario.

And they can present themselves however they want. And to an average American who, in 2015, according to the US Census Bureau, the median American net worth is $88,000. That's the median.

That's not average. That's with wealth inequality taken into consideration. Whoa.

That's a low point when you think of it like that. When you're in middle school, you're like, median, mean, what are these averages? What do these mean?

Yeah. A median is if you put all the points on the line, you pick what is in the middle, not what is the average or the most common experience. So $88,000 is not an enormous income in the US.

So if you look at someone like Elon Musk, if the average median person was making $80k in 2015, they would now have a net worth of $1.5 million. So that's the kind of wealth creation he has had while people have been losing money and while inflation has increased and people are being hit harder and harder at the grocery store and the gas pump. And a figure like Elon Musk seems like he has all the answers, right?

Like, he's the golden god of capitalism. So it seems like the world of crypto that specifically Elon Musk is trying to build, the point of it goes-- like, it dovetails perfectly into what he wants, which is less regulation. Right?

Less systems holding me back from building an even larger net worth than before, right? Which is at odds with what we need for companies to produce value. And it is at odds with what we need to have a healthy economy, where our institutions and systems and companies are productive for people, as opposed to extracting capital from the poor and redistributing it to the already so phenomenally wealthy that you couldn't physically-- you actually could run out of things to spend your money on in your lifetime.

I know. Because I'm like, what more do we need? What more true ultimate godlike power does Elon Musk need?

But it means he's able to create an image of whatever he wants in pursuance of getting more capital and decreasing regulation. And it seems like, don't run to the government to solve your problems. Run to wealthy individuals.

Run to this guy who clearly has been able to make it work for himself. I mean, it's similar to the Republican Party's fascination with Trump or any businessman as a politician. I mean, there's so much overlap of like this capitalist overlord.

Like, they have all the answers, which I think kind of makes sense because we are living in a capitalist society where profit is the ultimate prize. That's what we're here for. And so it's like they're just little Pied Pipers of profit.

You know? And they don't even have to be making a profit, which makes me crazy. They just have to have the image of that.

If you have just enough money to create an image for yourself, that's enough. And like you said, these wealthy individuals can pump up their stocks and then take out loans to borrow against those assets and then live off of that. And only people at that level have that kind of power anyway.

Yes. And baked into the cryptocurrency promise are all these terms like decentralization or anonymity. And let's hear from Stephen Diehl about just how much that promise has played out in the real world.

The entire system is set up to avoid censorship by any kind of law enforcement or government agency that would want to intercept them. So by the design of the technology, it's basically set up to basically be immune to the framework that we put up around traditional payments. In the United States, there's something called the AML KYC framework, which is Anti-Money Laundering and Know Your Customer, which is the framework that the banks have to comply with, where basically you can't send money to sanctioned entities.

You have to report transactions above $10,000. And these are safeguards we put in our system for the last say 50 or 60 years, and they're based on a lot of very common sense ideas. So crypto is basically designed to circumvent the AML KYC framework entirely.

And so naturally, when you create a framework that's basically kind of a network for dark money movements, then it's going to be used for a lot of illicit purposes, because that's what it's designed to do. And I think just yesterday, Reuters reported that one of these offshore crypto exchanges was laundering like $2.4 billion in illicit funds related to either terrorist financing or cartel money. And if you are a criminal and you want to move money abroad, then crypto is-- it's an imperfect payment system, obviously, because of the reasons we mentioned.

But it can still be used to transmit value illicitly and outside of government controls. And people are going to use it for that. So if these systems aren't in fact anonymous and they're not in fact decentralized, it's really to their advantage that they baked in those words into their concepts so that no matter what you say, the rebuttal is, but it's decentralized.

Elon Musk isn't in charge. Nobody's in charge. When in fact, the person who owns the largest amount of a currency is entirely in charge.

It's a winner-take-all scenario. So right now at this time of recording, this market is doing terribly. I mean, things are crashing left and right in the crypto world.

So what's happening to these mostly men who have hopped on this bandwagon? And where's all that anger going? So a good example of a real world version of this playing out in real time right now is Elon Musk's preferred cryptocurrency, Dogecoin.

Dogecoin was created as a joke. It was created as a meme. It is not in fact a deflationary currency.

It is one of the least valuable cryptocurrencies, just from its basic premise. And yet he has managed to pump its price through hyping it on social media, tweeting, posting about it. And these young impressionable men for the most part see a market like that, invest a ton of money, because if Elon's backing it, it'll be a success.

Like, SpaceX is a quote unquote success. Like Tesla is a quote unquote success. So they want to get in early.

They are going to dump a bunch of money in something that is a doomed product, but that they haven't done their due diligence. And if they have, they know if they get in early enough, it doesn't matter if the product sucks, because they'll have made a profit. Similar to Elon Musk.

So people will dump money into this. And then in order to keep pumping it up, the more people that come in, the more they are motivated to get other people with less consciousness about how these systems work to invest money. And then that's what would lead to what we're seeing now, which is a complete crash in the value.

Because like a pyramid scheme, you run out of people on Earth to solve the problem with. So I mean, certainly they feel anger at this. I mean, they're seeing their holdings plummet.

Like, what now for them? Are most of them staying? Are they leaving and being like, you know, fuck this guy.

Like, I've been had. What's happening? So an important part of the crypto world is this insular community, where you are told repeatedly how to react to-- you're given a script how to react to losses.

Like MLMs. Like an MLM. Oh my gosh, it's like the same thing.

It's like any wiggle in the picture is like-- And it's already compensated for in the language you've had repeated to you over. You have scripts that you have to tell yourself and the people who are around you, who are like, hey, maybe you should like come out of this. Yeah.

And so when you hear information about crypto that would lead you to believe it's not a good solution to what ultimately isn't a big problem, you have the response of that's FUD. That's Fear, Uncertainty, and Doubt. And that you're pot-committed.

And you're pot-committed. And you have diamond hands. We're all going to make it.

All these ideas that get thrown around in crypto communities, and these phrases that sound like common sense advice. But if you think about them for longer than 2 seconds, they are kernels of truth being fed to you in order to keep you from seeing the larger picture. And the larger picture is not rosy.

And just with MLMs, we can either address the underlying problems that lead people down these roads or we're just going to keep getting scammed. So what I learned today is that this is essentially the MLM culture of young men at this point. And I am scared to see what happens when things stay bad for long enough.

Yeah, at scale. One of the original co-creators of Dogecoin Jackson Palmer recently said about Elon Musk, quote, I wish it was the end of crypto. But it's not.

He sells a vision in hopes that he can one day deliver what he's promising. But he doesn't know that. He's just really good at pretending he knows.

Yeah. Well, thank you so much for walking us through that. And we will see you guys next time.

Well, that's the show for this week. You can find Too Good to Be True wherever podcasts are available. And while you're there, we'd love for you to rate the show and leave us a review.

I've been Ryan Houlihan, and you can find me on all social media @RyanHoulihan. I've been Julia Lorenz-Olsen. You can find me on YouTube at my PBS show Two Cents.

And every once in a while, I'll look at Instagram. My handle is @yayitsjulia. [MUSIC PLAYING]