© Financial Times

This is an audio transcript of the Tech Tonic podcast episode: A sceptic’s guide to crypto: boom and bust

[YOUTUBE CLIP PLAYING]

Wajahat Mughal
Hello. Welcome back to the channel. My name is Wajahat and we’ve got another Terra video today. In this video we’re gonna . . . 

Jemima Kelly
Wajahat Mughal is a doctor in his twenties. He posts videos about crypto on YouTube. You could, if you were that way inclined, call crypto his side hustle. He does guides on cryptocurrencies and he trades them too. It made him quite wealthy until . . . it didn’t.

Wajahat Mughal
The last few days have been pretty difficult. My net worth is gone completely. Yeah. I made a mistake. (Sniff) Really tough week for me. Haven’t been able to sleep properly. I’m sure you guys could see how passionate I was about it. And I’m sorry that I’ve actually, you know, gotten so many people into this. And I assume most of them have all lost money now.

Jemima Kelly
Wajahat comes across as refreshingly honest and genuine. A bit naive, yes, but you can’t help but feel bad for him. But his story isn’t unusual. There are millions more who’ve lost money on crypto out there. Everyone has their own story. Here’s how it happened for Wajahat.

Wajahat Mughal
I was always learning, reading about all different asset classes, really. But then, so you kind of shifted to crypto because the more I pretty much read, the more, the more I learnt, the more I enjoyed it. And I found that a lot of my friends didn’t really understand or didn’t really grasp the concept of it, and really just the infinite amount of things that you could actually do with your assets that you can do with crypto. And that’s pretty much how I went down that rabbit hole to become a crypto YouTuber.

Jemima Kelly
Wajahat teamed up with another friend, one who did understand crypto, or who thought he did anyway. They reckoned they were ahead of the curve, spotting what they thought were opportunities where others were just confused.

Wajahat Mughal
What we would do is we would go on to a website called CoinMarketCap and we’d basically go down the list from number one being bitcoin and go down as far as we could to just try and find and research every single crypto project that we, that we could find. Our theory was basically if we could research them before anyone else could, we might be on to something. Eventually, I think I just came across Luna just by, just by doing that. And then when I found it, I just found the concept really interesting because there wasn’t really anything else like it.

Jemima Kelly
Luna captured Wajahat’s imagination because it was part of a crypto ecosystem called Terra Luna. It was two coins linked together with a whole raft of pseudo-banking and investment apps being built up around it. Luna was a free-floating cryptocurrency and Terra was a stablecoin, meaning its value was always supposed to stay equal to 1 US Dollar. The names are helpful for remembering which is which. Luna, Latin for Moon and Terra, Latin for Earth. This was in late 2021. Crypto markets were booming and the value of Luna was indeed going to the moon, to use the crypto jargon. Wajahat jumped in.

Wajahat Mughal
You know, Luna went from like $2 to $5 to $10 to $20 and back down to ten. And then eventually went on this huge run where it went all the way up to 100 before going back down to 70. And, you know, every single day, your, your portfolio was fluctuating by thousands and thousands. Things were getting really heated up. You know, this is a literally for a 20- or 22-year-old, a life-changing amount of money. You could, you could do so much with this.

Jemima Kelly
But it was pretty scary too watching his money move around like that. So Wajahat decided to do what he thought was the sensible thing. He sold his Luna and bought Terra, which is also known as UST, the peg coin that was supposed to stay at $1.

Wajahat Mughal
So everything was fine even at the beginning of this year as well.

Jemima Kelly
And then quite suddenly it wasn’t.

Wajahat Mughal
It was sometime in, at the start of May really when people on Twitter, so crypto Twitter essentially, where they were saying that people are actually selling their UST for other stablecoins. And you know, I looked at that and I was like, why are people doing this? As, it doesn’t seem right.

Jemima Kelly
Wajahat couldn’t believe what he was seeing. It was one thing for the price of free-floating cryptocurrencies to be all over the place. But stablecoins, they were supposed to be stable.

News clip
Terra UST has got down to 23 US cents. It wasn’t expected. It has spooked crypto . . . 

News clip
Crypto obviously right now getting crushed . . . 

News clip
Investors getting jolted by volatility rippling through the crypto world . . . 

News clip
 . . . Luna erasing 99 per cent of its value now worth nearly nothing.

Jemima Kelly
In a matter of days. Terra Luna went from being a multibillion dollar crypto project to being, well, worthless. Wajahat’s losses were in the six figures. He didn’t tell us exactly how much. And in the midst of this collapse, he found himself kind of paralysed, completely and utterly unable to act.

