Was Bloomberg The CNBC Of Crypto?

Was Bloomberg The CNBC Of Crypto?

[Editor’s note: The original version of this article referred to “DeFi yield farming,” as opposed to just “yield farming.” The distinction between centralized exchanges and DeFi is critical, of course, but one of the great ironies of the FTX saga ended up being that Bankman-Fried effectively commingled the two. So, far from the protestations of DeFi believers who insisted that FTX’s bankruptcy actually made the case for DeFi, Bankman-Fried, and particularly the way in which FTX carried its Serum stake, actually made the case for how DeFi can end up becoming the punchline of a centralized exchange implosion.]

You know what really grinds my gears, to quote the great Peter Griffin?

Well, I’ll tell you. It’s the financial media’s penchant for implicitly claiming, after a bubble bursts, that they either knew it all along or, worse, didn’t participate in stoking the mania.

That criticism isn’t confined to the mainstream financial media, by the way. Some of the most notorious bear blogs and many widely followed social media accounts belonging to ostensible market skeptics, were instrumental in facilitating the crypto bubble.

And, look, to be totally fair, crypto bubble facilitators were right! I’ve said this a dozen times if I’d said it once: Bitcoin went from nothing to $60,000. So, people like me were spectacularly wrong, and the delirious “coiners” were correct in equal measure. Now, though, the macro regime has shifted such that inflation is elevated and central banks are compelled to fight it, which entails the end of the free money regime.

Rather than explain the situation that way, the financial media, both mainstream and otherwise, is engaged in an effort to wash their hands of crypto in the wake of the FTX fiasco. Consider the passage (below) from Saturday’s “Weekend Reading” e-mail from Bloomberg:

At his peak, crypto mogul Sam Bankman-Fried was worth $26 billion. At the start of this week, he still had $16 billion. Now: A whole lot less. The collapse of FTX.com — the biggest bankruptcy of the year — provides another lesson in what happens when the hype of personality meets the cold wind of reality. Digital assets were supposed to revolutionize finance, but the same old mistakes have been committed. SBF made all sorts of lofty promises, including big plans to donate his crypto wealth as part of a movement called “effective altruism.” For many retail traders who poured their life savings into digital assets, the collapse of his empire marks the end of the line. The venture capital firms who gave the digital wunderkind a pile of money without demanding he establish oversight over FTX could arguably bear some of the responsibility. And all of this is just the beginning. With the US Securities and Exchange Commission and the Justice Department now investigating, and people like ex-Treasury Secretary Larry Summers making Enron comparisons, the road ahead for SBF and what remains of FTX may be bumpy indeed.

It’s impossible for me to countenance that. You could easily argue that Bloomberg (the media-data conglomerate, not the man) perpetuated every aspect of the crypto mania more so than any other outlet, major, minor or in-between including, by the way, sites whose sole focus is crypto.

Bloomberg created indexes, shifted personnel and resources, dedicated countless hours of coverage to the space and spent God only knows how much on content development. You could argue that Bloomberg is to crypto what CNBC was to the dot-com mania.

Consider in the excerpt (above) the newly derisive reference to Bankman-Fried’s “hype of personality.” I don’t know how many articles Bloomberg published on Bankman-Fried over the past year or so, and I haven’t conducted any sort of natural language processing experiment to determine what the overall tone of the articles they did publish was. But anecdotally, I think it’s fair to say Bloomberg was swept up in the very same “hype of personality” they now lament on behalf of everyone else.

In August of 2021, Bankman-Fried chatted with Tracy Alloway and Joe Weisenthal. Again. It was the second time in six months. They brought along Matt Levine.

“We talked to [Bankman-Fried] not too long ago… and it feels like his star has only, like, gone up, by like 10X,” Weisenthal gushed. “So, Sam, $900 million is a lot of money,” Alloway giggled, referencing the most recent round raised by FTX, which would be bankrupt a scant 15 months later. “What are you going to be doing with that?” “Yeah, so, I think we’re looking good on the yacht front,” Bankman-Fried joked. “Don’t need any more there.”

It was that bad. But it got immeasurably worse during yet another audio roundtable convened eight months later, in April of 2022. “All right. I’m really excited. We’re gonna be bringing back, for his third time on the show, the one and only Sam Bankman-Fried,” Weisenthal said, setting up what might be characterized as the white collar equivalent of OJ Simpson’s “If I Did It.”

