Today, we have the first in a two-part series on lessons from the crypto crash.
Crypto—also known as Web3, or blockchain-based technologies—remains the weirdest space I’ve ever reported on. I’ve never learned so much about a topic where there were people I trusted roughly equally, whose intelligence I trusted roughly equally, that came to completely opposite opinions. People I consider brilliant think this is the wave of the future. Others are fairly positive that the bulk of this world is a giant Ponzi scheme that’s even worse than most people realize.
Today’s guest is Molly Wood, a financial journalist turned venture capitalist who also hosts the podcast This Week in Startups. I would summarize Molly’s case against crypto in three main points:
1. It is a double-enemy of the environment—an energy-intensive speculation that pulls money and talent from climate technology.
2. It is an unregulated bonanza of investor shenanigans—Molly explains why the very structure of crypto tokens invites a kind of Ponzi-scheming dynamic, which deserves our attention.
3. Even if you have nice things to say about crypto—and we do have nice things to say about it—there’s a strong case to be made that the promises and the grandiosity are wildly out of line with actual-use cases.
The timing on this episode feels right. Last week, several employees of the crypto trading exchange Coinbase were charged with wire fraud, the first insider-trading case involving cryptocurrencies. This is our little podcast trial of crypto. Today, the prosecution. Tomorrow, the defense.
Derek and Molly discuss the early days of the crypto boom, and the similarities between the crypto crash and the dot-com bubble in 2000.
Derek Thompson: I want to split our conversation into two. First, I want your impressions from the crypto peak and the crypto crash. I want to know what it was like to be in Silicon Valley when things were at their frothiest, what it was like to be in Silicon Valley when things were crashing, what happened, what mattered. Then second, I want to talk a little bit about why this is important in the first place. Is it simply as straightforward as a couple trillion dollars went poof, or are there deeper lessons to be learned here about the investment climate of Silicon Valley and the future of tech and finance?
But first, I want you to cast your mind back to before the Matt Damon ad, before the Larry David ad, before the crash, back to September 2021. From my perspective, Bitcoin is trading at $61,000. Sports stadiums are being renamed left and right. You got Crypto.com Arena in Los Angeles. You got FTX Arena in Miami. Every morning a new celebrity is spending a couple million dollars to acquire some ape doodle. You’re a venture capitalist, you were closer to the actual industry than I was when things were at their zaniest. What was it like at the peak? What were you thinking as things were swirling around at their most insane?
Molly Wood: I should probably preface this by saying this is not my first boom living here in Silicon Valley. I moved here in 1999 for the original dot-com runup. I was here then during Uber, WeWork—you can’t even say WeWork, you almost want to say “We Crashed” immediately. I was here for that runup, I have been in a million taxi cabs with people saying, “I’m an app developer,” and they all have this remarkably similar cadence, which is that even though you know perfectly well that it’s a boom and that there is going to be a bust, you still have FOMO.
You cannot resist the siren call of the boom. It’s this fascinating thing that just keeps happening over and over, which is you can tell that it’s a big deal because everyone is talking about it. It’s the only thing other than housing prices that you talk about at every event and every dinner and every meeting. I was still a journalist then. Every question that you’re having with your editors is, “How should we be covering this? What should we be saying? What kind of explainer should we do?” Yet you also want to open that Coinbase account because, even though you know better, you still feel like there could be something here and it’s a wave that you can’t help but get carried on.
Thompson: Tell me how this peak and the first inning of the crash felt different from the dot-com bubble in 2000? Because immediately after prices started crashing among cryptocurrencies and you had all these problems among the crypto banks, people were saying, “Oh, this is dot-com 2.0. It’s dot-com 2.0.” What did it feel like to be in it?
Wood: I think at first, when it was clear that there was going to be some downturn, the big question ... because the original dot-com crash was very tightly correlated to the actual stock market. These were big, huge IPOs, and so there was a lot of contagion in some ways because these were public companies that took down public markets. It seemed, given that crypto was a decentralized asset that was supposed to be a parallel financial system that shouldn’t impact the stock market at all, the initial feeling was, “OK, some of this stuff is going to start to drop. The scams are washing out. There are going to be a lot of individual bag holders, which is terrible, but it is most likely not going to have a lot of contagion. It’s not going to affect the broader market.”
I think what’s so interesting is that very quickly it became clear that actually Bitcoin price drops were moving in concert with the broader market, and it almost exposed, I think, the fact that it was actually all the same investors, the people who were invested in BlackRock and Enron—or Exxon, sorry. Freudian slip. There were also quite clearly a lot of institutional investors in the biggest crypto names, right? Crypto.com, certainly. Coinbase obviously was a massive hit for the venture capitalists who invested early, but it was also a huge stock market darling, and then a lot of institutional investors had pretty obviously piled into Bitcoin. I think for me the surprise was seeing that exact correlation, that in fact it was pretty centralized as less of a revolution and more of an asset class.
Thompson: As a venture capitalist, what did you think about the amount of money that was being sucked into these projects? You’re working in climate tech. I wonder if you considered crypto to be a side show, a carnival, a waste, or did you think, “Oh no, there’s a lot of money that’s sloshing around in VC. This is an interesting side bet. There’s obviously some bullshit, there’s obviously some pure FOMO, but maybe there’s the kernel of an interesting substantive idea that could bloom into a product that could be useful for some people?” Where did you land as a VC in this space?
Wood: As a climate tech investor, I see all of this money in crypto as my enemy, and I actually see crypto as almost literally my enemy, right? It was hard for me ... Again, this is because of this very specific lens of somebody who’s a climate tech investor watching people pour tons and tons and tons of money into something that is ... Look, my job is to invest in things that are speculative, but this is speculative that lights the world even more on fire.
This excerpt was lightly edited for clarity.
Host: Derek Thompson
Guest: Molly Wood
Producer: Devon Manze