Wajahat Mughal
You know what, the funny thing is, is that over those 18 months, I built so much conviction, I couldn’t, I couldn’t sell. I had plenty of opportunities to sell the USD. I did have. I had maybe two days even to, you know, even get out with a ten or 20 or even 40% loss. But I just still had conviction. I still thought that something would happen. I thought there was too much technology, too many applications, too many users, too much money within the system. I never really in my head thought that this could actually go to zero.

Jemima Kelly
And even today, months later, the consequences of Terra Luna’s collapse are still weighing on his mind.

Wajahat Mughal
I think the thing that made me most upset was hearing that over 20 people commit suicide following the collapse of Terra. That really hurt. You know, money is one thing, but people’s health and people’s lives are so much more important.

[MUSIC PLAYING]

Jemima Kelly
This is Tech Tonic from the Financial Times, a podcast about the ways technology is changing the world for the better and for the worse. I’m Jemima Kelly. I write a weekly column on all sorts of things for the FT. I’ve been writing about cryptocurrencies and blockchain technology since 2015. I started out with an open mind, but the longer I reported on what I call crypto land, the less I believed in it. In a world divided into crypto evangelists and crypto sceptics, you can consider me firmly on the sceptic side these days. Or to put that in crypto terms, I guess I’m a salty no-coiner. I look at the mania of these markets, the hype around the blockchain technology that crypto is built on, and I see on the whole, a giant scam. The latest way to get people to part with their money, but with a little bit of technology and Austrian economics sprinkled on top to make the whole thing really exciting. But plenty of people do believe that crypto and the blockchain are gonna change the world. That crypto is the future of money, the future of finance, the future of the internet. And not just people like Wajahat, but big-time investors and technologists too. So I wanna know why. Why do so many apparently intelligent, serious people believe in this stuff? In this, the first episode in our crypto series, I’m asking, has the crypto market crash changed anything for all these crypto believers? Has it brought them back down to earth? Or do they still think they’re on the way to the moon? And if it’s the latter, why?

It wasn’t just the total wipeout of Terra Luna that shook crypto land this year. The crypto market had already been falling for several months. Nothing unusual there. It’s notoriously volatile. But this crash, this crash was different. And it was different because the world of crypto had grown far bigger and more complex than ever before.

Michael Saylor
I’m Michael Saylor. I’m the founder and the chairman and the CEO of MicroStrategy. We’re a publicly traded enterprise software company, and we’re also the largest public company holder of bitcoin in the world.

Jemima Kelly
If you don’t follow bitcoin or aren’t a finance geek, you probably won’t have heard of Michael Saylor. But among diehard bitcoiners and those who like to poke fun at them, he’s a bit of a celebrity. Up until a couple of years ago, Saylor was the CEO of a relatively unknown company called MicroStrategy. It basically sells software to other companies, and he was probably best known for having managed to lose $6bn in one day, more than any human being in history. That was back in 2000. And that loss was one of the defining moments of an earlier crash, the dotcom crash. But fast forward to the summer of 2020 and Saylor had another business problem. MicroStrategy was selling plenty of software, but it wasn’t growing. Profits had turned into losses, and it risked being swallowed up by bigger tech rivals. His company needed a new strategy, a new big bet.

Michael Saylor
So what do I invest my money in? And we did a search, we did a hunt, and we looked at, can we buy the S&P index? Can we buy real estate? Can we buy gold or precious metals or commodities or oil? And the conclusion was, let’s buy crypto gold.

Jemima Kelly
And crypto gold, according to Saylor, meant bitcoin. So in August 2020, MicroStrategy bought a quarter of $1bn worth of bitcoin.

News clip
It’s now to discuss MicroStrategy and its strategy on bitcoin is the chairman and CEO, Michael Saylor.

News clip
Michael Saylor. Michael, thanks so much for joining us here tonight. You’re gonna have to do some explaining to us. You’re a business software firm. Why do you keep buying bitcoin? Three purchases, large purchases . . . 

Michael Saylor
My first embrace of bitcoin was to avoid death, to avoid a corporate death. And then eventually I realised fundamentally the problem is all the currencies in the world are collapsing against the dollar and the dollar is collapsing against desirable, scarce assets.

Jemima Kelly
As far as Saylor was concerned, bitcoin was the best place to put his company’s money. I know it might sound ridiculous, but it had been gaining value over the years and he thought it was a good way to protect against inflation, better than putting it into dollars or any other currency. But then he started to believe that it wasn’t just a solution to his company’s problems, but a solution to the whole world’s broken financial system.

