Encore: Crypto Wars | Zuckerpunch | 6

0:00This series originally aired in 2021.

0:11November 2017, Coinbase head office, San Francisco. In a glass-walled meeting room, CEO Brian Armstrong and his legal chief are checking the damage from the company's courtroom showdown with the IRS. The legal chief pushes his chair back and looks up. Well, it could have been bloodier. Sure, but it's still not ideal. The battle began in 2016, when federal tax collectors noticed that only 800 people in the entire country reported their crypto profits and losses. The IRS believed thousands had failed to report capital gains tax due on their crypto trades. So the IRS demanded that Coinbase hand over customer details so it could identify the tax dodgers.

0:58But this was a battle Coinbase decided it had to fight in court to reassure their customers that their information would not be revealed. And this morning, the court made its decision. We've gone from having to provide details on half a million customers to just 13 ,000. It's not a total victory, but at least we can say we did all we could to protect our customers' privacy. Hmm. I'm still not happy, but... Armstrong trails off mid-senate. Through the glass wall, he can see the entire office grinding to a halt. People are rising from their chairs and gathering around the flat screen monitors on the walls.

1:40Something's happening. Armstrong heads out of the meeting room. By now, the office is at a standstill. Everybody's staring at the screens showing the live price of Bitcoin. The price is creeping up, up towards an all-time high of$10 ,000. The employees watch as the price graph wobbles higher and higher. One employee whispers encouragement under his breath. Come on, come on. The price punches through the$10 ,000 barrier, and the place goes wild with people hugging, jumping, grinning, and cheering.

2:22Bitcoin's move from four - to five-figure prices is a psychological milestone that caps a spectacular year for crypto. Since 2017 began, Bitcoin's price has soared more than 900%. The world's supply of Bitcoins is now worth more than$160 billion. It's boom time for crypto, and tens of millions of people are buying in. But this digital gold rush isn't just attracting investors seeking sky-high gains. It's also drawing in legions of con artists who are about to swindle people out of billions.

3:17just about anything, like a slice of pizza from your local pizza place or a latte from the corner coffee shop. Apply for Apple Card in the Wallet app to see your credit limit offer in minutes. Subject to credit approval, Apple Card issued by Goldman Sachs Bank USA, Salt Lake City branch. Terms and more at applecard.com. As business owners and managers, you use software for your business every day. You use one piece of software to manage your customers, another to manage your employees, another to manage your finances, and the list goes on. You buy these pieces independently and hope they fit neatly together like a puzzle.

3:53And then you find out the hard way that they don't, and you end up with a mess at the heart of your business operations. Does any of this sound familiar? Well, fortunately, Zoho offers a solution to this chaos. It's called Zoho One. Zoho One is a suite of around 50 pre-integrated business applications that fit together beautifully. So instead of dealing with disparate software from multiple vendors with multiple contracts and price points, you deal with one vendor with all the pieces of the business software puzzle neatly put together offered at a very attractive price. Now if this sounds interesting to you, you gotta check out Zoho One at Zoho.one.

4:35That's Z-O-H-O dot O-N-E. With Zoho, you're not just licensing apps. You're licensing peace of mind. From Wondery, I'm David Brown, and this is Business Wars.

5:15On the last episode, Ethereum sparked a digital gold rush that sent crypto prices rocketing. Coinbase's trading systems almost collapsed after millions of new customers signed up and stock trading app Robinhood jumped on the crypto bandwagon. But now, the crypto craze is about to run out of gas. This is Episode 6, Zucker Punch.

5:47It's October 2017, and in Thailand, the first BitConnect conference is underway. It's a live-streamed celebration with acrobats, awards, and ceremonial sword fights. There's a lot to celebrate. At the start of 2017, a BitConnect coin cost 17 cents. Now, they're worth$220. dollars. And on the stage, some of the people who struck digital gold are sharing their stories. A bald, muscular man grabs the mic. Hey, hey, hey. Hey, hey, hey. Hey, hey, hey, everybody. My name is Carlos Matos, and I am coming from New York City, New York. And let me tell you that we are really changing the world as we know it the world is not anymore the way it used to be no no no be connect

6:49let me tell you guys that i started 137 days ago with only 25 610 dollars and right now i am reaching$140 ,000. I am saying to so many people who said that this was going to be a con artist game, that this was going to be a scammer game. Hey, you're going to lose all your money. My wife still doesn't believe in me. I'm telling him, honey, this is real. No, no, no, no, no, no. That's a scam. But Carlos' wife is right. BitConnect is a scam, and a damn successful one. BitConnect promises those who buy its coins that their investment will grow 48 % a month. At that rate, 10 grand would become$90 trillion in five years.

