The Wild West of Crypto: an Insider’s Story

As someone who has been involved in bitcoin since 2011, you would think I would have retired by now to a beach in the Caribbean. Instead, I am still working as hard as ever, as most of my crypto hodling went south (checkout my crypto archives here). Speaking of which, there is a brand new book that recounts the story of many of the crypto people, from the inside out. It is Jake Donoghue’s Crypto Confidential: An Insider’s Account From The Frontlines Of Fraud, which tells the story of the industry's rise and fall, fall and rise, rise and fall, fall and rise ... you get the idea.

In doing so, it sheds light on some of the most scandalous financial crimes of the twenty-first century.

From billion-dollar fraud cases to international money laundering cartels, political bribery and even faked deaths, it lifts the lid on the intricate and immense web of malpractice that crypto founders spin to trap ordinary investors. Written by a prominent and well-connected insider, Crypto Confidential provides a first-hand account of how the industry truly operates, and how every aspect is engineered for one purpose: to make vast amounts of fast money for those on the inside, by any means necessary.

Jake Donoghue’s book “Crypto Confidential: An Insider’s Account from the Frontlines of Fraud” gets released on 22nd August and is now available to pre-order [Amazon, UK; History Press, UK] and here is an advance preview exclusively for readers of The Finanser:

Prologue: The Swindler’s Symposium

I forced my way through the frenzied crowd, holding my phone like a man overboard with a lifeline. For the past 2 hours it had been pinging almost constantly with horrifying updates and even more alarming projections. It was a bloodbath; I had never seen this much red.

With a million sharply declining charts searing into my vision, I picked a precarious path through swathes of inebriated partygoers. The atmosphere may have been one of celebration, but I was a oneman island of terror. I had to find Archie; I knew he would be hidden somewhere in this heaving mass of bodies. I had to speak to him to make sense of what was going on. To ask how we were going to pull through this.

The year was 2022. Bitcoin was crashing, and everything was totally and irrevocably fucked.

In light of the market meltdown, I had arrived late to my own party. Midnight had come and gone before I found the entrance to the bar. We were in Canary Wharf, after all: a maze of endless, hollow boulevards. Here was the dark heart of British finance – a gleaming playground for capital and an apt setting for such an event.

Stealing out of the cold November night, I was ushered into the foyer of tonight’s low-ceilinged, clammy venue by Claire, our none-too-impressed events coordinator. She shouted over the blaring music, gesticulating wildly and speaking a novel and hybrid language – a fusion of English, French and general exasperation. With much effort, I managed to catch the gist of her discontent: London’s crypto bros had arrived in force, and now they were letting down their hair as only the sickeningly rich can.

I told her she could dispense with door duties and join the party, and we both strode into the main room – I in search of my co-founder, she in search of the open bar. I eventually spotted Archie, holding court in a quieter corner of the bar, surrounded by an audience of young men with glazed eyes and vacant expressions. Whatever he was saying, it would have to wait.

I hurried over to him, stammering an apology to the pack of hangers-on I pushed out the way.

‘Archie,’ I said, my voice a heady blend of relief and distress. ‘Archie, mate, you need to see this.’

I held out my phone, a price chart filling the display. I studied Archie’s expression as he looked at the chart, his face aglow in malevolent red light. Archie raised his eyes to meet mine, then reached out and snatched the phone from my hand. He swiped at the screen and started typing, watching for a reply from whoever he had just messaged.

‘Fucking hell,’ he eventually said.

‘Right,’ I said. ‘It’s bad, isn’t it?’

‘It’s awful,’ he said. Then, with a grin, he added, ‘I just messaged the manager, and he’s saying we’ve still got eight grand on the bar tab. What the fuck have these people been doing all night?’

With a laugh, Archie thrust my phone at my chest. Then he seized me and the nearest of the bystanders and marched us both to the bar, gesturing for another round of whatever overpriced concoction he had been quaffing all evening.

‘Right,’ Archie said, turning to me as the barman busied himself with an array of bottles. ‘What was that shit you were showing me on your phone?’

I blinked and looked into Archie’s drunken eyes. Music was pounding and strobes fashed from above, lending a dreamlike glow to the scene. ‘Are you fucking mental? Have you seen what’s happening to the markets? This is the lowest bitcoin has traded for over two years, and everything else is getting rekt with it.’

‘Rekt’ is a morsel of crypto slang that is used to describe a collapse in the price of an asset – or, in this case, the entire market. A deliberate misspelling of ‘wrecked’, the term originated in the gaming community before being appropriated by crypto commentators. It’s a light-hearted term but is often used to describe even the most cataclysmic events.

