Earlier in November, the crypto billionaire Sam Bankman-Fried’s cryptocurrency exchange FTX and trading firm Alameda underwent an epic collapse, evaporating billions of dollars in wealth. 

It’s a spectacular tale of poor investment decisions, shady internal financial dealings, possible theft and just about no government regulation whatsoever. 

This specific crash has accompanied a general collapse in crypto prices, with both the big ones (Bitcoin, Ethereum) and other smaller currencies having fallen substantially since the beginning of the year. As we learn more about the shady business dealings that FTX was engaged in and watch the greater crypto-ecosystem sputter, we also ought to think about the regular people who got screwed. 

A couple of years ago, the Robinhood app was enjoying a lot of buzz. Robinhood is an app made to provide just about anyone with access to day-trading of stocks and other financial items. Both in the app’s aspirational name and the company’s broader marketing, Robinhood seemed to claim that they would open up access to financial exchanges, letting people cut out larger and more exploitative financial players. 

But what was it, really? At the time, the blogger Ranjan Roy reflected on Robinhood in light of his previous career as a bank trader. Roy spent his time buying and selling things like foreign currency exchanges and haggling with investors on prices. In investment banking, deal-making was cutthroat and money was made on thin margins between two parties that cared deeply about every cent. Every so often, however, he would get to make deals with “the gravy:” people who knew less about the markets they were trading in and cared less about their profit margins. Traders welcomed the gravy because they presented an easy opportunity to make more money.

Roy saw that Robinhood was treating its regular customers as the gravy. The Robinhood app contained a wonderful set of gamified features and algorithmic nudges to encourage trading. The predictable result was that a bunch of regular people began making frequent trades. Because these were people with varying levels of financial knowledge and understanding, they became the gravy, making poor trades at losing prices to generate a lot of profit for Robinhood.

The gravy provides a useful angle for times when people are making a whole lot of money. When Robinhood’s revenues reached $1.8 billion in 2022, money was coming from the gravy.

But if the gravy is a useful frame of analysis for when the money is rolling, it’s a necessary one for when things come crashing down. Cryptocurrency promoters frequently talked about their grand goals of creating a currency that was free from government control and openly accessible for regular people. And for a long while, people that bought currencies like Bitcoin were earning incredible returns. But all along, there were a lot of regular people getting roped into ridiculously risky and uncertain investments. Unsurprisingly, things eventually came crashing down.

Of course, people can make their own risk-taking decisions with money. If someone invests in cryptocurrency and then loses a bunch of money when it crashes, well — that’s the possibility they took on when they invested in a new, speculative asset.

This doesn’t tell the whole story, however. In the 2022 Super Bowl, we saw Larry David, Matt Damon and Tom Brady each separately advertising cryptocurrency to us. And what are we to make of the rhetoric surrounding crypto that, much like Robinhood, promised to democratize currency and circumvent extractive financial institutions?

For example, compare a piece from the Boston Globe in May 2022, which promoted crypto as a driver for wealth-building and racial equity, against recent reporting in The Atlantic on the Black investors that put money in crypto just in time to see large price drops on their holdings. Or compare Bankman-Fried’s professed commitment to the philanthropic Effective Altruism movement (on which he has now partially reneged) to his use of customer deposits from one of his companies to cover debt at his other company.

It’s not regular peoples’ fault that crypto was running illegal schemes by avoiding American banking regulations and making horrible financial decisions. Crypto was, in the investor Jim Chanos’s words, a “predatory junkyard,” where a lot of wild speculation was driven into currencies with questionable fundamental value.

Next time someone comes around offering you incredible returns on some kind of financial asset — and there will certainly be another time — don’t forget that there are probably a lot of people who know a lot more about the market than you, and their plan is to make money off of you.

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