Firing Line

- Cryptocurrency, digital gold or fool's gold?

This week on "Firing Line."

- Fortune favors the brave.

- [Margaret] Only a few years ago, celebrities were lining up to promote cryptocurrency.

Actor Ben McKenzie, who shot to stardom on the OC, went the other direction.

- Who are you?

- Whoever you want me to be.

- [Margaret] His new documentary calls crypto a sucker's game.

- Crypto can't be anything other than at best, a zero sum game.

Where for me to win, you have to lose.

Crypto's like Vegas without the drinks, the dinner, or the show.

- [Margaret] He's taken his message to Congress.

- In my opinion, the cryptocurrency industry represents the largest Ponzi scheme in history.

- [Margaret] McKenzie never bought crypto himself, but says he did bet against certain crypto firms in the market, making money when they went down.

He used some of that money to finance his film.

What does Ben McKenzie say now?

- [Narrator] "Firing Line with Margaret Hoover" is made possible in part by Robert Granieri, Vanessa and Henry Cornell, the Fairweather Foundation, the Tepper Foundation, Peter and Mary Kalikow, the Beth and Ravenel Curry Foundation, Pritzker Military Foundation, Cliff and Laurel Asness, the Margaret and Daniel Loeb Foundation.

And by the following.

- Ben McKenzie, welcome to "Firing Line."

- Oh, thank you for having me.

- You have gone from acting to becoming one of the most vocal and outspoken critics of cryptocurrency.

You have criticized crypto in print, in Congress, and now in a film.

The film begins with a desert scene that is introduced as Iraq.

And the next scene, you're walking up the hill and it turns out Iraq is actually West Texas.

- Yes.

- Why does that scene set the stage for the film?

- The film is called "Everyone Is Lying to You for Money."

I mean that quite literally.

That scene is so crucial because I sneak in what money is.

If you pay close attention, I say, "What is money?

Money is trust."

But that trust is fragile and it can shatter in an instant.

And then I reveal the joke that I have just fooled you.

Yes.

- Yeah, yeah.

- Lied to you for money.

I really want people to understand how fragile these social constructs, like money are.

We're incredibly privileged in the United States to have the world's reserve currency since World War II or arguably even before then.

And so we benefit from, quite frankly, the most stable currency that's currently existed, and the most widely traded in human history.

But even our currency can be volatile.

And what crypto is trying to do is very dangerous because one of the things that it does is it undermines the faith and confidence that we have in our current system.

- You write in your book "Easy Money," "The original story, that Bitcoin represents a response to the devastating failures of the traditional financial system, holds significant power because we all agree on its premise.

Our current financial system sucks."

- Yeah.

- Does it really suck?

- Yes.

- Why?

- Because the top, there's approximately 1000 billionaires in the United States, and they control as much wealth as the bottom 50% of the country.

But the power that these billionaires have, particularly after Citizens United, their ability to use the money to affect and quite frankly, undermine our democracy, I think destroys the trust that we have in our economic system and our financial system.

Because a lot of people feel that they can't get ahead.

You know, the younger generation has a real hard time affording houses.

People can't afford childcare, medical care, and yet we live in the most wealthy society that's ever existed.

So why can't it be better, I guess is the one way I'd put it.

- So if I understand your argument correctly, those who are not benefiting from our economic and financial system, are not getting ahead, are being duped by crypto that it could be a means for changing their economic livelihood.

- Absolutely.

I mean, crypto is in many ways just a get rich quick scheme, for the retail public.

It's just, you know, buy some crypto, and you're gonna get rich, right?

- So why is crypto not the answer to the grievances of those people?

- Because most of them are gonna lose.

I mean, most people who've ever invested in crypto have lost money.

Most people will.

And the reason that that has to be true is due to the fundamental nature of it.

So- - Which is what?

- So, because cryptos don't really work as money, I can't go to my neighborhood deli in Brooklyn and buy bagel with Bitcoin, right?

They're gonna look at me like I'm crazy.

Because it doesn't really work as money, it works as some form of investment.

Well, what are you investing in?