But Archie wasn’t fazed. He simply laughed and said, ‘You could do with getting a bit more rekt yourself. You’re bringing the vibe down.’

Archie’s admonishment did nothing to calm the anxiety that had been overpowering me for the last few hours. Surveying the bar once more, I found yet more cause for concern in the sheer lack of concern around me. These were some of the most prominent, influential people in the entire industry, and not one of them seemed bothered by what was happening to the market. Their house was on fire and, rather than rushing for the door, grabbing the family photo albums on the way, they didn’t even appear to have noticed.

In one corner, the CEO of a crypto company worth just under half a billion dollars (and less still by the second) was attempting to ‘long arm’ a pint of beer. He held the pint at full arm’s length and raised it into the air. Some beer gushed into his open mouth, but most of it spilled over his face and down his shirt. Onlookers cheered, and the sodden CEO set down his glass, wiping flecks of foam from his chin.

In another corner, a group of try-hard traders, sporting slicked-back hair and shirts two sizes too small, laughed as they poured Cristal champagne over their plate-sized Patek Philippes. I rolled my eyes, having always considered this one of the more obnoxious practices of crypto millionaires.

Surely, I thought, everyone in the room couldn’t be so rich or stupid that they didn’t know or care about what was happening? Surely these erstwhile successful people wouldn’t fiddle all night while their empire burned?

I left Archie at the bar and plunged back into the crowd. This time, I was just looking for anyone who appeared sober or sensible. I needed a frame of reference, to vindicate my instinct that everyone else’s reaction was wrong.

I remembered hearing whispers of strange people who came to events like these to actually talk about business: to debate the goings-on of the industry, exchange contact details and build a web of useful connections. I realised in my desperation that this was exactly the type of person I needed now. Unconscionably, and in a sign that things really had gone to shit, I began to seek out that creature I had always shunned. The semi-mythical being I had pushed from my mind so many times. The Networker.

Soon enough, I spotted someone who seemed to fit the bill. With a bottle of mineral water in one hand and a deck of business cards in the other, this guy looked the right type to provide a sound take on the market turmoil.

‘Tim!’ revealed the name tag stuck to his lapel. And, indeed, Tim needed no prompting; as soon as I drifted into earshot, he launched into a lecture on the state of the gaming industry. He described, in an effortless monologue, how he was going to use blockchain technology to ‘disrupt legacy business practices’, ‘return gaming to the gamers’ and accomplish a number of other meaningless clichés.

‘That’s great,’ I said, when I understood he had finished. ‘And tell me, Tim, what do you make of what’s happening in the markets?’

‘What do you mean?’ ‘The crash! Do you think this might be it for the industry? And how bad do you think the contagion is going to be?’

Tim said nothing. He merely stared with an expression as still and flavourless as his mineral water.

‘I haven’t heard anything about a market crash,’ he eventually said. ‘Or, uh … contagion?’ His expression changed, so that he was now looking at me like you might regard a person shouting at themselves on the Tube.

Luckily, though, I didn’t need an excuse to extricate myself from Tim. Just before I could make something up about checking in with our events team, the music died all throughout the bar. An alien silence enveloped the dancefloor, followed shortly by the sharp sound of silverware striking glass. It was time for the speech.

I nodded goodbye to Tim and squeezed my way through the tangle of limbs. I was heading for the other side of the room, where I knew Archie had planned to deliver his address. After much exertion, I saw him clambering onto an empty crate of Bollinger – an improvised soapbox that seemed particularly fitting, given the night’s mood. Holding a microphone in his left hand and a half-smoked cigarette in his right, Archie was clearly in a bad way. But it helped that everyone else seemed to be in a bad way too. And it also helped that one of Archie’s greatest talents was being able to chat an astonishingly articulate amount of shit, no matter the state he was in.

Archie raised the microphone to his lips. He took a second to compose himself, and said, ‘Thank you all for coming!’

The crowd cheered. Glasses were raised, and drinks were sloshed.

‘Thankfully,’ continued Archie, ‘only one person got their phone out tonight to try to show me a price chart. And what I saw on the screen scared me, I won’t lie.’

I took a breath. Here it comes, I thought.

‘Yeah, I was very concerned that there wasn’t a single green dildo in sight. Plenty of big red ones though!’

The crowd burst into laughter, and I shook my head. For some context, in the world of trading, the movement of asset prices on charts is depicted with a series of ‘candlesticks’. These charts look a bit like your typical bar graph, except each solid bar has a ‘wick’ at the top and/or bottom. The purpose of the wick is to show the high and low extremes the asset has traded at each day. When the price moves up, the candlestick turns green, and red when it trades down. Crypto bros, having the mental maturity of prepubescent kids, refer to these bars as either ‘red dildos’ or ‘green dildos’, even though it would take a herculean stretch of the imagination for them to look even vaguely phallic.

