Actor Ben McKenzie Warns of the Dangers of Crypto: It’s a “House of Cards”

PAULA NEWTON: Next to Washington, where this week Senators will consider a long- awaited bill that could hand the cryptocurrency industry a major regulatory win. And according to our next guest, the consequences could be deeply troubling. In a new documentary, actor and author, Ben McKenzie, takes a deep dive into the complicated world of crypto. And he joins Harry Sreenivasan to explain.

HARI SREENIVASAN: Paula, thanks. Ben McKenzie, welcome back to the program. We spoke a couple of years ago when you had a book out about cryptocurrency called “Easy Money.” And now you have a documentary called “Everyone Is Lying to You for Money.”

SREENIVASAN: One of the things that you told me last time, was a quote, “one of the most pernicious parts of crypto is that it’s exploited an understandable mistrust, lack of trust with our regulated system.” Anything changed since then?

BEN MCKENZIE: The trust has lessened, I would imagine. You know, Donald Trump’s embrace of crypto which began in sort of the spring summer of ‘24, is really outside of the events that the film documents. But in many ways Trump’s embrace of crypto sort of symbolizes, crystallizes so many of the things that I was talking about in 2022, 2023. If you privatize money, if money doesn’t come from the government, where does it come from? The answer with crypto is corporations and people. And Donald Trump and his corporation have their own crypto ventures, which they’ve profited off of, you know, immensely. But it’s also true of Bitcoin, by the way. I mean, the majority of Bitcoin that are mined today are mined by multi-billion dollar corporations, many of which are publicly traded.

One of the problems with private money, with privatizing money is fraud and manipulation. Historically that’s been true when we tried private money back in the 19th century. And so we’re sort of, this history is sort of repeating itself with all of these endeavors by the president and his family that have made them an enormous amount of money. But, you know, at least the allegation is that the again – the allegation by one of their top investors is that he’s been defrauded. They’re being sued right now. And the allegation is that he didn’t actually have control over his investment in this crypto venture that Trump and his family embarked upon. So I think in a way, the trust in our system, as crypto seeps further into it, the trust weakens, as people – that’s my feeling anyway, having, I’ve been traveling around the country, going to screenings in person, doing Q and As afterwards, and having conversations with people. And so many people know someone who’s been scammed or frauded crypto and so few of them feel like they’ve been listened to by the government and and supported by the elected leaders. And so few have found restitution for those losses. It’s quite sad.

SREENIVASAN: One of the things that I found most compelling about your film was you actually took the time very sort of caringly to talk to people who had invested in different cryptocurrencies and lost a significant amount of money. And you kind of come back to them, not a spoiler alert here, but at the end of the film, and you ask them whether they still have faith and to a one, they said yes. What – in your conversations with the people that had been, you know, scammed, why did they still believe?

MCKENZIE: I think that they still believed in part because it was almost the more you invested, the more you lost, the more you had to believe. It would’ve been too painful to – that’s my perception – it would’ve been too painful to acknowledge that that the whole thing is sort of a house of cards. You would hear an awful lot – I was interviewing victims of a particular scam called Celsius. The founder or the head of which is now in jail. And so a bunch of folks had lost, a bunch of these guys had lost money in Celsius. But they often would say, well, Celsius was a scam, but crypto isn’t, Bitcoin isn’t. And they had all sorts of reasons for that. But I really think in terms of the psychology sort of sociology of it all we are looking at dynamics amongst the five to 6% of the population that’s really into crypto, we’re sort of looking at dynamics of a cult.

There’s a famous sociological paper from the 1950s “When Prophecy Fails.” What happens when cult leaders’ prognostications about the world’s ending don’t come true? What happens when the world doesn’t end? Do the followers renounce the faith? No. They double down. They believe more, because it’s too painful to believe otherwise. I think that’s really what we’re talking about.

SREENIVASAN: And I don’t understand what in his right mind made him think that he should sit down with you making a documentary about cryptocurrency. I mean, that’s kind of what I was saying is that like a reporter wasn’t asking him those very simple questions that you were, and he just didn’t seem to be able to give you a decent answer.