You're investing in lines of computer code stored on ledgers called blockchains, but there's no correlation with any real world asset.

So it's a very strange investment.

You're basically investing in the idea of Bitcoin and the idea that other people will value it.

Well, in economics, that's called greater fool theory.

You're basically hoping that there's, you see the price of something going up, you buy it 'cause you think it's gonna keep going up and you can sell it to a greater fool than yourself.

But you know, it's a fun game until you reach the peak and then you're the biggest idiot left holding the bag.

Crypto can't be anything other than at best, a zero sum game.

Where for me to win, you have to lose.

It's, imagine we're playing cards at a poker table in Vegas.

You might win a hand, I might win a hand, but my winnings come outta your pocket and vice versa.

So could you win in Vegas?

Of course.

If you play long enough though, the average player in Vegas is going to lose.

Of course they are, because how else do they keep the lights on in the casino?

So crypto is sort of like an unregulated, unlicensed casino.

It's, the difference, I would say is, at least in Vegas, there's entertainment value.

They give you free drinks to try to get you to gamble more.

You can catch a show, have a dinner, you know, crypto's like Vegas without the drinks, the dinner, or the show.

- Take on this argument, then.

If you look over the last seven years, there has been enormous volatility in crypto, but Bitcoin has been up more than 1200% in that period of time.

- Right.

- So even though it can be volatile, in a diversified portfolio, what's wrong with building in some crypto as a hedge?

- So look, I'm not offering people financial advice.

I mean, I criticize quite directly all the celebrities who did offer financial advice, but in the abstract, in terms of the price having gone up over time, you're saying if I bought in early, I would've made money.

And I'm describing it as a Ponzi scheme or a multi-level marketing scheme.

One of the features of which is if you buy in early, you make money.

It's not really a refutation of the argument.

- Right, right.

It doesn't, yeah.

- It's a very, it's probably the most powerful argument that crypto advocates have is trying to give you what they call FOMO.

Fear of missing out.

- Yeah, like you're gonna miss out on the investment.

- Yeah.

We used to call it greed, but now we call it FOMO.

But, you know, which is fine, you know, human nature.

That's a very powerful psychological argument, right?

But it doesn't refute the essential criticism that no, structurally this is still a Ponzi scheme or multi-level marketing scheme.

As for the other side of crypto, so we've talked a lot about the gambling, but crypto only has two use cases.

It's gambling and it's crime.

And the crime is a very important part that we really need to focus on, particularly at this moment.

Because what crypto does is go around the regulated system, right?

You're not using a bank to send this thing of value.

You are using the blockchain.

Now, who does that appeal to?

I mean, quite frankly, it appeals to criminals by and large.

Could you use crypto for a good purpose?

Sure, it's a tool.

But let's just be honest, you know, the amount of crime that's facilitated via cryptocurrency is staggering.

- You've likened crypto to a cult.

- Yeah.

- There are even people who you interviewed in your film who lost their life savings in crypto fraud schemes.

And even still believed in the power of cryptocurrency.

- Perhaps had to believe because they'd lost.

So I interviewed victims of a scam called Celsius, and earlier in the film I interviewed the CEO and he's just a complete used car salesman, you know, guy, he's now in jail.

But what was so heartbreaking about talking to the victims is I spoke with them, I bonded with them, and at the end of the film, I come back to them and I ask, "Do you still believe in cryptocurrency?"

And every single one of them says yes.

And that really changed my understanding of what we were talking about.

- How?

- Because I think for some of these guys, this was a major investment for them.

Not just financially, but mentally, psychologically.

This was their ticket out.

This was their way to achieve the American dream.

One guy, construction worker in Texas, he just wanted to have a little money so he could spend more time with his daughter.

- Yeah, I just had so many plans, you know.

I feel like I let her down big time.

- And he felt, because he lost it, sorry.

He felt because he lost the money, he was letting her down.

And I felt so bad for him.

I'm a father.

- It was an incredibly powerful scene.

I mean, he cried.

You cried.

- Yeah.

Because men are very, I include myself here, men are prideful, when we lose money, we do not like to admit it.

