Five years after he first dissected cryptocurrencies on Last Week Tonight, John Oliver took another look at the sector on Sunday’s episode, after a series of high-profile and expensive busts. The most dramatic implosion was that of FTX, a cryptocurrency exchange hyped by celebrities such as Steph Curry and “pre-divorce but post-love” Tom Brady and Gisele Bündchen, which collapsed at the end of 2022 to the tune of billions of dollars.
The arrest of FTX’s billionaire founder, Sam Bankman-Fried, on charges of defrauding investors, was “a big deal”, said Oliver, though it’s just “one of the many dominoes that fell in the crypto world”. From late 2021 until June 2022, the total market value of all cryptocurrencies fell from about $3tn to $1tn .
“And there are small investors who got badly hurt by all of this,” Oliver continued, as one in five Americans has invested in, traded, or used cryptocurrency, and plenty have had their savings wiped out in various meltdowns.
Oliver looked at the collapse of three companies, each “founded on the promise that they would replace some part of our financial system”. There was Terra, a cryptocurrency; Celsius, a crypto bank; and FTX, a crypto-trading platform. “In theory, they were supposed to be our next dollar, our next Bank of America, and our next stock exchange,” said Oliver. “But in reality, they are fiascos.”
To start, Oliver offered a reminder that “every single crypto coin is just something that someone with a laptop made up”. The coins have value to the extent that people believe they have value, which often comes down to one’s confidence in the person or group who made the coin. The story for all three companies was “one of confidence gained and then squandered”.
He started with Terra, launched in 2018 by the South Korean entrepreneur Do Kwan as a supposedly stable cryptocurrency – one unit of Terra was alleged to always equal one US dollar, guaranteed by another cryptocurrency called Luna, also made up by Terra and converted using the company’s “special algorithm”.
“If that sounds both complicated and stupid to you, it is,” said Oliver. “Imagine if someone came up to you when you’re at the ATM and said ‘give me that money, and instead, I’ll give you blorps. One blorp is always worth $1, and the reason I can guarantee that is I’ll sell as many fleasles as it takes to make that happen. Also, I make the fleasles.’” Most people would say no, “but if they then said ‘I do it with a special algorithm,’ suddenly you might think that they know something that you don’t. Well, that’s basically what happened here.”
Kwon’s confidence game worked for a while – he shouted down skeptics (“I don’t debate the poor on Twitter,” he tweeted about one detractor) as Luna’s value ballooned to $40bn. But several big trades in 2022 destabilized the price, as people rushed to sell Terra and Luna valued at essentially zero. After months on the run, Kwon was arrested last month in Montenegro on fraud charges in several countries.
Celsius, a crypto bank, was founded by Alex Mashinsky, who went out of his way to build trust in Celsius as a crypto bank friendlier to customers than traditional ones. As he insisted: “We are probably one of the least risky businesses that regulators worldwide have ever seen.”
“Which was just flagrantly untrue,” said Oliver. Investigators found that Mashinsky was making incredibly risky loans and using customer funds to pay the promised high yields, “which sure sounds like the textbook definition of a Ponzi scheme”.
Mashinky and Celsius haven’t been charged with a crime, but because the company’s terms of use stated that customers transferred all rights of ownership over assets deposited in a Celsius account, tens of thousands of customers still have digital assets trapped on the platform; the company owes customers $4.7bn.
So, in summary, “bullshit money and bullshit banks” with Sam Bankman-Fried and FTX rounding things out as a “bullshit trading platform”. Bankman-Fried cultivated a persona as a “shy, self-effacing genius”, said Oliver. “It’s why he dressed like every day was laundry day and combed his hair with a balloon.”
Bankman-Fried, who lobbied Congress for tighter regulation of the crypto market, pitched FTX as a stable platform akin to the new stock exchange, but in reality propped up the company with a currency he made up, tied to his hedge fund filled with the same coin.
As the new CEO brought in during the company’s bankruptcy put it: “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here” – “which is really saying something, given that his career includes overseeing the bankruptcy of Enron,” said Oliver.
The throughline with all three companies is “confidently projecting a veneer of expertise even as, beneath the surface, they were a complete shitshow,” said Oliver.
“The thing is, there are still companies out there making all the same claims that you’ve seen tonight,” he added. “And I’m not saying that they’re all scams. Maybe these three are the exceptions,” though he could cite many other exceptions. “But the truth is, in a financial system where the only real currency is confidence, scammers are going to thrive.”
Oliver wasn’t even sure about advocating for more regulation, as doing so would legitimize volatile, risky companies, nor would he fully disavow cryptocurrencies. “But we should recognize that right now, the main thing you can really do with crypto is gamble with more crypto,” he concluded. “This is all still a casino.”
