The WSJ has revealed new information on why Signature Bank closed an account that Christopher Harborne opened in 2019. The money was apparently coming from a BofA account that was getting large deposits from a Bitfinex bank in the Cayman Islands. Oops!
The full story is on David’s blog. [David Gerard]
“this ape is a message
— more falafel please, SA
we considered ourselves to be a powerful yacht club
this ape is not an ape of honor
no highly esteemed juice is slurped here”
Avi Eisenberg’s criminal commodities fraud trial started on April 9 and continues for two weeks. Eisenberg is the DeFi trader who drained Mango Markets of $110 million in October 2022 by manipulating the price of MNGO, the exchange’s native token. [CoinDesk]
Eisenberg used various anonymous accounts to take a long position on MNGO, drive up the price of MNGO ridiculously high, use the inflated value of MNGO to “borrow” all of the crypto on Mango Markets, and then default. He cashed out and flew to Israel that day. He bragged about his brilliant trade on Discord. He even tweeted: “What are you gonna do, arrest me?”
Eisenberg returned to the US and was arrested in Puerto Rico in December 2022. He’s been held in New Jersey ever since.
Extensive and detailed laws exist on commodity market manipulation. Merely trading with intent to manipulate is a crime.
Almost all of what goes on in DeFi was always just straight-up illegal by the letter of US law. The CFTC first warned that it was unhappy about the highly manipulated state of crypto markets as far back as 2017.
This will be a tough one for Eisenberg to win. The defense does not dispute the sequence of events. They argue that Eisenberg was simply using the protocol as designed — code is law. The DOJ is arguing that just because you can do something doesn’t mean you should.
The defense has tried to impeach a government expert witness by … sandbagging him with documents saying he owes back taxes? If that’s the best they have, then Eisenberg is in trouble. [Twitter, thread]
Inner City Press has been covering the Eisenberg trial. [Twitter, thread; Twitter, thread; Twitter, thread; Twitter, thread]
In discussing Mango, Matt Levine of Bloomberg, who we usually regard highly, floats an old libertarian dream idea: what if we just … throw out regulation for a large chunk of the crypto market? [Bloomberg, archive]
I am just saying that you could resolve those disagreements by letting everyone go their separate ways. Have Nice Crypto — probably the bulk of it? — where manipulation is disfavored and government intervention is, at least in theory, welcomed. And have Fun Crypto for the applied game theorists to play their games against each other. Have a market that makes it explicit, in advance, on the web page, “Anything that you can do on our platform is allowed, and if the results are absurd then that is fun for you and bad for someone else, you’re on notice!”
This is an amazing thing to write when the crypto collapse of 2022 was precisely how that approach worked out in practice. But the answer to most libertarian dreams of deregulation is “on the other hand, history.”
It’s true that if it’s your money, you have the God-given right to set it on fire. If you really want to get into investments forbidden to retail, you can probably find a way to send your money down a hole.
But when we let companies promote that sort of investment to ordinary people, what happens in practice is that the investors go all-in on the highest-interest bet, and then they lose the lot. This is extremely well understood from the historical record!
DeFi is a dumpster fire. Everything collapses weekly in flames and screaming. Our dear friends the crypto degens like it that way. It’s a warm and cozy dumpster fire they have there.
In zero-interest times, people couldn’t make a sufficient return from sane investments — so they got into insane investments. They put their money into Celsius, Voyager, and Terra-Luna.
Celsius took money from retail customers and put it into DeFi. In fact, Celsius was the third biggest single player in the DeFi markets. It literally hired a DeFi trader, Jason Stone of KeyFi, to manage its investments and give retail investors huge exposure to the dumpster fire.
Levine assumes that if the dumpster fire is set up as a “fun market” that somehow the fire won’t spread. But we know from Celsius that market dumpster fires do spread.
In the fraud trial of former Celsius CEO Alex Mashinsky, the DOJ is currently collecting victim impact statements. We don’t expect Mashinsky’s victims had a lot of “fun.” Mashinsky probably did, though. That’s what “fun markets” mean in practice. [Twitter]
Market contagion is one of the US Treasury’s greatest fears about crypto — because they know all about dumpster fires too.
What we have for a “fun market” in the US are markets for accredited and institutional investors — where you can buy all the dubious magic beans you like. But even there, laws against misrepresentation and market manipulation still apply. There might be historical reasons for this.
Levine talks a whole lot about the interesting and intricate financial engineering possibilities of crypto and hardly ever about its real life victims. We realize the first is his ambit, but the second sort of come with the deal.