7:43In the heady crypto boom, BitConnect's big promises and vague claims of advanced blockchains are enough to get people to pony up$2 billion. But BitConnect is just the tip of the iceberg. There are hundreds of other swindlers out there exploiting people's hunger for crypto. Some hold initial coin offerings before running off with the cash. Other scammers buy low-value cryptos and hype them relentlessly until others rush in. Then, when the price spikes, the conspirators sell, leaving victims with junk tokens. Regulator warnings about the scams go unheeded. Those who question the hype get shouted down on social media.

8:29Crypto is now one of the all-time biggest bubbles in financial history. And it's ready to burst.

8:42January 2018, Sydney, Australia. In a suburban home, a young father fires up the PC in the living room, Checking his crypto is part of his morning routine. He got into BitConnect after seeing YouTubers boasting about the megabucks they're making. He bought a little, sold it, and got his money back. Reassured that it was legit, he did the math and realized that if he went all in, he could pay off the family's mortgage in six months. So in went his monthly paycheck. Then, the family's savings. Now, each morning, he checks his ballooning investment before heading for work with a smile on his face.

9:24But not this morning. Huh? His wife walks past trying to settle their newborn child. How much you got now? Uh, it's not there. What's that? BitConnect's website. It's all gone. He Googles BitConnect. News stories fill the screen. Stories about BitConnect vanishing in a puff of smoke after regulators issued cease and desist orders. Yesterday, BitConnect coins were worth hundreds of dollars. Now, they're worth cents. What have I done? What have I done? What's happening? Everything's gone. I put all our savings in there. You did what? Across the world, thousands are waking up to the same news. Some will lose not just money, but their marriages, homes, and mental health too.

10:29Not that the shadowy people behind BitConnect care. They've pocketed more than a billion dollars. But BitConnect investors aren't the only ones losing their shirts. The entire crypto market's in freefall. Panic gripped the crypto market right before Christmas, causing the price of Bitcoin to collapse from$17 ,000 to$12 ,000 in just 24 hours. Then, China banned initial coin offerings and crypto exchanges, annihilating the Chinese crypto market, a market that just a year earlier accounted for 90 % of all Bitcoin trades. China's clampdown craters the price of Bitcoin again. and where Bitcoin leads, other crypto follows.

11:15The boom is now bust, and those who didn't bail in time have little option but to sit on their devalued tokens and pray for the glory days to return.

11:33Spring 2018, San Francisco. In the Coinbase conference room, CEO Brian Armstrong is updating the company's board on business. This year, we forecast revenues of half a billion dollars. One board member almost spits out his coconut water. What? Last year you did a billion dollars. You're saying revenues will drop 50 %? Bitcoin is down 70 % since December. Other crypto even more. Trading volumes have dropped 80%. That means the money we make from commissions has fallen drastically. it. The board members are aghast. Coinbase's investors expect fat returns. Instead, the company's shrinking fast. Chief Operating Officer Asif Herji rises from his chair.

12:22The Coinbase board appointed this former TD Ameritrade exec last November, hoping he could professionalize the company. Herji senses that the board could do with some East Coast Gravitas right now. This downturn is an opportunity. The board member with the coconut water scowls. How's a 50 % revenue drop in opportunity? Coinbase nearly imploded in December because its technology and customer support couldn't handle the demand. This gives us breathing room to ensure that gets fixed. Armstrong steps in. We anticipated the crash, so we built up a cash buffer during the boom to see us through any downturn.

13:03When the market rebounds, we'll be ready. What makes you so certain there will even be a recovery? Look, Bitcoin's price is still higher than before the boom. When the boom began, Bitcoins cost$1 ,000. Today, they cost$8 ,000. It's more instructive to look at price lows than highs. There's too much froth in the highs, and the lows are trending up. The board members relax. They're not sure if Armstrong's plan to hold steady will work. But at least there is a plan. Coinbase is now the number one place for small-time U.S. investors to trade crypto. But threats remain. The Winklevoss twins' Gemini exchange is still a contender in the battle to win over the titans of high finance.

13:52Then there's Robinhood, the stock trading app that pioneered commission-free trades. It could be a formidable foe, but is it in crypto for the long haul? There's also Binance, the crypto exchange founded by Chinese entrepreneur CZ. It's now the world's favorite place to buy and sell crypto. Even China's crypto clampdown couldn't stop it. With a remote workforce and no office or bank account tying it down, Binance exited China in a single click.

