A review of Number Go Up, on crypto shenanigans

Patrick McKenzie (patio11)
A review of Number Go Up, on crypto shenanigans

A book review is a curious artifact. By convention, it purports to stand in judgment of the work of an expert who has labored for months to create something of enduring value in the world. Few book reviewers, on the other hand, have ever done anything meaningful, and none has ever spent a book-equivalent effort on a book review. Still, hope springs eternal among would-be reviewers that they alone will write a review worth reading. And so I throw my hat into this accursed ring.

Number Go Up, by Bloomberg’s Zeke Faux, is the best book yet written about cryptocurrency. It is even better if you haven’t closely followed the rogues gallery committing a Shrekian onion of scams.

And yet I found it at times exasperating, perhaps because of the narcissism of small differences. I am also a long-time cryptocurrency skeptic, and perhaps if one squints a great deal a professional in financial writing, and it is not exactly the book I would have written. Of course, I did not spend two years of my life diligently talking to ne'er-do-wells and writing down what they said.

Most writing about cryptocurrency by professional journalists suffers from taking the representations of scam promoters at face value. This book does not have that problem: its tone is unbridled contempt for its subjects.

Some books might choose to unspool this point of view quietly over time, before gutting the subject with a single arc phrase and an implicitly raised eyebrow.

The byline for the Prologue announces that, as of February 17th, 2022, that “Total Value of All Cryptocurrencies: $2 Trillion (Yes, Trillion with a ‘T’)”

We, somewhat surprisingly, do not return to this device. It is drive-by contempt, thoroughly earned by the subjects but as yet unearned by the text.

Finance has a conceit that the numbers are important, indeed, that the world is ruled by important numbers. Financial journalism adopts that conceit when it is convenient, but (mostly accurately) assumes that the reader couldn’t read a balance sheet if their life depended on it. So in place of numbers, financial journalism is vibes, recounted conversations, and (at its best) snippets of documents contrasted with the conversations to cast doubt on the vibes. The numbers only matter insofar as you can vibe to them.

Which, to be fair, is a metacommentary on the crypto industry, which also pretends to be about crystallized math and its implications for humanity but cares about numbers to the precise extent that Number Go Up. Crypto and journalism love each other; where else in finance can one find such rich vibes (and such an engaged audience clicking merrily) unencumbered by the dreary necessity of ferreting numbers out of PDFs and doing fourth grade math on them.

What does Number Go Up do well? It sends our protagonist Zeke all over the world in search of lies. Bloomberg clearly has a very generous travel budget and if you missed the subtle hints dropped by inclusion of multiple chapter-length travelogs of Switzerland and the Bahamas, this subtext is eventually promoted to text. Zeke is, very definitely, a character in his own book. He’s engaging, he’s sometimes self-aware, and by God, does he write well.

Zeke finds more liars than lies, more incredible characters than an incredible plot, more gonzo journalism than a world gone absolutely mad.

A throughline of the book is what investigative journalism is believed to do by civilians, what it actually succeeds at, what it fails at totally, and what it institutionally believes is out-of-scope. The book is not very reflective about this, or perhaps it was carefully designed to examine this throughline while seeming at a surface level oblivious to it, in which case this salaryman stands awestruck at the accomplishment.

For example, we’re treated to a subplot about how hilariously and consciously Bond villain some of the relevant Bond villains are. I have, for years, used “Bond villain” to describe how the rogues central to crypto seem to flit effortlessly between jurisdictions, wherever the plot demands, without seeming to ever be hindered by regulations or government action. Zeke handily one-ups me: the central characters own houses previously filmed as Bond villain lairs and seem to adopt the aesthetic of Bond characters intentionally.

Jean Chalopin, the chairman and CEO of Deltec, the bank which for an extended period was Tether’s proxy in moving money around the global financial system, really did have a hand in bringing Inspector Gadget into the world.

One could imagine him stroking a white cat as he talks with Zeke about the reclusive Tether CEO Jean-Louis van der Welde. Oh no, that sounds absurd. See, they actually meet van der Welde at a casino, Chalopin’s introduction being a (smiling) “If you screw this up, I’ll kill you” and van der Welde ironically observing that he is “[t]he man that does not exist.” Great stuff!