Bitfinex Securities is an exciting new crypto securities platform run by the fine people who brought you the Bitfinex crypto exchange and the Tether stablecoin. They also wrote themselves special new laws in El Salvador to let them set up Bitfinex Securities.
There have been a couple of tokens on Bitfinex Securities, but they haven’t had any trades for months at a time. [Protos]
A new token, HILSV, hopes to raise $6.25 million to build a hotel near the Aeropuerto Internacional de El Salvador: “The Hampton by Hilton.” HILSV has been seeking out rather more publicity. [Bitfinex, archive; Bitfinex, archive; La Prensa Gráfica, in Spanish]
HILSV will trade on Bitfinex Securities against tethers and US dollars. The tokens are medium-term corporate bonds, priced at $1,000 each. Buyers are promised a remarkable 10% annual interest, paid semi-annually, for five years and then they get their principal back. The raise is scheduled to begin May 13.
The developer, Inversiones Laguardia (Laguardia Investments), is a real developer. They’re also good friends of the current El Salvador government and have had close and fruitful relations with past administrations.
Founder Ricardo Laguardia said in the press release that it would be impossible to raise the funds without access to new capital markets.
This seems an implausible claim. Hotels are a well-understood business, Laguardia is an experienced developer, and $6.25 million is a plausible sort of price for a new hotel complex. If your business plan was sane, why wouldn’t you just take out a loan? And why would you offer to pay 10% interest when you could get a loan for less?
We suspect that Inversiones Laguardia is doing this hotel project with an offering that will obviously be filled just so Bitfinex can get its new stock market up and running. We expect they have actual investors (and likely friends of the Salvadoran government) already lined up.
Of course, someone might have $6.25 million in dirty tethers that need shining up. But we’re sure Inversiones Laguardia would never be a party to such activities.
Every crypto real estate project in El Salvador since 2021 has been a rugpull or a nothing burger. This is the fourth attempt at a crypto-backed real estate project — after the Astro Babies NFT-backed casino and the Bitcoin Towers and Fusso NFT projects.
Laguardia does have a history of surprisingly sweet deals, such as the lease for a development at the same airport in 2018 for a remarkably low rent. We’re sure it’s all fine, though. [Portal de Transparencia, PDF, in Spanish, 2018]
Uniswap is the largest decentralized exchange in DeFi. The idea is that they run an exchange trading tokens that are almost all unregistered penny stocks. Then they claim that somehow they don’t actually run the exchange — except the bit where they get paid for not-running the exchange.
But if you make money from running an exchange for unregistered securities, the SEC may knock on your door. So Uniswap got a Wells notice letting them know of forthcoming enforcement action — reportedly for operating as an unregistered securities broker and an unregistered securities exchange. [CoinDesk; blog post, archive]
This is no surprise. The SEC announced it was investigating Uniswap in 2021. Enforcement lawyers told the WSJ they were looking into how investors used the exchange and how the exchange was marketed. [WSJ, 2021, archive]
Uniswap runs on the Ethereum blockchain. It has its own native token, UNI, that allows traders and investors to vote in its DAO. The exchange is extensively US-linked.
Hayden Adams founded Uniswap in 2018. He got an initial $11 million investment round in 2019 and another $165 million in 2022. Top investors — and holders of the UNI token — include Paradigm, a16z, and Union Square Ventures. [Form D; Techcrunch, 2022]
Because Uniswap is “decentralized and there are no listing fees,” anyone can list a token on the exchange and create an alleged price in dollars for their token. Coincidentally, nearly all tokens on Uniswap turn out to be rugpulls. [arXiv, 2022, PDF]
Uniswap trader Nessa Risley led a class action against Uniswap in 2022. She claimed that the investors were “intimately involved” in overseeing its operations and were therefore responsible for the fraud on the exchange. She also said Uniswap had been operating as an illegal exchange and brokerage.
Judge Katherine Polk Failla dismissed Risley’s suit in August 2023, saying that the individuals behind the scam tokens were in the wrong, not the platform itself. (Faillia is also overseeing the SEC lawsuit against Coinbase.) Risley is appealing. [Opinion and order, PDF; case docket]
Adams says he’s “ready to fight” the SEC all the way to the Supreme Court if necessary. [Twitter]
The SEC filed enforcement actions against Coinbase, Bittrex, and Kraken for dealing in securities without a license. We strongly suspect they’ll call out a bunch of tokens on Uniswap that are securities, including UNI.
We wouldn’t be surprised if Uniswap was forced to shut down. But they probably have the resources to fight for a while.