Unfortunately, men often hide it from their families, and it can create devastating consequences.

So I think it's really important to understand the psychology.

What was interesting at the end, when they said that they still believed in it, is, that really is a cult, right?

I mean, I hesitated for so long to use that word.

There's a great paper, "When Prophecy Fails," about what happens when the cult leader says the world's gonna end tomorrow, it doesn't, what do the members of the cult do?

They leave the cult?

No, they double down.

They feel, they believe in it more.

And I think that's one of the things you see, with a hardcore group of crypto investors.

Sam Bankman-Fried, thank you for taking the time to speak with me.

- Of course.

- Another man you spoke to was Sam Bankman-Fried.

The founder of FTX, the crypto exchange, that is now serving 25 years in prison.

You spoke to him only a few months before he was arrested and before the downfall of FTX.

At the time he was a phenom, widely respected in finance and in the media and in Washington.

What did you take away from that interaction?

Can I tell you, 'cause I couldn't tell if there's a moment where you're like, "Wait, am I wrong about this?"

- Oh, I absolutely, absolutely.

And in retrospect, I would've gone even more aggressively at him.

- Yeah, if only you had known he would be arrested three months later.

- Right, I mean, I was sipping out of a mug that said "fraud investigator."

So I had some idea of what was going on there.

- Which was... - Thank you.

Yeah, chef kiss.

I think one of the wonderful things about being a skeptic, and there are lots of us, we hold ourselves to account.

If I misspeak, if I say something that's incorrect, I try to correct it.

- Yeah.

- I am genuinely interested in the truth, in all of its complexity.

So, and quite frankly, the crypto boosters, the really hardcore ones are, I'm sorry, they are not.

They don't engage honestly with this intellectual conversation.

If you really believe in cryptocurrency, then you really have to grapple with the human cost from the gambling and the crime.

And if you don't grapple with those, you're not really being honest.

With Sam, what was so concerning was, he didn't have answers to basic questions.

- Yeah.

- Right?

What does crypto do?

What's the good that it can do?

- As you look back on that conversation now, given the events that have unfolded in crypto since then, how do you, do you look at it differently?

Like, how do you understand his interactions with you?

- Yeah, great question.

So I attended the trial for Sam here in New York, and we were able to learn through the documents produced for that case, what was really going on with him.

And it's fascinating because at the time he was like, as you said, he was on top of the world, right?

He had just held a conference in The Bahamas, attended by Bill Clinton and Tony Blair.

He was supposedly one of the 100 wealthiest people in the world, according to "Bloomberg."

He would very soon thereafter be on the cover of "Fortune" with the headline, "The next Warren Buffett?"

Question mark.

So he really was king of the world.

And yet when I sat in this room with this 30 year old... - Not even.

- Yeah, 20 something year old kid in cargo shorts and a t-shirt and sneakers.

And I asked him a basic question, "What does it do?"

And he can't answer adequately.

I mean, I just, I didn't know what to feel.

I felt very concerned with what was about to happen.

And then what we learned later is that his empire was also falling apart.

And even when I was speaking to him in July, they were in deep trouble.

So now I look back at the interview and I realize why he was so fidgety, why he was so- - 'Cause he knew the truth.

- He must have.

- Yeah.

You have said crypto has only two use cases, gambling and crime.

I wanna push back a little.

- [Ben] Great.

- I have had a Afghan entrepreneur, a woman named Roya Mahboub, who is one of the first tech founders in Afghanistan, and maintains that Bitcoin has provided a financial lifeline to women in Afghanistan who are denied access to banks by the Taliban.

It's helped Venezuelans protect themselves under the Maduro regime.

What about the case where under an authoritarian regime, the freedom fighters are the criminals.

- [Ben] Right.

- And they're the ones who are benefiting from this murky system that allows them to create a livelihood that is actually aligned with our principles.

- Right, right.

That's a great- - Using this currency.

- That's a great example.

Now the bigger question to me is, how much is going on of that versus how much is going on of bad crime?

- A modicum, no question.

