FTX collapsed. Just like we always knew it would. The crypto industry is the weakest it’s ever been; the empty lies of their phony populist narrative laid bare, their debauchery and corruption exposed for the world to see. And with them fatally weakened, it’s time to put the final nail in the metaphorical coffin and end this madness.
I’ve taken a break from blogging about this subject to focus on more effective means of achieving these goals. Blogs, Twitter, Substacks, and podcasts are relatively impotent tools to curtail the industry’s worst excesses and my time is better spent elsewhere on quieter and more surreptitious mechanisms. Nevertheless, I will not pass on a chance to crucify the crypto industry. However, after our cathartic Schadenfreude of watching the crypto nouveau riche fall victim to their own excesses and folly, we have to reflect on this phenomenon and how we can avoid future catastrophes because while it is hilarious to watch the rich destroy themselves, the only wealth in crypto is the misbegotten gains built on the back of deceptively palatable absurdities sold to the lay public. Behind every crypto billionaire are tens of thousands of innocent victims whom we have failed to reach and whom our democratic institutions have forgotten. As is the theme in all my crypto analyses, we can learn the most about mania’s future from the past’s popular delusions. From Walter Bagehot’s description of the London financial manias of 1825:
“All people are most credulous when they are most happy; and when much money has just been made, when some people are really making it, when most people think they are making it, there is a happy opportunity for ingenious mendacity. Almost everything will be believed for a little while, and long before discovery the worst and most adroit deceivers are geographically or legally beyond the reach of punishment. But the harm they have done diffuses harm, for it weakens credit still farther.”
The crypto bubble is marked by the same wild spectacle of wilful credulity, intellectual indolence, and subversive opportunism in an era where the vapidest of technological fantasies have been elevated to cult-like status as a pacifier for the existential angst of our age. The impetus behind all crypto and web3 discourse is simply the sound and fury of post hoc myth-making to rationalize away the collective incoherence of this absurd bubble in a near-perfect exemplar of the motivated reasoning of economic determinism.
And yet, the FTX meltdown is nothing new in the history of financial manias, FTX was a Bahamanian shadow bank, and its collapse bears all the hallmarks of classic historical bank runs. The assets are more bizarre, the structures more byzantine and technologically obscured, and the internet allowed the collapse to happen extremely fast, but the failure model was as banal as bank runs from the 1800s.
The history of corporate scandals is littered with quasi-messianic figures, and Sam-Bankman Fried (often denoted by the initialism SBF) is simply the latest in the long line of financiers so drunk on their egos and self-perceived intelligence to be blind to the portents of their inevitable downfall. Sam is unique in that his grandiosity stems not purely from unrestrained greed and narcissism—although there is plenty of that—but his philosophical north star of Effective Altruism, an extreme form of Benthamite utilitarianism which espouses the belief that we should extend our ethical locus of concern to all possible sentient beings that may exist in the future. The philosophy attempts to derive, from first principles, an ethical calculus by which we should optimize our actions according to some suppositional fitness function that maximizes the scope and happiness of all future minds. Its adherents believe themselves as ordained prophets sent by the future to guide the progress of humanity according to their oracular pronouncements.
The Effective Altruism philosophy is, in one word: insane. It is a philosophy of unbounded narcissism wrapped in a bizarre, autistically hyperrational framework concerning human existence that gives rise to hubris of cosmic proportions. And, of course, this plays out exactly like in Greek tragedy, as acolytes like SBF fancy themselves as agents of the future supposedly single-handedly able to steer humanity’s path through the future Great Filters of existential risk, all while his Bahamanian bucket shop couldn’t do effective risk management of their dog-themed money. His company’s downfall may have arisen from liquidity problems of the Ponzi finance operations they were running and the hilariously lax governance they were allowed to get away with, but the root problem of this business lies in the folly of one man.
Yet the question remains, why are we so attracted to these quasi-messianic figures when the story always ends the same? SBF is no different in ambition than John Blunt, George Hudson, Robert Maxwell, Ken Lay, and the dozen other corporate tragic figures that preceded him. The cosmic scope of his unhinged grandiose delusions is a new phenomenon, but in many ways, that should weaken his credibility. The entire FTX operation screamed scam to anyone who could do even the most basic due diligence on the operation. Did anyone ever ask why hordes of mum-and-pop retail investors were wiring money to a shady entity called ‘West Realm Shires Services Ltd’ just so that they could become an unsecured creditor to a Bahamanian shell company to purchase derivatives of completely abstract financial assets whose only demand is driven by popular sentiment about a meme of a talking dog? Nothing in any crypto narratives makes a single ounce of sense to anyone willing to scratch the surface of the received narrative and apply even the slightest iota of intellectual analysis. And yet the suckers linked up hook, line, and sinker to buy what SBF was selling. As Charles Dickens remarked in 1885, they will inevitably swarm to the next techno-solutionist grift that promises wealth or liberation.
“The next man who has as large a capacity and as genuine a taste for swindling, will succeed as well. Pardon me, but I think you really have no idea how the human bees will swarm to the beating of any old tin kettle; in that fact lies the complete manual of governing them. When they can be got to believe that the kettle is made of the precious metals, in that fact lies the whole power of men like our late departed.”
We, the public, give the tin-can-banging Pied Pipers power when we humor their empty ideologies as anything but absurdities. SBF was openly running an offshore casino out of an incestuous frat house of twenty-somethings who were skimming billions off the public through rigged market making, and this was all a matter of public knowledge. And yet institutions like the New York Times run full-page stories declaring him as some secular saint who will herald in a new future that will reshape human civilization, and our elected leaders line up to kiss the ring. While technology may change, human nature does not; these self-professed messiahs prophesizing salvation through technology are far less enlightened than they would have you believe. They only want to pick your pocket; they just now have a better story to distract you while they do.