The bitcoin price has been all over the place. One reason is that miners have been dumping their holdings while number is up. We suspect that’s what’s causing quite a few of the recent crashes. [CoinDesk]
Miners are now competing with AI for cheap power in the US. These are the AI guys who make the same bad excuses for their ghastly power consumption as the crypto miners. [Bloomberg, archive]
Central bank digital currencies aren’t getting a lot of consumer takeup. Franklin Knoll, a payment specialist at the Federal Reserve Bank of Kansas, writes about three retail CBDCs issued in the Caribbean over the last four years and how they’ve fallen flat. [Kansas City Fed]
Knoll looked at the Bahamas Sand Dollar, DCash from the Eastern Caribbean Currency Union (ECCU), and the Jamaican JAM-DEX.
Each launched with great fanfare — but “the new payment methods have thus far seemed to fall flat with consumers, merchants, and, in some cases, the financial institutions meant to operate the payment platforms.”
As David wrote when the Bahamian Sand Dollar and DCash launched, money is a social construct. You can’t just build a system and think people will come to it.
Christopher Harborne’s lawyers are at it again. Following their defamation lawsuit against the Wall Street Journal, they sent another letter to Dirty Bubble (James Block) regarding his story “Tether’s Secret Agent.” Last time, Block edited bits out of his story. This time, he took the entire story down. He says he’s contemplating “next steps.” [Twitter]
The SEC is pivoting to AI too. They busted a couple of investment advisors for saying they used AI when they didn’t. [SEC]
Amy is in a documentary on NFTs called “NFT:WTF?” It will be on Netflix in the UK starting April 10. You can also watch it on YouTube. [Youtube]
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And now a word from our sponsors!
We’ve switched from crypto collapse to crypto is going great, because of course it is. Our latest newsletter is on David’s blog. [David Gerard]
In this episode:
We set out to write a few paragraph’s about Christopher Harborne’s suit against the Wall Street Journal and ended up with 3,700 words!
Harborne is deeply upset at the WSJ for a story naming him in connection with Tether and their banks.
Mr. Harborne’s upset is genuine. But by publicly filing a defamation claim and then getting news stories and even personal blog posts deleted with letters from his lawyers, his lawsuit and the actions surrounding it have themselves become serious and newsworthy matters warranting public discussion.
This one is on David’s blog. [David Gerard]
Bitcoin has set yet another new all-time high — $73,835 on Coinbase BTC-USD on March 14. This means bitcoin is good now! All our past objections are resolved. Going forward, we only deal in Finances U Desire.
What’s interesting is that while the price is back up, the bitcoin trading market has not recovered. If anyone says “the market is back!” that’s an incorrect claim.
Market volume is one-eighth of what it was in November 2021, the last time the price was this high.
We get that number from Coinbase retail trading fee income, which is 2% of the volume. Coinbase is the largest actual-dollar exchange and it’s not allowed to lie in SEC filings — so for once in crypto, we have numbers we can trust a bit.
The retail trade volume against actual dollars on Coinbase went down in seven of the past eight quarters. Here’s a table from Q4 2021 to Q3 2023. Q4 2023 didn’t show any improvement.
Even as the price went up through 2023, every day people wanted bitcoins less and less. Coinbase gives us the numbers showing this.
Without trading volume, the bitcoin markets are painfully thin. It doesn’t help that market liquidity is horribly fragmented.
(This is why we prefer to just quote the Coinbase price — the skew between exchanges can be hundreds of dollars when anything interesting is happening.)
BTC-USDT on BitMEX flash-crashed from $66,000 to just $8,900 on Monday, March 18. Starting at around 22:40 UTC, someone dumped 1,000 BTC as fast as possible at whatever the market would pay for it. [CoinDesk; Twitter, archive]
By the time the flash crash flowed through to Coinbase, it was a mere $2,000 drop.
BitMEX has much less bitcoin liquidity than Coinbase BTC-USD or Binance BTC-USDT — so we suspect this was a very urgent seller who felt that FinCEN didn’t need his details.
Remember that after Binance got hit with the compliance hammer, traders’ details are no longer safe from US anti-money-laundering agencies.
We’re not sure why our trader didn’t use OKX, HTX (formerly Huobi), or Bitfinex, which would have had more liquidity and thus less price slippage — hence our impression that they were really in a hurry. And now they have to put all that USDT somewhere.
BlackRock says its spot bitcoin ETF has reached $10 billion in assets. But Grayscale’s GBTC has seen over $11 billion in outflows because nobody wants to pay their 1.5% fee. (Everyone else is around 0.3%.)