“There’s a huge tidal wave of money trying to come into this space,” Bankman-Fried began. “Just sort of, you know, gobs and gobs of it… trying to find its way in over the last few years, every month, another sort of, like, nice little pile of that.”

You really can’t make this up. It’s so great. Or so terrible. Depending on whether you think this is funny, which, admittedly, I kind of do now. Later, Alloway said that, “… it feels like the market is in the process of maturing. And it also seems like FTX’s whole purpose is to improve liquidity in crypto trading.”

Who could’ve known, all the way back six months ago, that FTX would become synonymous with crypto liquidity crunches?

Three people who could’ve known were Alloway, Weisenthal and Levine, because later, in the same conversation, Bankman-Fried walked through a 1,045-word description of yield farming dynamics, interrupted only intermittently, before Levine ultimately said, to Bankman-Fried, “I think of myself as, like, a fairly cynical person. And that was so much more cynical than how I would’ve described [yield farming]. You’re just like, ‘Well, I’m in the Ponzi business and it’s pretty good.'”

Here’s the thing: Whatever you want to say about Alloway and Weisenthal, Levine is no lightweight. If you’re Levine, and that’s your assessment of what’s just been said to you by someone who’s a billionaire, the conversation ends right there. Or, if it doesn’t, it turns significantly adversarial. But it didn’t turn adversarial. Instead, Alloway, Weisenthal and Levine let Bankman-Fried “play around with this a little bit” (his words).

Although Bankman-Fried received a lot of what I’m sure Alloway, Weisenthal and Levine would described as “pushback” over the course of the discussion, the conclusions drawn were disquieting, as was the way in which those conclusions were dismissed with little more than a quizzical eyebrow raise. “The highlight was definitely Sam’s description of yield farming that even a sort of crypto cynic…” Weisenthal started. “As a magic box that you put money into and more money comes out?” Alloway said, finishing his sentence. “Yeah. I don’t really know what to say about that,” she added.

I do. I know what to say about it. Without accusing Bankman-Fried of wrongdoing (he, like everyone else, is innocent of anything and everything until proven otherwise), what you say about a magic box is that magic boxes don’t exist. And that if the best description of DeFi protocols (or yield farming more generally) is that they’re magic boxes, then DeFi (or yield farming) is a giant Ponzi scheme. Do you know who said that earlier this year, after spending three months, and $20,000 wandering around in Web3 casinos? I did. I said that. Right here, in these pages, and on more than one occasion.

Weisenthal summed it up. “So, the way DeFi works is you put money in a box that you think more people will put money into. And the way VC works is you hear what your friends in the industry are investing in based on 2027 numbers. And then you also wanna get on that. So it’s really just FOMO all the way down,” he said.

Yeah, Joe, “all the way down” is correct. All the way down to zero, in fact, for the VCs involved in Bankman-Fried’s boxes.

But look, it wasn’t just Alloway, Weisenthal and Levine who entertained Bankman-Fried. David Rubenstein interviewed him for an episode of “Peer-To-Peer” conversations in August. I wonder if Rubenstein still counts Bankman-Fried as a “peer.” They certainly aren’t “peers” in terms of net worth anymore.

If I were Bloomberg, I’d pull that interview from YouTube, or at least turn the comments off, because the internet is having itself a field day. “The obvious nervous shakes on SBF’s legs while he’s talking about source of funds! OMG” one person exclaimed. “Who’s here after the blow up of FTX? :D” said another. And still another: “Visiting this after the news.” And another still: “Oh this interview is sure gonna blow up now.”

All of that, and Bloomberg’s Editorial Board had the nerve to write, on Thursday, that “various mechanisms have emerged to make traditional financial institutions more resilient. If crypto intermediaries want to act as reliable conduits for investment in a technology that may yet prove useful, they’ll have to submit to much of the same. Until then, beware: They’re not worthy of your trust.”