‘Jokes aside,’ said Archie, his voice taking on a more sober edge as he found his rhythm, ‘I want to congratulate each and every person in this room tonight. We’re making generational change. I’ve been in crypto for a decade, and I’ve seen a lot of people come and go. It’s the people who keep their heads down and build who get through the tough times. Make no mistake, crypto is going to bounce back bigger and better than ever before. Thank you, and thank you all for coming!’

Archie raised his microphone triumphantly into the air, accepting the applause of the crowd, before clambering down from the soapbox. As soon as I saw him handing the mic to the next speaker, I made my way towards the exit. I had stuck around for Archie’s speech out of a sense of duty to my co-founder, but there was no chance I was going to participate in this extracurricular circle-jerk for a second longer than I had to.

I slipped from the bar and returned to the bracing November air. With red candlesticks burning behind my eyes, I ordered a cab, relishing the prospect of bringing this night to its long-overdue close.

In itself, the general farce and idiocy on display that night in Canary Wharf was nothing out of the ordinary. On the surface, it was a typical Wednesday night affair in the London crypto scene. But what dragged the egregious evening down to the level of downright degeneracy was the timing of it all. The party took place on the same night that FTX collapsed.

Prior to its fall, FTX was one of the most prominent cryptocurrency exchanges in the industry. Exchanges are essentially trading platforms that allow users to make bets on whether the prices of crypto assets will rise or fall. Or, at least, that’s what they used to be.

Over the years, some exchanges – including FTX – have made astronomical sums of money. And, in some cases, the meteoric rise of these crypto exchanges has brought out the latent megalomania of their founders. And then, somewhere along the road, some of these founders convinced themselves that their companies were actually more like banks than exchanges. FTX was one such crypto exchange that started acting like a quasi-bank (when they were not simply buying banks outright to skirt local licensing laws, that is).

In recent years, a familiar playbook has emerged. As the C-suite gets high off its own fumes, the mega-exchanges start to create and issue currencies like they’re going out of fashion. At the same time, they roll out every financial service under the sun – from capital lending to the provision of credit cards and savings accounts – and even start trading the market like hedge funds. With so many fingers in so many pies, the exchanges afford themselves ample opportunity to commit financial misdeeds. Combine this with a non-existent regulatory framework (much of crypto remains, even to this day, wholly unregulated) and we arrive at what a financial journalist struggling for originality might well term a perfect storm of corruption.

And, indeed, the crimes and corruptions of FTX were truly immense, in both scale and quantity. The charge sheet against Sam Bankman-Fried (the disgraced former CEO of the company) was so encyclopaedic that it would’ve made Bernie Madoff wince. It ranged from fraud, money laundering and embezzlement to more ambitious and specialist crimes like making illicit political donations. His crimes were so extensive that prosecutors even had to drop some of the charges, as otherwise it simply would’ve taken too many years to process all the evidence. And on 2 November 2023 he was found guilty of all the counts brought against him. At the time of writing he’s awaiting sentencing and is facing over a century in prison.

It’s no exaggeration, then, to say that the case of FTX is one of the grossest and gravest cases of fraud in the twenty-first century, if not the entire history of finance. Not only was a $36 billion company wiped out overnight, but billions of dollars of customer funds, which were being stored on the exchange, were lost. And that’s not to mention the knock-on effects that reverberated through the space; investor confidence descended into a death spiral, causing the value of other assets, like bitcoin, to plunge. Some estimate that as much as $200 billion in value was wiped off the market over the course of just a few days.

And yet, for those who came to our event on the night of the grand crypto collapse, it was as if none of this was happening. These were supposed to be the most engaged and invested participants in the crypto industry – the inner circle of the ultimate insider’s game. While this indifference may seem shocking to those on the outside, it can be easily explained: for many of them, the events that came to light that evening were par for the course. Just another day in the office. Just another fraud that got found out.

These were people who had built their careers and made their living from fraud. It was a core component of their business model. In the pursuit of ever more obscene wealth, they had become desensitised to malpractice and acclimatised to corruption, to the point where they regarded it as a banality – an expediency, even an inevitability.

Crypto founders and industry insiders have been getting away with all this for far too long. It’s time their sordid story was brought to light – the full story, with all the gory details. One that is so ludicrous, so fraught with absurdity, about a con so large in scale and so cleverly masked and so convincingly abjured, that it simply has to be told.

But, in order to tell that story, I first need to tell my own. It’s the story of a player on the inside who became so blinded by greed that he didn’t even realise he had lost his way until it was almost too late.