- I mean, unfortunately you cannot find statistics on this because it's crime.

They're not gonna tell you what they're doing.

But I just wanna point out the crime and what it is.

- Yeah.

- We're talking about child sexual abuse material.

We're talking about terrorist financing.

We're talking about Russian oligarchs selling sanctioned oil to the Chinese.

And so the question we have to ask ourselves is why are we failing so many different ways to provide for the good people, like this, you know, woman in Afghanistan, the ability to actually interact with our financial system, and allowing the criminals to succeed so wildly in committing their crimes?

We're failing, and we have to fix those.

You're creating this black market money that can be used for all sorts of purposes.

Some of them good, perhaps, but most of it bad, and really bad, right?

Is it worth it?

Is this system, I'm not advocating to outlaw it, because I don't think that would work, but you can properly regulate it.

And the way to regulate it on the speculative currency side, Bitcoin, Ethereum, the 20,000 cryptocurrencies out there, is as securities for these stablecoins.

Stablecoins are cryptocurrencies that are pegged one-to-one with real currencies like the US dollar.

- Which by the way, are legal now, because of the Genius Act, every coin that was issued in the United States has to be backed by the value of the US dollar.

- Right.

Yes.

However, what it's really doing is it's also sort of integrating the stablecoin economy into our banking system.

- It's legitimizing it.

- Very much so, and not quite treating them like banks, sort of.

- Because they're not FDIC protected.

- Exactly, and that's really the crux of the issue to me, is if they want to be banks, then they need banking licenses.

They need to play by the rules.

If we start mixing the fake money with the real money, all hell will eventually break loose.

Because at some point, these "stablecoins," which have failed repeatedly over the years, one of them fails in 2022, and it starts the crash that I document in the movie, when one of them fails and it's tied into our banking system, if it's big enough, it can take down the entire system and we'll end up bailing these guys out just like we did in the subprime crisis.

I really think we need to ask a question, which is, if you're saying something is a dollar, they're saying these stablecoins are worth a dollar, and yet they're not backed by the full faith and credit of the United States, isn't that a counterfeit dollar?

Why are we allowing these guys to trade off of the credit, the full faith and credit that we collectively have given to the United States dollar in the form of our labor, in the form of our participation in the economy, and letting them draft off of that with no cost to them, and then we're gonna end up bailing them out?

Outrageous.

- In 1996, in a "Firing Line" debate, a gentleman named Bob Hormats, who was the vice chairman of Goldman Sachs, had a debate on "Firing Line" with William F. Buckley Jr.

And they discussed the role of the SEC working with the markets to regulate the stock exchange.

Take a look.

- The SEC does important things.

First of all, it ensures adequate disclosure of information.

More information to the market is good for the market.

It's good for people who are considering buying stocks.

- Market wouldn't provide this on its own?

- The market may or may not.

It seems to me that the market from time to time has not been providing adequate disclosure.

And in fact, there's a history of certain amounts of deals made without adequate disclosure, which is in part the reason we have the SEC.

But the SEC has learned over a period of time to work with the market.

Most of the regulations put out by the SEC, not all, but most, are done in conjunction with participants in the market and are done relatively constructively.

I wouldn't abolish it.

I think Wall Street needs to work with it and does work with it.

- How refreshing.

(both laughing) - So, but this is the argument that, you know, the SEC can work with the markets and they can successfully regulate the stock market.

The Trump administration and Congress are consulting the crypto industry as they develop regulations that will ostensibly regulate crypto markets.

- Right.

- Why is the SEC better positioned to regulate crypto markets?

- Because these are investments.

I mean, we really need to start with what they're doing.

You're putting money into them, hoping to make money off of them through no work of your own.

For almost 100 years, we've defined securities, quite broadly, an investment of money in a common enterprise with the expectation of profit to be derived from the efforts of others.

And that has applied to all sorts of legitimate investments and illegitimate ones.

And the SEC is also in charge of regulating Ponzi schemes, of determining whether investment schemes are essentially fraudulent.

Now, they can't, you know, press criminal charges, but they can do fines and things like that, and they can refer cases to the DOJ.