Michael Saylor
There are 8bn people on the planet whose life is hopeless. If we don’t come up with a global money that they can use to store their life savings and gold won’t work. And their local currencies like the peso and the boulevard don’t work. And bitcoin is the only thing that looks like it could possibly work. It’s an instrument of economic empowerment for the world, and it’s a tool for freedom and truth and justice . . . 

Jemima Kelly
I’d better cut in here. It’s a law, isn’t it? But Michael Saylor is a great illustration of the way that true bitcoin believers talk about this stuff. If it all sounds a bit highfalutin to you and maybe a bit optimistic, utopian, you’re not alone.

Michael Saylor
Everything else is hopeless. No other equity or property or other strategy offers hope to all the people in the world that are facing this kind of currency collapse.

Jemima Kelly
Over the next two years, Saylor led MicroStrategy to buy even more bitcoin, $4bn worth of it, and he kept buying even as the crash came earlier this year. By the summer, with bitcoin prices having tanked by about two-thirds, MicroStrategy had lost a ton of money. In early August, Saylor announced that he would be standing down as CEO after more than 30 years at the helm. He is staying on as executive chairman and is now leading what the company calls its bitcoin acquisition strategy, because, yes, even amid the carnage, Michael Saylor is still a bitcoin believer. What about if you’re wrong?

Michael Saylor
Well, our choice was a fast death two years ago, and we haven’t been wrong yet. I mean . . .

Jemima Kelly
So if bitcoin were to go down to, let’s say, $100.

Michael Saylor
If bitcoin goes to zero, we’ll be wrong.

Jemima Kelly
What about if bitcoin goes down to $100?

Michael Saylor
I’ll probably be buying a lot of it.

Jemima Kelly
But you wouldn’t be wrong at that point?

Michael Saylor
If bitcoin goes effectively to zero. But you know again, the point is we would all be out of business if we hadn’t done it and I don’t think we’re wrong.

Jemima Kelly
Michael Saylor’s devotion to bitcoin, I would say blind devotion to bitcoin, marks a shift. You see, the last time crypto crashed back in 2018, there were some professional investors, but nothing on the scale of MicroStrategy and Saylor’s gamble on bitcoin signalled that it was OK for more traditional and corporate investors to enter the market, and they were coming into the market with loads and loads of cash.

Scott Chipolina
Really, a lot of folks would say that he was the start of this significant trend of institutions pouring money into bitcoin, pouring money into crypto.

Jemima Kelly
That’s Scott Chipolina, the FT’s digital assets correspondent. He spends, for his sins, a lot of time following the crypto markets.

Scott Chipolina
After Michael Saylor and MicroStrategy bought into bitcoin, the highest-profile example was really Tesla, which early in ‘21 announced a $1.5bn investment into bitcoin. The bitcoin market reacted, we saw the cryptocurrency’s value skyrocket above $50,000, which at the time was an all-time high. You started to see the commercialisation of cryptocurrencies.

Jemima Kelly
And Scott reckons that this new period of corporate money flooding into bitcoin changed the game.

Scott Chipolina
I remember covering the industry at the time, when Tesla’s 1.5bn investment was announced in early 2021, I had friends of mine, even family members call me, who don’t have an ounce of interest in cryptocurrencies whatsoever, more in investing more generally, call me up and say, what’s this story I’m reading about Elon Musk buying, you know, $1.5bn worth of bitcoin. So those sorts of developments certainly propelled the bull run that we saw in 2021 because, you know. Michael Saylor, yes. But also Elon Musk being, you know, one of the most well-known people on the planet, when they took the significant interest in bitcoin and crypto, it certainly propelled a wider, broader market interest in these things too.

Jemima Kelly
All sorts of other crypto products were also being dreamt up. There were so-called crypto banks, crypto loans, crypto futures and other more obscure financial instruments. And as well as all those increasingly complex crypto products being invented in the world of DeFi or decentralised finance, the broader crypto market now included a lot more people who traded and invested for a living. These were people who didn’t just buy and sell crypto. They also had money in other markets like the stock market. So when investors started dumping stocks earlier this year, causing markets to fall, they also started taking their money out of crypto. How bad has this crash actually been? Why is it so bad this time?