MCKENZIE: Yeah. It was probably the most bizarre hour of my life. I mean, it was really strange. Because I did assume that he would be able to answer at least some fundamental questions about crypto. Like, for example, what good does he do? Give me one thing that it does in the world that’s good. And he said, remittances, sending money between countries. But I had just come from El Salvador, which the foundation of their economy is remittances. And they had tried Bitcoin as a tool for that, and it failed miserably. So I said, you know, politely, baloney. And he really had trouble sort of getting off of that talking point and coming up with some other fanciful justification for this, this industry that he was supposedly the head of. Yeah, it was very bizarre.

I talked to this expert on fraud and psychology of fraudsters, a guy named Dan Davis, who wrote a great book called “Lying for Money.” And he explained that fraudsters think of themselves as legitimate businessmen, and they often start out as legitimate businessmen. Bernie Madoff was a legitimate businessman before he started an investment firm that was fraudulent. And they sort of have to cling to that self perception that they are legitimate in order to rationalize and self justify their behavior. So in some ways, fraudsters are the ultimate method actors. They have to believe their own hype in order to you know, to not think of themselves as liars and thieves.

SREENIVASAN: You know, now there’s been so much more revealed about how the fraud at FTX occurred. In the documentary you actually go through and you show the line of code, explain to our audience if they haven’t seen yet or if they will see it, what’s happening there? What was literally almost a tiny little sentence that changed the course of the success or failure of this?

MCKENZIE: Yeah. I found that fascinating. I went to the court case against Sam here in New York, several days. And so we were able to see documents produced for that case and the evidence against him. And in some ways, the scam was so simple. It was so simple. It was two lines of code. And all it did was allow the trading firm that he owned to borrow the assets from the exchange, from the people that have put money on his crypto exchange. And this particular phrase “allow under score negative,” which I thought was quite evocative of crypto, “allow negative.” And that’s all that they were doing. They were borrowing – but without their customer’s knowledge – the money to fund the trading firm, which actually was losing a lot of money, they were very bad at trading, was another misperception that even I thought the trading firm must have been making tons of money. And in fact, it was losing money. So they had to borrow to fill the hole, and the lie just got bigger and bigger and bigger.

I think that the way that Sam and his colleagues committed the fraud is important for us to understand in the context of the story of crypto and why it’s false. What crypto says is, we can replace this human thing, money, this thing that humans made up with computer code. And all you have to do is trust the code. You don’t have to trust people. But it’s so clear Sam – the lie there, because of course, computer code doesn’t fall from the sky. People write computer code. So when you trust the code, you’re trusting the people that write the code. And in this case, people trusted Sam and his colleagues and, and they were deceived. So I think it just actually quite vividly illustrates the intellectual fallacy of cryptocurrency at its sort of fundamental core. You cannot replace a social construct, something that comes from human beings with sort of a fictional, you know, computer code, you know, a code divorce from human beings.

SREENIVASAN: You also took a trip to El Salvador to take a look at this idea called Bitcoin City proposed by President Nayib Bukele. What did you find there?

MCKENZIE: Not much. I found a sleepy fishing village. The idea was Bukele said they were going to mine bitcoin from a volcano. They were gonna take the volcanic energy base of the volcano and extract it and use it to run computers that would mine Bitcoin. And this would produce such wealth that they would have this this golden city, Bitcoin city. They even did a model full of gold. And it would be this paradise in eastern El Salvador, which is very remote. And so we went there and there was nothing, there was a fishing village. There was no sign of Bitcoin city anywhere to be found except for one guy. One guy from Illinois – Corrbin is his name – who had moved there with the dream that someday this city would manifest. I thought that was quite sort of telling too, that the story will really only appeal to this one guy from America who clearly owned some Bitcoin. He wouldn’t tell me how much and had moved down there, you know, on the hope that at some point the city would manifest. It still hasn’t, the city doesn’t exist.

What they did do is they displaced an entire community that was living nearby in order to build a new airport. They’re trying to build a new airport, which is a very strange thing in a country the size of El Salvador. It’s basically the size of New Jersey, and they already have an international airport a hundred miles away. So I don’t know what that is about. But it laid bare the sort of the, again, the falsity of the whole enterprise. There is no Bitcoin city. There was never going to be a Bitcoin city.

SREENIVASAN: . You know, in the film, you testified in Congress, you tried to point all this out. And I wonder what you think now of the regulatory or deregulatory environment that has come with the most recent administration and their efforts to, well, embrace cryptocurrencies?