I’m sorry, but f–k that. If Bloomberg’s management was so concerned about protecting the public from crypto, and particularly from FTX, they had every opportunity to do so. Instead, what’d they do? They poured resources into blanket, around-the-clock crypto coverage, and dignified someone who’s now sure to be remembered as the poster child for crypto gone wrong. They entertained him three times on what’s supposed to be their smartest program (Odd Lots) including two episodes co-hosted by someone (Levine) who’s supposed to be, in Alloway’s words, “one of the best — probably the best — financial writers out there, if we’re being honest.” (Incidentally, I’m the best financial writer out there, “if we’re being honest,” and if I’m not, I know who is. He’s not called Matt.)

At the end of the day, this is a cautionary tale. And not just about crypto. We’ve heard it time and again, but we never internalize the message.

We (all of us) generally know when something doesn’t feel right, but the profit motive overwhelms our better angels. Note that in the context of the financial media, it’s not profits associated with trading, it’s profits associated with eyes and ears — profits associated with web traffic and podcast streams, or, in days long gone, ad-sponsored television shows and newspapers.

In this case, Levine almost surely doesn’t need the extra money he gets from writing. Rubenstein doesn’t need any extra money at all. And Alloway and Weisenthal are obviously just doing their jobs, as are the countless journalists whose bylines appear at the top of crypto articles. I doubt seriously any of those people get a bonus based on how well a given episode of Odd Lots is received or how many page views a given article gets.

But Bloomberg as a media-data conglomerate is absolutely concerned about staying abreast of whatever’s “hot” or, even more so during crashes, whatever’s “cold.” In the context of crypto, that manifested in hair-on-fire coverage of the boom and now, sanctimonious coverage of the bust.

Remember, folks: You’re rarely a viewer or a reader when you consume ostensible news. Rather, you’re precisely that — a consumer.

Media outlets compete for your attention not because they want to educate you, but because they want to exploit you for revenue. They want to monetize you. The more excited you are, the easier you are to exploit. And crypto is pretty damn exciting.


13 thoughts on “Was Bloomberg The CNBC Of Crypto?

  1. In my opinion almost every fin med outlet out there has provided credibility to crypto via their proportion of coverage vs standard investing. Imagine if they provided penny stocks the same voice that they have provided crypto. Easier to beg forgiveness i suppose.

  2. Don’t you just love “magic boxes”? We used to have clients who used “black boxes” one of my FI clients was LTCM and they had a black box that they relied on pretty heavily… until they didn’t! Three things I’ve always relied on; firstly, never, ever think you know what is going to happen in the future. Secondly, if you don’t understand a product don’t buy it. Thirdly, when somebody says “you just don’t get it” means they don’t either.

  3. You oughta get a Pulitzer for editorial writing appearing in an online service. But I don’t think there is one. Would you settle for a Bloggie? I read your articles on crypto. Saved me money. And I’m going to remember the main point of this lesson when reading any more financial media. Thanks professor.

  4. One of the past episodes in my life – where I lost 25% of my net worth in the real estate disaster of 2008 – was horrible, but I came out much wiser and a much better investor.
    If one only “wins”, how does one ever learn to adequately access risk?
    Thankfully, contagion from this crypto blowup won’t harm me in the long run- but contagion remains at the top of my “Risk” list, along with my own greed.

  5. I feel for the souls who got caught up with this and lost a boatload. Constantly reminds me of Hemingway’s character Mike Campbell who described going broke as slowly, then suddenly. Great piece, H.

  6. Oh, man, if you only knew. What you see in the media only scratches the surface of the scams going on in crytpo, DeFi in particular.

    First off, the “magic box” of yield farming: no, it’s not magic. It’s code. The tokens are generated by code. You put your tokens in a lockup (either for loaning out, or for purposes of hopefully increasing effective scarcity and therefore value). The contract rewards you, not from later deposits as in a Ponzi scheme, but by manufacturing brand new tokens which you get. Anyone with an Econ 101 understanding of supply and demand can probably predict how this played out in reality: you put in 10 tokens when there was a total circulating supply of 100, and got back your 10 plus one more made for you by the contract, but now, there’s a total circulating supply of 101. Now, if you were in early enough, you could do this a few times and make a fortune, and no, it wasn’t a Ponzi scheme, because you weren’t being paid by later deposits. But enough people do this, and suddenly the circulating supply is 1000, or 10000, and you have ten times as many tokens as you started with, each worth 1/100 of what they started at, because you were stupid and didn’t liquidate before the expected dilution crashed the market. Those who weren’t stupid made a mint, but there weren’t many of them.

