Crypto Fraud, Trump & Binance: Takeaways from McKenzie's Film

Anat Mati, faculty director of the Corporations and Society Initiative, introduced Ben McKenzie to discuss his film, "Everyone is Lying to You for Money." The film explores the deceptive practices in the cryptocurrency world, where individuals are often misled into believing false narratives, acting on them, and subsequently losing significant amounts of money. These deceptions are often perpetuated by promoters and influencers who are paid to lie.

The Evolution of Crypto Fraud and Political Involvement

McKenzie's film, primarily covering events up to 2022, has seen its warnings unfortunately come to fruition. He noted that the issues have only exacerbated, particularly with the institutionalization of fraud, now reaching the White House.

A significant development since the film's initial release is Donald Trump's pivot to cryptocurrency. While Trump called Bitcoin a scam in 2021, by the summer of 2024, during his re-election campaign, he changed his stance, even appearing at a Bitcoin conference. McKenzie described this as a "gut punch," fearing the combination of a privately issued fraudulent currency with a "convicted fraudster president" would be a recipe for disaster.

McKenzie highlighted that a substantial portion of the $2 billion Trump has reportedly made in less than two years in office has come from crypto. This includes ventures like "Trump coin" and "Liberty Financial," as well as pardons granted to individuals convicted of money laundering.

The Binance Case and Geopolitical Concerns

One particular case of concern is that of Changpeng Zhao (CZ), the founder of Binance, the largest crypto exchange. Binance is notoriously opaque, famously claiming to have no headquarters, which McKenzie described as a "neat trick" to avoid banking laws like anti-money laundering and know-your-customer regulations.

CZ pleaded guilty to money laundering, served a few months in jail, and his company paid a $4.3 billion fine for facilitating money laundering. Following this, Trump pardoned CZ. Shortly thereafter, CZ's crypto venture received a massive investment from the UAE, where CZ is currently located.

McKenzie expressed deep concern over this, noting that while some of Trump's crypto earnings come from his loyal followers investing in "memecoins," his stablecoin ventures are funded by entities like the UAE, which are "anything but democratic." He questioned what these forces would expect in return for their investment.

Crypto's Integration into the Financial System and Future Risks

The integration of stablecoins into the broader financial system is a major worry. McKenzie and Mati discussed how this magnifies existing fragilities, potentially requiring the Federal Reserve and other safety nets to intervene in a crisis. Some experts even suggest that a future crypto-related crisis could make the 2007-2009 financial crisis seem minor, harking back to the Great Depression.

McKenzie drew parallels to the 2007-2008 crisis, where poorly understood financial products susceptible to runs were issued. He pointed out that crypto is known for its volatility and the lack of substantial real money backing these "fake currencies." He cited Alex Mashinsky of Celsius, who claimed only 10-15% real money in his system, the rest being speculation. Mashinsky is now in jail for fraud.

The Trump family has even applied for and received a banking license, further integrating crypto into the traditional banking system. McKenzie fears that when the next bubble pops—whether crypto, AI, or something else—it could trigger a crisis similar to what happened in 2023. In that year, three banks failed in the U.S., all tied to crypto, leading to bailouts and support. While Silicon Valley Bank's failure was related to interest rates, McKenzie noted that the crypto industry's narrative that it had nothing to do with crypto is "preposterous" and not supported by facts.

He worries about a scenario where a severe market correction or crash leads people to try and withdraw their "real money," only to find it isn't there, especially now that larger banks are becoming involved.

The Broader Problem: Gambling, Addiction, and Political Radicalization

Mati urged viewers to be vigilant, demand action from policymakers, and resist propaganda to protect their money and society from the consequences of these issues.

McKenzie sees crypto as broadly similar to gambling for the retail public, where people bet on price fluctuations. He extended this concern to the rise of prediction markets and sports gambling, which he believes are "out of control." If he could, he would push back on the advertising capabilities of these companies, as their ads are ubiquitous, especially in sports.

He described these activities as addictive and extractive. A Wall Street Journal report found that 0.7% of accounts on prediction markets made 70% of the profits, meaning the average person loses money. Companies actively court young men who lose money, offering them exclusive access.

McKenzie, a capitalist himself, argued that these "zero-sum games" are fundamentally extractive and should be properly regulated, not outlawed. He warned that these activities are further radicalizing a segment of young men who are already disaffected. These individuals, after losing money in crypto, often blame democratic governments rather than the actual perpetrators of the fraud. He has observed a clear overlap between these disaffected young men and the rise of the far right, as they are taught to focus their anger on "woke" culture, "evil government regulations," or "free market propaganda" rather than those who are truly lying to them.

Mati commended McKenzie for his advocacy, documenting these issues, and using his voice to speak up, including testifying before Congress. She acknowledged that it is a "tough battle," a marathon, not a sprint, but emphasized the importance of continued effort.