Zeke gets absolutely nothing useful out of van der Welde. He is conscious of this and announces it to the reader. But he gets great narrative texture to cover chapters recounting months of patiently following the Tether saga.

And it must be said, Zeke is far-and-away the best mainstream reporter on the Tether beat, which is institutionally treated as a boring Internet backwater and not the largest financial fraud in history. Anyone Seen Tether’s Billions is the first and last useful expose written about the company in the mainstream press, and coined the best bon mot about the conspiracy: “[Tether] is quilted out of red flags.” I am still jealous that I did not write that line first.

Zeke fingers CFO Devasini as the primary motive force behind Tether. He manages to find an offhand comment on an Italian politics article linking him to a pseudonymous blog where Devasini praises Madoff and fantasizes about following in his footsteps. Holy #*(#%#*(! You get little flashes of this throughout the book: patient, occasionally inspired journalism by the best reporter on the beat, who sets up to nail Tether to the wall and ends up… not doing so.

He meets Bitfinexed, who deserves a Pulitzer and will not get one. Bitfinexed is a pseudonymous Twitter troll who is neither a financial industry expert nor a buttoned-up professional reporter. He has been more right than wrong about Tether in what some people believe is an annoyingly loud fashion since 2017.

Bitfinexed hopes Zeke has sufficient goods to put Tether away. Same, same, muses Zeke. They part disappointed in each other.

I have been informed by financial journalists before that they are not law enforcement and cannot be reasonably expected to ferret out multi-billion dollar frauds before law enforcement does. In my childlike naïveté, I always thought that Lois was Clark’s equal partner because she was damn good at being a reporter. It turns out that reporters are actually just the vibe police, but will not disabuse a gullible civilian who believes them to be heroic in stature. (Law enforcement? Yeah, also mostly incompetent at detecting multi-billion dollar frauds before they are exposed, and will say (quietly) that that isn’t really their job, either. So I guess, by process of elimination, it is Bitfinexed’s job.)

Zeke is handed a detailed trove of information on Tether’s holdings in August 2021, by a source who requests anonymity. They include short-term bonds, which Tether had told the world to expect, small positions in a grab-bag of commodities futures, a few hedge fund holdings because why the heck not and, oh yeah, billions of dollars of Chinese commercial paper. Zeke finds no angle with these documents, though a short seller makes what seems like a sincere offer to buy them for $1 million. Zeke is constrained from accepting due to ethical concerns.

(For those keeping score at home, the Chinese commercial paper point means you are reading in 2023 about a journalist who got explosively newsworthy documents in 2021 confirming what Bitfinexed had specifically and loudly claimed between, oh, 2017 through 2019 and thereafter. I realize there are serious institutional constraints that prevent the Pulitzer from being awarded to a loudmouthed frequently off-base pseudonymous troll, which is a pity, because they ensure it will go each year to a journalist less right and less early about a less important story.)

Zeke avoids a lot of the smoke and mirrors deployed by Tether and crypto generally. Unfortunately, the smoke and mirrors detector is not 100% well-calibrated.

Take Chalopin. He’s depicted as charming and affable, with a roguish sense of humor. In a podcast promoting the book, Zeke takes pains to mention that Chalopin has always treated him honorably.

A brief digression

Please excuse a brief interruption from this review of Number Go Up while I discuss extratextural knowledge about one of the characters.

Chalopin is a bagman. Chalopin is a bagman. Chalopin is a bagman. There are other interesting facts about Chalopin, but they have to be filtered through remembering he is a bagman. The roguish charm and personal honor are important professionally significant attributes about why he is so damned good at being a bagman. He makes one forget he is complicit in the conspiracy during conversations about the other co-conspirators.

Chalopin established a worldwide web of correspondent accounts in the name of Deltec Bank & Trust, Ltd. to allow Tether and their co-conspirators to launder funds. This lets one send a wire from a bank which has a compliance department that is alive, awake, and uncorrupted by Tether, because if Deltec is willing to be complicit one doesn’t need to name Tether on the wire.