14:50No more worrying about growing too fast. Just the full power of Workday Go, helping small to mid-sized businesses like yours scale and run more smoothly. Think about what that means. Seamless onboarding for new team members. Real-time insights at your fingertips. And payroll that works perfectly every single time. So you can focus on the big picture and go after your big ambitions. And with Workday, you can activate quickly in as little as 30 to 60 business days. So simplify your business. Go for growth. Go with Workday Go. When planning for your future, you want someone with a history of keeping their word year after year.

15:33For nearly 160 years, Pacific Life has been a trusted name in the industry. But that isn't just a number. It's experience that matters. It's 160 years of promises held, helping generations retire with confidence, protect their loved ones, and plan for whatever comes next. Whether you're looking for life insurance, employee benefits, or retirement income solutions, when your future's on the line, you want history on your side. And believe me, Pacific Life has been there, always there through changing times, always focused on your needs. Ready to secure your tomorrow? Ask a financial professional how Pacific Life can help you feel prepared for what's next.

16:13Pacific Life Insurance Company, Omaha, Nebraska, and in New York, Pacific Life & Annuity, Phoenix, Arizona. Because with Pacific Life, you're not just planning for the future, you're partnering with trusted experience. Summer 2018, Coinbase headquarters, San Francisco. Balaji Srinivasan leans over the meeting room table and glares at Hirji. Screw Chicago. We need to compete with Binance. Hirji's eyes widen. Srinivasan is Coinbase's new chief technology officer, and he's a handful. We need to list more cryptos. Binance has hundreds. We've got what, four? People want to buy the latest cryptos. Binance gives people that choice.

16:59We don't. Hirji interjects. We make our money by charging commissions on each trade. Most of the coins you're talking about are unpopular and near worthless. They won't make us enough money to justify the cost of listing them. We need to focus on getting hedge funds into crypto. Srinivasan stuffs his hands into the front pocket of his white hoodie and sneers at Hirji. Our customers aren't Wall Street suits. They're everyday people. If we give them more choices, they will trade more and we'll make more money. If we don't act, they'll just go to Binance. And that is why we are going to list more coins.

17:37Here she turns to CEO Brian Armstrong, who's been quietly watching the whole time. Brian, are you on board with this? Armstrong glances at his warring execs, then replies, We can do more than one thing, so yeah. But Coinbase isn't just adding more coins to its exchange. It's also minting a crypto of its own. In May 2018, it helps launch the USD coin. USD coin is a stable coin, a new kind of cryptocurrency that pegs its value to national currencies. Each USD coin is worth$1 and promises to combine the price stability of the greenback with the easy movement and lower transaction fees of crypto. The Winklevoss twins are also on the case.

18:29In September 2018, they launch a rival stablecoin called the Gemini Dollar. But even as the twins flash their newly created cash, an old foe is sizing up their lunch.

18:48January 2019, Menlo Park, California. In a secure building on Facebook's campus, David Marcus is on edge. This silver-haired executive and his team have been working on a top-secret project for a year. Now, its future hangs in the balance. A team member rushes over. He's coming! Marcus turns to see Facebook CEO Mark Zuckerberg enter the room, trailed by advisors. It's showtime. Marcus leads Zuckerberg into the meeting room. On the screen, the presentation is ready to go. The opening slide reads, Introducing Libra, a Universal Digital Coin. Zuckerberg listens as Marcus outlines the master plan.

19:38Libra's mission is to create a global payment system and empower billions of people. One billion adults have cell phones but no bank. Libra can connect them to the financial system. Libra will process payments faster than Bitcoin. It'll be more stable, too, because every Libra coin will be backed with national currency. Zuckerberg interjects. How does this benefit Facebook? Libra will integrate the payment systems of Facebook, Messenger, WhatsApp, and Instagram. Zuckerberg looks impressed, but then Marcus hurls a curveball. Libra will be owned and controlled by the Libra Association. Zuckerberg blinks.

20:20The Libra Association? It will be a group of 100 equal partners who will operate the Libra blockchain. Facebook will be one of those partners. Why would we cede control of the digital currency we've spent a billion dollars creating? If Libra is seen as Facebook's coin, it'll be dead in the water. By ceding control, people will be more likely to trust Libra and adopt it globally. Zuckerberg smiles. Building a global currency is an audacious plan. But as the world's top social network corporation, Facebook is well-placed to get hundreds of millions of people using Libra. An advisor whispers in Zuckerberg's ear, this could cause blowback.

21:04We can write it out. Besides, it's the Libra Association's cryptocurrency, not ours.