And so this system has worked for nearly 100 years, and yet crypto says, "Oh, no, no, no, no.

We're so new, we're so innovative," even though the technology is old, "that we need our own rules."

- Yeah.

- You know, that is just an obvious tell.

I think the clip that you played is really interesting because he mentions directly what securities laws are predicated on, and it's disclosure.

You need to know who you're giving your money to and what they're doing with that money.

And the crypto industry doesn't want that information out there.

Now, why, if you were a legitimate investment, would you be afraid of telling people "This is where your money's going, and this is what we're doing with it."

- Fortune favors the brave.

(dramatic music) - You have been comically critical of celebrities who have put their names on crypto.

- Yeah.

- You have even said that Matt Damon's Superbowl commercial of crypto.com, like haunted your dreams.

- [Ben] Yes.

Yes.

- Why?

- 'Cause even when I was starting out, and I hadn't really done a ton of research on crypto, I knew that Matt Damon didn't know anything about cryptocurrency.

Look, the way that these deals work is that the celebrities are paid in real money to convince you to take your real money and turn it into something else.

That is really dangerous.

Celebrities have always shilled products.

There's nothing wrong with that.

But this is different.

This is a financial product.

This is an investment.

And you're not supposed to offer people financial advice unless you're a licensed financial advisor.

It's not a law that's enforced, really, ever.

But that's effectively what I felt the celebrities were doing.

And I assume, having been in Hollywood, the way this worked is the crypto companies came to the major agencies in Hollywood with enormous amounts of money and said, you know, "For this price, we expect this level of star."

And, you know, they work their way down and sort of see who they can get.

And at that time, in 2021, in early '22, they got the most famous people in the world to sell for them.

- So President Trump's views have changed about cryptocurrency.

Back in 2021, he said this about crypto.

- [Trump] Bitcoin, it just seems like a scam.

I don't like it because it's another currency competing against the dollar.

I want the dollar to be the currency of the world.

That's what I've always said.

- Since then, he has changed his tune, and he has said this.

- We're making the United States the Bitcoin superpower, the crypto capital of the world.

And it takes a lot of the pressure off the dollar, it does a lot of good things.

- At the same time, according to "Forbes," Trump has made an estimated $1 billion off of his crypto holdings.

What does President Trump's embrace of crypto tell you?

- That he's the most corrupt president in US history.

And it's not even close.

I mean, just take the obvious.

And he's, the main vehicle for his corruption is cryptocurrency.

That's where the majority of the money that he's made, in his brief time in office the second time around, where it comes from.

He made a little money off of these meme coin things, like Trump coin and Melania coin.

But he made most of the money, he and his family made most of the money off of a stablecoin.

I mean, it's so grotesque.

It's really kind of infuriating.

And we have to remember that Donald Trump is a convicted fraudster.

You know, he's convicted on, the Trump Organization was convicted on 34 counts by a jury.

The amount of the penalties has been thrown out, but the verdict still stands.

So he is a convicted fraudster.

He is selling a coin, and a scheme, that I, and many, many others, including Nobel Prize winning economists, have called a fraud.

- I mean, if the President of the United States is participating in this scheme, does that legitimize it?

- Perhaps to some people who believe in this convicted fraudster president.

But what it really does is allow him to use his power to get crypto further into our regulated system.

And when it blows up again, we will be footing the bill collectively, all of us.

- All the while enriching himself.

- Correct.

- Ben McKenzie, thank you for joining me on "Firing Line."

- Thank you for having me.

- [Narrator] "Firing Line with Margaret Hoover" is made possible in part by Robert Granieri, Vanessa and Henry Cornell, the Fairweather Foundation, the Tepper Foundation, Peter and Mary Kalikow, the Beth and Ravenel Curry Foundation, Pritzker Military Foundation, Cliff and Laurel Asness, the Margaret and Daniel Loeb Foundation, and by the following.

(upbeat music) (upbeat music continues) (upbeat music continues) (upbeat music continues) (upbeat music continues) (calm music) (bright music) - [Announcer] You're watching PBS.