Compliance will only see a payment to a reasonably well-respected local bank to ultimately pay a bank in the Caribbean. This chain of activities might sound exotic to you but is routine and non-objectionable in offshore finance. One could, for example, be paying a bank to buy a Treasury bill from them. There is nothing wrong with that, unless one is in fact doing business with a banked Bond villain rather than with the bank itself. The wires have a lie on them to allay suspicion (nothing new there) and tell Deltec which pending transaction to tell Tether to clear.

Chalopin is the very image of a colorful-but-ultimately-inoffensive bank CEO, which is how he convinced state and federal regulators to approve of him buying a U.S. bank. He did this to assist Tether and FTX in committing a control fraud to secure unfettered access to FedWire.

The New York Times outed Chalopin as controlling Moonstone Bank. Financial journalism sometimes does actually do the thing everything believes it does: ferreting out wrongdoing before the feds indict everyone involved!

Oh, to have been a fly on the wall in that investigation. How could it possibly have happened? Let us speculate.

Perhaps a source emailed the New York Times a packet of documents. Perhaps that source followed crypto skeptics Twitter. Perhaps a participant in it DMed him a link to a consequential press release. Perhaps that source understood that Maryland Business Entity Search exists and that D20033544 is more interesting than almost everything in it. Perhaps that source knew that D20033544 was significant because new bank holding companies are announced in the Federal Register. Perhaps that source was absolutely dumbstruck when he saw Chalopin’s name at the bottom of the Maryland document, because he knew Chalopin to be a bagman. And, because a genre convention of Bond films is that expository scenes happen in locations the audience finds exotic, perhaps that call was placed from Tokyo.

Sadly, the world will never know, because journalists don’t reveal their sources.

Chalopin buying a U.S. bank is a very significant fact, because Chalopin is a bagman, and bagmen should not gain control of regulated U.S. financial institutions. However, some complex mix of lacking-object-permanence and believing-in-innocent-until-proven-guilty apparently makes it difficult for both regulators and financial journalists to take consequential real-time actions in light of Chalopin being a bagman.

But they do, eventually, and so bully for regulators and financial journalists.

Chalopin apparently pinky swore, when acquiring a U.S. bank, that he was not going to immediately turn it into a puppet of Tether. OK, technically speaking it was probably only a promise to not change the business model, but renting yourself out as a skinsuit is not in fact a traditionally accepted form of community banking. After FTX blew up, the relevant regulators were reminded, somehow, that Chalopin is a bagman, and issued a very stern cease and desist.

This killed the bank the bagman and the Bankman had conspired to puppet.

Reading the tea leaves, Chalopin will likely get to be roguish and charming to a very different audience than Zeke, and Chalopin’s travel expenditures for that gonzo adventure will be covered by the United States.

We return you to your regularly scheduled book review.

The tenor of most crypto coverage

Coverage of the crypto industry tends towards fawning and, when Number Go Down, becomes immediately disinterested in who lost money and the coverage’s complicity in that loss. To his credit, Zeke flies out to the Philippines to talk to Axie Infinity “scholars” (victims). Axie Infinity was a pyramid scheme covered largely incuriously in many high status places, including (it must be said) in Bloomberg, and which received promotion, enthusiasm, and money from people in tech who should have known better, including (it must be said) investors at A16Z.

Zeke hires a Tagalog interpreter to talk to people far more intimately affected by Axie than most of the crypto community was. That act is a valuable public service. They say things which are very predictable to any competent person who thought about Axie for more than a minute. But they are real people who exist in the real world, in circumstances well-paid Americans would not wish on their worst enemy, who we built a machine to exploit because Number Go Up. But we speedrun Axie's rise and collapse. Crypto has a new pay-to-earn to pitch (Zeke covers a few pivots) and Zeke himself is off to Cambodia, for the book’s (by far) most disturbing chapter.

Slavery is an institution which continues to exist. We react to that with the appropriate amount of moral horror, and nowhere near the appropriate amount of physical action, for understandable reasons. Zeke flies to Cambodia and pulls out his I’m An American So You (Probably) Can’t Kill Me card to get far physically closer to slaves than most Americans ever will.

Some of the slaves are being used to staff cryptocurrency scams operated by Chinese gangsters. Those scams take payment over Tether; this is probably a more incidental fact of their slavery than the text tries to leave you with. One gains sympathy for Sam Bankman-Fried, and isn’t that a sentence, when he tells Zeke that the situation is fucked and he has no idea what to do about it.