Scott Chipolina
The simplest way to answer that question immediately is because the market is bigger, more money has been lost and more people have been harmed. Back to the Terra Luna situation that we that we saw in May. The company behind Terra Luna is based in South Korea. And one titbit of information that I probably won’t ever forget when I was reporting this, on the unravelling of the Terra ecosystem was that police in Seoul, in South Korea had started to put extra boots on the ground in this bridge in Seoul that is sort of infamous as a hotspot for suicide, because they were so concerned that people in the city would, you know, tragically take a decision like that precisely because of what had been happening in the crypto industry. So . . . 

Jemima Kelly
Wow . ..

Scott Chipolina
That, I think that, you know, we can look at the numbers and we can see the market trends, but behind all of that are some really, truly tragic stories of people that, for one reason or another, put a lot more money than they could have afforded to lose in these projects. And then they lost that money. And that harm, you know, for them is, you know, it, it’s unbearable for a lot of them.

Jemima Kelly
So you might think that with all this destruction of companies, of people’s fortunes and of some people’s lives, this huge crash would be a crippling blow. But that would ignore a point that most of us who criticise this industry agree on. Crypto markets today have virtually nothing to do with the idea that cryptocurrencies should be used as money, or even with the idea that blockchain technology might become useful one day. This is simply a highly speculative market populated by people hoping to buy low and sell high, and make a lot of money in the process.

Stephen Diehl
There’s been kind of two different eras in crypto.

Jemima Kelly
That Stephen Diehl, a software engineer and, like me, a crypto critic.

Stephen Diehl
The first era I call the Cypherpunk era, and those people actually aspired to build private money. And that lasted, I’d say, until like maybe like the 2016 era, at which point then its use as a payment system was really very clearly flawed.

Jemima Kelly
Stephen says the idea that cryptocurrencies could work as money was quietly abandoned by most people years ago. Nowadays, it’s just all about how much you can make from selling on your crypto.

Stephen Diehl
People are trading crypto tokens, not based on any kind of underlying economic value, right? They’re trading it purely on the theory of the greater fool that the value of the token is what the next person will buy it from me for. There’s no income associated with a crypto token, unlike, say, a stock or bond. And the comparison to a multilevel marketing scheme is extremely apt. In some ways, crypto is Silicon Valley’s multilevel marketing scheme, just scaled up to a very, very large scale and put on the internet.

Jemima Kelly
All of which might explain why plenty of people are desperate for crypto to survive. Multilevel marketing schemes only work if new people keep buying into them.

Jackson Palmer
Crypto is kind of like a cockroach in that it’s very hard to kill. It’s immune to the nuclear winter of a crash like we’re currently seeing in crypto.

Jemima Kelly
Jackson Palmer knows about the madness of crypto markets first-hand. A few years ago, he decided on a whim to create his own cryptocurrency. You might have heard of it. It’s called dogecoin.

[MUSIC PLAYING]

Jackson Palmer
Yeah, it started as a joke in reaction to one of the first kind of crypto market run-ups in 2013. There was a lot of something coins being released. I was big into memes at the time and I think with the aid of a couple of beers tweeted, I’m going to invest in dogecoin. It’s the next big thing, just as a joke. And about a week or so later, somebody that I had never met before on Twitter kind of reached out to me. It was like, hi, you know, as a joke was just released as a real thing. Be funny for a few days and everybody will forget about it. So we did that, assuming that it would, you know like most jokes, most memes kind of trail off and not really gain any adoption. But it did. And it was (laughter) it was just a joke. Like, I don’t think we really thought past Huh? Like, that’s funny.

Jemima Kelly
If you’re not already familiar with that, dogecoin is based on an internet meme. The meme shows a picture of a breed of dog called a Shiba Inu looking somewhat askance at the camera. For a while, dogecoin became a bit of a hit within a kind of meme-friendly internet subculture who bought dogecoin for the LOLs. But it wasn’t until 2021 that dogecoin started making major headlines.

News clip
What are cryptocurrencies? They’re a type of digital money, but instead of being controlled by a central government, they are decentralised using blockchain technology. And lately, prices have been soaring for cryptos like bitcoin, ethereum, especially, dogecoin.

Jemima Kelly
You might recognise that voice. That’s the world’s richest man, Elon Musk, on the US comedy show Saturday Night Live (SNL) in May of 2021. He loved dogecoin so much that he was calling himself the Dogefather and he was regularly tweeting about it, too. There was a lot of hype. By the time Musk appeared on SNL, all the major exchanges were listing dogecoin and the coin had hit an all-time high. For Jackson Palmer, the whole thing was absurd. A crypto token that he had started as a joke with absolutely no plans for taking over the financial system or doing away with evil central bankers was now being valued at more than $80bn. Let me just repeat that: $80bn. That’s more than twice the current value of Twitter.