Bitcoin ETFs aren’t hitting the institutions they were hoping for — pension funds and so on. (Thankfully.) For all of BlackRock’s helpful ETF marketing advice, financial advisors are being very careful about recommending these things. [WSJ, archive]
The money flowing into the ETFs seems to be from individual investors. It’s not clear whether these are new investors or just existing holders dumping their bitcoin for ETFs because they’re tired of being their own bank.
This Financial Times article starts with BlackRock talking up its bitcoin ETF and the fabulous future of the blockchain … then details every way in which crypto is utterly incompatible with sane finance and doesn’t work. [FT, archive]
Meanwhile, Tether has printed 11 billion tethers just since the start of 2024. It’s at 103 billion tethers and counting.
We very much doubt that most of these billions of tethers are being bought with real US dollars. Why would you send real dollars to an unregulated offshore wildcat bank to buy bitcoins when you could just put them into a US-regulated bitcoin ETF?
We suspect the tethers are being printed out of thin air and accounted as loans — the fresh USDT is “backed” by the loan itself.
This supports our theory that the present pump is not real money flooding into bitcoin. It’s stablecoins on Binance — tethers and FDUSD. The volume on Binance completely swamps the volumes on Coinbase or ETF trading.
The bitcoin price chart looks very like someone’s trying to pump the price. You’ll see the price slowly getting walked up, as if someone’s wash-trading it up … then it hits a round number of dollars, someone tries to cash out, and the price drops several thousand.
Fake dollars going up, real dollars going down.
So we’re not in a bubble. We’re in a balloon, one being pumped full of hot air. It’s fun going up — but the trip down can be very quick.
Back in November 2022, when exchanges were suffering urgent unplanned maintenance left, right, and center, we went so far as to say that if you insisted on investing in bitcoins, you should not risk storing your coins on an exchange. Holding private keys is ridiculously fraught and the tech is still unusable trash — but it’s still not as bad as trusting bitcoin exchanges.
If you must hold bitcoins in the hope of getting dollars for them one day, the least-worst option is to buy into an ETF. That way you’re in a regulated market and your only risk is Coinbase Custody getting hacked.
If you’ve bought into crypto, please at least cash out your principal — the cash basis that you paid to buy in. Then everything you make from then on is pure profit. When the price crashes, you won’t have lost anything.
Our real recommendation, of course, is not to touch this garbage.
Bitcoin suffered a year of its media coverage being “Sam Bankman-Fried is a crook.” Crypto pumpers tried to make out that FTX, the second-largest exchange, being a massive fraud was a mere aberration on the part of Bankman-Fried, and everyone else in crypto was a good guy.
Then the first-largest exchange, Binance, got busted too. So price discovery for bitcoin — what determines where the number goes — happens on an exchange that literally admitted a few months ago to being a criminal conspiracy. Binance’s founder and former CEO, Changpeng “CZ” Zhao, is in the US awaiting sentencing.
We find, over and over, that normal people keep assuming that crypto isn’t just a completely criminal snake pit. Because US dollars are able to touch it in any way, so surely it’s regulated. Right?
Finance and finance journalism seem to have collectively forgotten what a hellhole unregulated markets always were.
The way crypto works is:
Crypto is an unregulated mob casino and the regulated exchanges are just the cashier’s desk.
You can absolutely make money in crypto — we would never say that you can’t. But you have to be a better shark than all the other sharks who built the shark pool.
Trade carefully.
Billy Bambrough wrote about the bitcoin price for the Sunday Times and spoke to David. In a rare moment for journalistic coverage of the number, Tether was mentioned! [Sunday Times, archive]
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Nigeria has been deeply unhappy with Binance for a while. Now two Binance officials have been held in Nigeria after they arrived in Abuja on February 26.
Also, Binance is going to have to pay the first installment of its $4.3 billion fine to US regulators real soon. Where will it get the cash?
Our latest is over on David’s blog. [David Gerard]
There’s a lot of class action lawsuits in crypto. We mostly don’t note these — they so rarely go anywhere — but a consolidated class action against FTX’s various enablers has turned up some interesting allegations concerning everyone’s favorite stablecoin, Tether, and its remaining US dollar banker, Deltec Bank of the Bahamas.
Tether has banked with Deltec since 2018. Deltec was one of the few banks in the world that would have anything to do with Tether after their deal with Crypto Capital led to $850 million of the Tether reserve being frozen.
We already knew that FTX/Alameda, also based in the Bahamas, was in it up to their necks with Tether. Alameda was Tether’s largest customer between 2020 and 2022 that wasn’t a crypto exchange.
The new allegations, filed in a Florida federal court, are that Deltec was an active and enthusiastic part of the FTX and Alameda business schemes that lost billions of customer dollars and for which Sam Bankman-Fried is now in jail.