21:13In June 2019, Facebook announces Libra and a list of two dozen prospective partners, including Visa, MasterCard, PayPal, eBay, and Coinbase. The news gets greeted by a hailstorm of protest. Governments, privacy campaigners, central banks, politicians of all stripes, and crypto fans unite in opposition to Facebook's bid to wrap its tentacles around the world's financial system. Within days, Marcus is hauled before senators in Washington. You know, this is a$20 bill. Do you know who can use a$20 bill? Or who can, maybe, better question, who can't use a$20 bill? I believe the answer to your question is everyone can use a$20 bill.

21:58This$20 bill doesn't discriminate on anything. You could be a murderer, you can say horrible things, you can say great things. This$20 bill can be used by every single person that possesses it with regard to your network. On Facebook, you don't allow gun sales. So can a gun dealer who's abiding by American law, can they use your system? So this is a question that is really important to get right, Congressman. and we haven't written a policy yet. And that's what concerns me. I love what you're doing, but when we say we at Facebook are going to set the social policies of who can use this cryptocurrency, in a way, we're going to set the social policy of who's in and who's out.

22:47Facebook figures the fuss will die down, but the heat just keeps rising. The People's Bank of China identifies Libra as a threat and fast-tracks its plan to introduce a digital currency that could form the basis for an alternative to the existing West-controlled financial system. In the U.S. and Europe, alarmed politicians and regulators propose new laws to snuff out Libra. By October, Libra's partners are bailing. PayPal jumps first. MasterCard, Visa, and eBay follow soon after. Faced with overwhelming opposition, the Libra Association dilutes the ambition, rebrands as Diem, and delays the launch time and time again.

23:352019 ends with Facebook in retreat and Bitcoin prices in the doldrums. Two years after the crypto crash, the days when people would bet the house and kids on digital cash, seem long gone. But then, COVID-19 brings the global economy to its knees. Soon, there are millions of bored, locked-down people wondering what to do with their government stimulus checks. And some of them are feeling lucky.

24:14Being a serious business owner takes hard work, patience, and a drive to keep moving forward. So it's important to find a serious business card that goes the extra mile. With the VentureX Business Card from Capital One, you earn unlimited double miles on every purchase. And with big purchasing power, you can spend more and earn more. This is your sign to take your business to the next level. The Capital One VentureX Business Card. What's in your wallet? Terms apply. See CapitalOne.com for details.

24:55It's January 2021, and a CNBC presenter is trying to wrap her head around the latest tweets from Tesla founder Elon Musk. Overnight, he's been tweeting, and it is driving up Dogecoin pretty significantly. It's up by 72 percent. You know, I don't even follow this or know what's going on with it. But if you look on Twitter, Elon said first, Dogecoin is the people's crypto. No need to be a gigachad to own. He tweeted other things just like no highs, no lows, only Doge. Until the Tesla founders mystifying tweets arrived, few people had heard of Dogecoin and even fewer cared. It was, after all, a seven year old joke inspired by an Internet fad for posting pictures of Shiba Inu dogs surrounded by broken English phrases and created to mock Bitcoin and the whole culture of cryptocurrency speculation.

25:51But Musk's endorsement inspires thousands of his fans to get into Doge. The price of Dogecoin rockets from less than a penny to eight cents. As the price soars, people hunt for somewhere to buy Dogecoin. Coinbase shunned it, but Robinhood offers it. And it rakes in$30 million in the first quarter of 2021 just from Dogecoin trades. Now, Coinbase scrambles to offer not only Dogecoin, but every crypto legally possible. But Musk isn't done playing the crypto market like a yo-yo just yet. In February, Tesla reveals it has bought$1.5 billion of Bitcoin and plans to let people buy its cars with crypto.

26:40The news boosts Bitcoin's price 14%. Then, research exposes Bitcoin's environmental cost. Over the course of a year, Bitcoin mining consumes more electricity than all of Argentina. Each Bitcoin transaction uses the same energy as the average U.S. household uses in 62 days. Musk responds by canceling Tesla's Bitcoin plans, knocking 15 % off the price of the crypto. But believers are undeterred. A year into the COVID-19 pandemic, crypto's on a roll. With COVID tanking the world economy, governments dish out trillions of dollars in stimulus packages, and millions of people park that money in crypto.

27:30In a low-yield financial climate, that even some investment funds go into crypto in a desperate hunt for some, any, returns. Bitcoin entered 2020 worth just over$7 ,000. A year on, it's pushing$50 ,000. And with crypto bigger than ever, Coinbase decides to cash in its chips.