MCKENZIE: It’s really bad. It’s gotten worse, I’m afraid. Sorry to be the bearer of bad news. But there’s actually a bill that is, seems like it’s going to be marked up this week in Congress called the Clarity Act that will accomplish what crypto’s long sought, which is to be under the surveillance supervision of the CFTC, the Commodities Future Trading Commission, instead of the SEC, Securities and Exchange Commission. I know this sounds, you know, quite academic, but the CFTC is the smaller, weaker regulatory agency. And not only would this Clarity Act put them under the CFTC, but it would carve out all these special rules for crypto, or they really don’t have to operate or be treated even like, you know, regular commodities. And they’re also sort of not treated like banks, even though they’re managing a lot of money, and they’re potentially offering interest to people for putting their money on exchanges.

So they’re creating a whole new set of rules for themselves which is deeply, deeply troubling because one thing we know about crypto is it’s very volatile. Price can go up, but the price can go down quite quickly. You see this in the movie, the crash of 2022. This has happened repeatedly throughout crypto’s history. So what happens if we create all these special rules for them, crypto crashes again, but this time it’s more tied in with our regulated financial system even more than it was in 2022.

In 2022, when I testified at the Senate banking committee in December of that year, I warned that if crypto got into our banking system, there would be hell to pay. And three months later, three banks failed, all tied to crypto. What happens if it’s further tied into our regulated system and there’s another crash and this time it contributes to taking down the whole system? That’s my worry, is that – first of all, we’re doing it for no benefit on net to the populace. This a zero sum game. The insiders are gonna win. Some people are gonna win, a very small number of insiders, most people are gonna lose. So it’s a net negative for society, and we risk, we’re introducing the systemic risk that could ultimately, you know, contribute to the next subprime crisis. Which is deeply ironic because of course crypto is set up supposedly in opposition of the subprime crisis, and in effect, it could be recreating it.

SREENIVASAN: So right now, in the past year or more, we have seen a lot of major banks, the people who develop mutual funds come out with ETFs, for the general public to invest in cryptocurrencies through a place that they trust a lot. So, you know, we try to say as consumers, well listen, if this bank – JP Morgan, or if it’s Fidelity or Vanguard – these places that I’ve trusted with my 401k and my retirement, if they’re telling me there’s also this vehicle that has a tremendous amount of upside potential, okay, let me put a little bit in there. So what is the end consumer sort of missing there?

MCKENZIE: Well, first of all, it’s deeply ironic because crypto was supposed to be set up to be an opposition to the horrors of Wall Street. And now the crypto industry is loving the fact that Wall Street is is getting in on their game. But it’s really important to understand that when – let’s use the ETF as an example, exchange traded fund. The largest Bitcoin ETF is issued by BlackRock: massive financial firm, right, that many of your viewers will be aware of. So what BlackRock does, you put money into their BlackRock Bitcoin ETF, they then turn to Coinbase, a crypto exchange, and say, okay, this money represents this amount of Bitcoin. Blackrock never touches the Bitcoin. All they’re doing is facilitating the trade, and they’re taking a tiny percentage, but on billions of billions of dollars. So they’re making a lot of money.

Wall Street getting into the crypto game isn’t a validation that there’s anything to it other than there’s money to be made. They’re not making – real money, not the fake stuff. They’re not taking a directional bet on whether crypto’s going up or down. They’re simply facilitating the gambling. And so it’s not really a validation of the – if anything, it should be a repudiation of the the supposed purity of crypto. I mean, if crypto is truly a decentralized, democratized form of money, why is it being issued by BlackRock? Why is is the decentralized, democratized future of money coming from BlackRock? That seems incongruous.

I do worry that, you know, the amount of money we’re talking about that the sort of passive exposure to crypto – or active, but through ETFs – this market has grown quite large, you know, over a hundred billion dollars. I worry that, again, if in a downturn, if crypto were to crash again and these investors go to try to get their money out if enough of them are going to get their money out, there may not be enough buyers on the other side. And that worries me for the investor’s sake, but also for the rest of us, if this contributes to a greater downturn.

SREENIVASAN: Actor, author, writer, producer, director, Ben McKenzie. Thanks so much for joining us.

MCKENZIE: Thanks, Hari.