Jackson Palmer
Dogecoin just intrinsically of itself, when it remained as a joke, when it remained as something that was absolutely worthless, it was funny, and I think it was just an amusing kind of in-joke. I think once it got beyond that and when it started to get added to exchanges and people started to place a financial value on it, what happens is it’s kind of blood in the water, right? And all the sharks in the industry kind of come around. They’re like, wait, there’s money attached to this? I can make a buck if I, if I build a business or extract profit from people. That’s when it really soured for me. And I was like, yeah, like this joke is isn’t funny anymore.

Jemima Kelly
Palmer says this is why crypto won’t die. It doesn’t matter that these tokens don’t work as currencies or that they have no intrinsic value. Crypto exchanges and shills don’t actually care what they’re selling. It might be a token that was designed as a joke, or it might be one that takes itself very seriously. It doesn’t matter as long as they can convince people to buy it.

Jackson Palmer
I think that the industry that has popped up around it and kind of like the cartel of exchanges who have a big incentive to keep people making as many trades as possible because that’s their business model. I think they have built an online casino and there’s a lot of big players running the house. The harsh reality of it is that because of a lack of regulation, because, you know, lawmakers are essentially asleep at the wheel and have been for you know the last decade with cryptocurrency, I think there’s nothing stopping even the same people who are declaring bankruptcy today, launching something new a year or two years from now, that does the same thing, extracting more money from maybe even the same people because they don’t know that it’s just the same crypto grift.

Jemima Kelly
That’s the thing about crypto. Even when it’s crashed and millions of people have lost so much money, people like Wajahat and, on a much larger scale, crypto super-gambler, Michael Saylor, it still holds the possibility that it could make you a fortune. Maybe you’ll be the person who buys the right token at the right time and then sells at the right time too. Maybe, just maybe, you’ll get lucky.

Jackson Palmer
Saying that, will the crash kill crypto, is kind of saying does people losing money when they go to Las Vegas turn people off Las Vegas and kill Las Vegas? No, it doesn’t right? Even though people know that lots of people lose their life savings gambling that way, Las Vegas, they still flock there in droves.

Jemima Kelly
It’s greed and hope that keeps the wheel turning. But it’s also belief. Belief in something.

Jackson Palmer
There are people that are literally losing their life savings right now because they were sold some vision about this being the future. And they thought, well, maybe I don’t understand it or maybe I’m just too stupid and I should do what all the cool people, what the billionaires are doing, because that’s how I get rich. Does that take crypto to zero? No. Crypto is a cockroach. It will always exist and I don’t have any kind of delusion about that going away.

Jemima Kelly
But back to Wajahat Mughal, the crypto YouTuber we met at the start of the show. Surely after losing a six-figure sum of money, he’s now ready to throw in the towel on crypto.

Wajahat Mughal
. . . think it’s changing my perspective at all. I think the technology is still perfect. The technology works. My feeling is that this space is only gonna get growing and get better and people are gonna learn from the mistakes that they’ve made now and, you know, over the next decade, I think the technology is gonna be incredible compared to what it is right now. And so I think it’s only actually just helped me regain more faith. And I think that this space is just gonna become even better in the future.

[MUSIC PLAYING]

Jemima Kelly
In the next episode in this season of Tech Tonic, the big Silicon Valley investors who say that crypto is not only alive but that it’s gonna power the internet of the future.

Chris Dixon
I think of Web3 as a new era of the internet, new social networks, ways for creators to monetise games, just, you know, any kind of application that you see today on the internet, you can now build in a new way using Web3.

[MUSIC PLAYING]

Jemima Kelly
You’ve been listening to Tech Tonic from the Financial Times, with me, Jemima Kelly. Special thanks to Scott Chipolina, the FT’s digital assets correspondent. Read more of his stories at FT.com. We’ve put links in the show notes. Our senior producer is Edwin Lane. Josh Gabert-Doyon is our producer and Manuela Saragosa is executive producer. Our sound engineer is Breen Turner, with original scoring by Metaphor Music. Cheryl Brumley is the FT’s head of audio. And if you like what you’ve heard, why not leave us a review? No trolling, please. Just nice ones. And don’t forget to subscribe. There’ll be four more episodes in this crypto series of Tech Tonic. And they’ll be landing every Tuesday. So don’t miss them.

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