In a famous scene in The Wire, a killer of men flippantly tells a criminal defense attorney “I’ve got a shotgun, you’ve got the briefcase. It’s all in the game though, right?” The point is that both high status and low status actors are, in the language of the scene, parasites on the suffering implicit in the drug trade. The criminal defense attorney is a criminal defense attorney, though, which is why I want to carefully say that I remembered this scene while reading the Cambodia chapter but do not think it is analogous. I remembered it at the point where Zeke expresses moral distaste for a Vietnamese YouTuber interviewing former slaves, and in some cases directly causing them to be “former”, in the service of wringing money from Google. “It seemed distasteful to turn human suffering into YouTube content.”, Zeke writes, in the middle of a book published by Crown Currency whose Kindle edition has an MSRP of $13.99.

But Zeke is much more self-aware than this discordant note would suggest, which is why I mention it. For example, he later muses that he might have zeroed in on the wrong part of the FTX story when focusing on whether Sam Bankman-Fried was actually an effective altruist. I can relate; I was so sure SBF's job and source of economic advantage was being Tether's #1 bagman (never developed a strong feeling on whether he was 100% aware of this) that I overdiscounted the possibility he was also e.g. abominably bad at some of the things his sideline in running a cryptocurrency exchange and hedge fund required of him. Why discount that? I believed the day job was a sufficient explanation for having lots of money to throw around and he struck (and strikes) me as intelligent, which I assumed implied competence.

Many people have in the wake of the fiasco reexamined the evidence and updated towards him being more evil and more competent; I have yet to see anything which causes me to update away from him being sincere, charismatic, and utterly incompetent. Finance is aware this is a risk in senior leaders and that is why it has balance sheets and accounting controls. I modeled someone with a fantastically lucrative career in making crime palatable to high status institutions as being someone who probably had really good accountants (he did) and probably didn't run the business out of Google Sheets and Post-it notes (sadly, also true).

Memo to self: more math, less vibes in future.

A book not yet written

Every non-fiction book is paired with a notional anti-book, the part of the story which through some alchemy of authorial intent and happenstance was not told. The anti-book to Number Go Up would have covered, in appropriate detail, how crypto (and not just Sam Bankman-Fried) is making a concerted effort at regulatory capture and claims to have cleaned up its act. The anti-book would quote, at length, the adults who are newly in the room, and the consequences of their actions.

In the anti-book, the Canadian pension fund CDPQ which invested several hundred million dollars into Celsius would have been interviewed at length about their decision to buy equity in an insolvent financial entity at a non-zero valuation. Neither financial journalists nor their readers are particularly skilled at decoding balance sheets, but investment committees at pension funds are. The anti-book would print the balance sheet that the pension fund was swindled by, then quote an Accounting 101 professor explaining how even a C student could see it might as well be written in crayon, then quote the pension fund’s investment memo. Then the anti-book would triumphantly say “And then they lost all the money, because of course they did.”, and be very smug about it.

Celsius, a hive of scum and villainy even by crypto standards, whose CFO ended up remote working from an Israeli prison before the firm even got into trouble, gets a lot of airtime in Number Go Up. This is because their CEO Mashinsky is colorful character and fits in well with irascible incompetents.

But that’s the point, the anti-book would make great hay out of. This is the institutional, buttoned-up, the adults-have-arrived crypto. This is what the pension funds invest in. This is what pension fund CEO Charles Emond claimed was subject to extensive due diligence “... with many consultants and experts involved.”

Number Goes Up has a chemically-drenched chapter covering Jimmy Fallon during his career arc as a promoter for NFTs. NFTs, for those struggling to keep acronyms straight, were a briefly popular way to run unregistered securities offerings, after crypto realized that the last word in Initial Coin Offering (ICO) would eventually wake up a securities regulator.

Who cares about any of that? I want a book about what Charles Emond is smoking. Jimmy Fallon’s job is convincing the world he is capable of witty banter. Charles Emond’s job is making sure retired Canadian teachers can continue to eat. Hundreds of hours of evidence dispute Jimmy Fallon’s competence but on the plus side no abuse of the public trust he is capable of would result in people dying.