    And that is nothing, NOTHING, like the most egregious con I saw. You’re not gonna believe this. I couldn’t believe it. You’ll have to forgive me because it’s been a few years and the details are hazy, but this is my best recollection.

    The way in which AMM/Liquidity pools work (if you don’t know what these are, you’re not equipped to be talking about DeFi at all, but google it) is very interesting. It’s a bit much to go into the specifics here but essentially it’s an automated pool that you use to exchange one token for another, with rates automatically set by an algorithm that roughly mimics supply and demand: you have a bunch of $ETH and want to buy $SHTCOIN, it gives you a current exchange rate, you make the exchange and pay a very small fee to the pool, and the exchange rate changes based on the new availability of $ETH and $SHTCOIN.

    Well, someone announced a new token called $ORB, which basically was an explicit Ponzi scheme: you buy $ORB with $ETH at current market rates, and half your $ORB goes into a pool. After 3 days, the pool gets divvied among… I forget who, there may have been fixed number, or it may have been everyone who bought…. or something like that. Now, the thing is, because this sparks a buying frenzy, the first few people get $ORB at pretty cheap in terms of $ETH, but soon, the price balloons as everyone wants to get in in time to get a good return. Eventually, the people are getting in at a higher price then they’re going to get out of it, but they don’t know because nobody finds out until it’s over.

    “Ok,” I hear you thinking, “Yes, that’s very much a Ponzi scheme.” But that’s not even the scam.

    Buried in this was a requirement that you don’t purchase the $ORB through an AMM yourself. You purchase it by sending your $ETH to the $ORB smart contract, which contacts the AMM (usually Uniswap), tells you the exchange rate, makes the swap for you, keeps half the $ORB in its pool and sends you the rest back. In their greed (and admittedly mine) nobody looked twice at what should have been a red flag.

    Now I, inquisitive soul that I am, after thinking about it for a day or two I was able to get into the public code of the ORB smart contract, and discovered something.

    A smart contract is a fancy name for a computer program that resides, decentralized and accessible from anywhere, on the Ethereum network. So I read the code and discovered: Right down to the variable names, it was disguised to look like it interacted with Uniswap. But the block of code that was supposed to be executive the Uniswap trade was doing something different: Let’s say you paid enough $ETH to buy 2 $ORB at the current Uniswap $ETH/$ORB rate. It would take your $ETH and send it off to an anonymous third-party address. Then, instead of swapping $ETH for $ORB at Uniswap… it would CREATE two new $ORB tokens out of nothing, in DeFi parlance it “minted” two brand new $ORB tokens for you, then sent one to you and put one in the pool.

    So, whoever wrote this contract was accepting $ETH from the market supply, and generating brand new $ORB for free on the fly and selling it for whatever the current market rate was.

    You can see all the transactions on the blockchain, I don’t have time to research right this minute but I bet traces of this are in Google, I know for sure it was discussed on Twitter. I myself was in early enough that I about 10x’ed my money, but I was one of only a few. Meanwhile, the perpetrator received about $300k in $ETH, funneled to his private address rather that using for Uniswap purchases as promised, and waved his magic want to produce the tokens buyers would have received from Uniswap if he’d been telling the truth, so nobody was any the wiser.

    What’s worse, after news of the scam spread and everybody knew how it worked, the fact that a few people very early people did in fact make a heap of money still enabled him to run it twice more—again, to victoms who now KNEW he was pocketing their $ETH and devaluing $ORB to pull his trick—before he suddenly closed all his social media accounts, sent probably a million bucks’ worth of $ETH through a tumbler to anonymize it, and disappeared into the night.

    I have to admit a certain grudging respect for that guy. Probably as close to the perfect crime as I’ll ever see: he was exposed and yet people lined up to let him do it to them twice more anyway.

    Anyway, that’s more like the kind of thing I saw in DeFi, stuff that was too arcane to ever make the media. That was probably the most remarkable one, but there were a lot of others that came close.

  7. “I have to admit a certain grudging respect for that guy. Probably as close to the perfect crime as I’ll ever see: he was exposed and yet people lined up to let him do it to them twice more anyway.”

    Trump in a nutshell.

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