I would gladly read hundreds of pages of carefully recorded interviews and written documents by the adults in the room. Let the world behold the probity of our class and the exacting standards of our institutions.

We gloss over a publicly traded company (Voyager) which blew up alongside Celsius. It had the same risk controls (the empty set is equivalent to itself) and the same capture by a major client. That is a story worth telling, even if it is not nearly as cinematic due to lacking a serial fraudster CEO who seems seized by a compulsion to leave video evidence.

BlockFi barely gets mentioned either. They were, if you missed them, another adults-in-the-room crypto lending play. BlockFi’s CEO Zac Prince had an excellent conversation with his investors on a public podcast on June 24th, 2022. I think you could fairly characterize that conversation as bullish and attempting to distinguish them from the amateurs that had just blown up because they didn’t understand what e.g. asset/liability mismatch was. BlockFi filed for bankruptcy on November 28th. BlockFi apparently learned something about the shape of the world in about a hundred days which was surprising to them; perhaps the anti-book could explore what they learned.

At what point did Digital Currency Group realize that their subsidiary Genesis’s insolvency, in the same fracas, meant that DCG was cooked due to extensive self-dealing they had engaged in to paper over earlier, mostly distinct, stupid mistakes and malfeasance? You could write a book just about the GBTC arbitrage trade that blew up DCG.

The stakes are higher than they are believed to be

Number Go Up would be one of the most important works of investigative journalism ever if it showed the spread of the rot. Crypto marched through our most important institutions like cordyceps with a gain-of-function upgrade. It was a malevolent memeplex which corrupted some through ideology, some with crass lucre, and some by merely showing them a good time.

The corrupted were not merely no-account jokers, drug-addled former childhood actors, or members of hithertofore obscure Internet subcultures. They include every level (every level!) of our most significant national industries, regulators, and politicians, past and still serving.

FTX bought the time of Bill Clinton and Tony Blaire. Sam Bankman-Fried was believed by those in the halls of power to be the largest source of future funding to the Democratic Party. Meanwhile, his cutouts were busy sewing up the other side of the aisle. The conspiracy documented their strategy to remove crypto-skeptical legislators in writing.

A senior FTX advisor who, as a Stanford Law professor and major Democratic bundler, likely understood the law here, described that it would be unfortunate if the cutouts were understood to be “fronts”, in writing. Para 113. Financial journalism detects that the story there is that she is Sam Bankman-Fried’s mother. Homer (the Greek one not the yellow one) would be jealous of achieving that level of vibes, but we mostly don’t expect Homer to inform our views on governance.

Tether eschewed the quiet influence business and tried to buy a sovereign nation. (Never wanting to fail to hedge their bets, FTX very likely tried to buy a nation, too. They put a different variant of that plan in writing.)

Where are those interviews? Or one with Arthur Hayes, who bragged that he could suborn a nation for the price of, and this is a quote, "a coconut."

Heck, if you pull on that string a little longer... well, as The Wire says, "[Y]ou start to follow the money, and you don't know where the fuck it's gonna take you." Plausibly it takes you to somewhere broader, deeper, and darker than crypto.

Looking forward to the new revised edition when it is published

Zeke expresses some level of forward-looking regret that he might never get handed as juicy a story as crypto was in 2021 and 2022. There still exists juice, Zeke! Go get the juice! You still have a de facto worldwide monopoly on juicing! The rest of financial journalism cannot find an apple in an orchard at harvest time!

One imagines there are intelligence services that look at crypto and sigh, perhaps aspiring to some day match their operational cadence and breadth of activity. Perhaps one could interview senior ex-officials of them, and get a lot of quotes which would rhyme with “Holy #*(%*#(%*#( #*$(#(%*#% they were ambitious but an important part of the job is not getting caught. A good thing they did get caught, because otherwise the most Dangerous Professionals in the world would work for them now.”

I wish institutions, across the spectrum, would take crypto more seriously. Many in crypto have wanted to be heard sympathetically; seriousness and sympathy are not the same.

As it is, the book is the most important book about crypto, with the rest of the story very undertold. Zeke apparently (per his appearance on a podcast) has reserved the option with his publisher to add a postscript about Tether once they get what is coming to them.

I predict it will not be 5.075% on a 2 year T-Bill.

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