The new amendment to the complaint, filed on February 16, is based on 7,000 pages of direct text messages that were offered up in discovery. The full amended complaint is 158 pages. The Deltec shenanigans are paragraphs 133 to 260. [Motion, PDF; Complaint, PDF; Case docket]
The complaint hammers on Deltec’s relationship with Tether, FTX, and Alameda. It states that Jean Chalopin, the head of Deltec, and Gregory Pepin, Deltec’s deputy CEO, played a key role in FTX’s money laundering.
Bankman-Fried’s empire came crashing down in November 2022, when it was revealed the company had an $8 billion hole in its customer accounts. The complaint lists the various defendants in the case — Gary Wang, Nishad Singh, Caroline Ellison, Ryan Salame, and others.
Deltec provided banking for FTX Trading, FTX US, and Alameda. Pepin manually allocated incoming customer funds to FTX accounts and moved the funds to Alameda. Deltec also extended a “secret line of credit” to Alameda of $1.8 billion.
Deltec was a money launderette for FTX. They would happily let all those annoying compliance requirements slide for their very good friends at FTX.
Deltec would pass compliance questions from intermediary banks to FTX or just make up fake invoices to account for otherwise unexplained transactions. Here’s Pepin:
[Ibanera] are asking info about [the foregoing FTX customer] do you have the agreement linked to this deposit? so i can get [the wire] release asap?
Idea 🙂 Send me a PDF of the term and condition + Invoice and I’ll send
… Now if you send me a XLS sample or whatever of invoice I can populate invoice myself later can do?
Pepin would send ecstatic messages in the group chat when a batch of wires came in. The complaint has a whole page of Pepin posting like this:
MOOONNNEEEYYY TTTIIIIMMMMEEEE
I HEAR A MONEY TIME IS HAPPENING HERE I THINK I NEED TO BE A PART OF IT
doing my best to hold the wall but such money tsunami is hard to handle dude
MONEY PARTY THE BEST PARTY
it is MONEY TIME INDEEDE
Deltec Bank also moved FTX customer deposits directly to Alameda on request, in the billions. Deltec would even run out of cash to pay FTX customer withdrawals and have to ask Alameda to cover for them. Pepin: “Lena you send today the 300m? or later? As we won’t have liquidity”.
Chalopin bought Farmington Bank in Washington in 2020 in a deal with FTX, turning a tiny local bank into a crypto service company — mostly for FTX and Alameda. The bank was then renamed Moonstone.
Moonstone joined the Federal Reserve without notifying the Fed of its change of business plan from a local farmers’ bank to a crypto money launderette. The Fed shut Moonstone down in August 2023.
North Dimension was a fake electronics company that FTX/Alameda created so they could set up accounts at Silvergate Bank and Signature Bank in its name. FTX had customers wire money to North Dimension’s Silvergate and Signature accounts so that it would go directly to Alameda. This was part of the money laundering charge that Bankman-Fried was convicted on.
Pepin made sure that deposits from North Dimension came through to Deltec and were sent to FTX or Alameda as needed.
FTX put actual effort into the North Dimension bit of the fraud, if only the barest minimum. North Dimension even had a website!
The site didn’t actually work — all the product links went to the contact page. It was “rife with misspellings and bizarre product prices,” including “sale prices that were hundreds of dollars above a regular price” — such as the fabulously desirable “Ipad 11 “ich Cell Phone,” normally $410, but available at a sale price of just $899.
The North Dimension website is in the Internet Archive. The “About” page is a trip. The company logo comes from DesignEvo Free Logo Maker — it’s their “3D Orange Letter N” logo. You can see every penny of the twenty-five cents they spent on this. [North Dimension home page, archive; product page, archive; about page, archive; DesignEvo]
When Tether became a Deltec customer in November 2018, it deposited about $1.8 billion — making up nearly half of Deltec’s total deposits at the time.
Alameda was the second-largest creator of tethers (USDT) — “about one-third of USDT minted at any time went to Alameda.”
The USDT was funded with FTX customer deposits which Deltec routed to Alameda. Remember that Alameda and FTX were claiming at this time to be completely separate operationally.
Alameda created and redeemed tethers directly via Alameda and Tether’s Deltec accounts. Alameda would first send a message to the Alameda/Tether/Deltec group chat. Transfers would often have to wait for Pepin to be awake.
Alameda pumping out new tethers seems to have been the engine for the billions of tethers printed in 2020, 100 million at a time: “In total, Alameda minted more than $40 billion USDT through this scheme, encompassing nearly half of USDT in circulation at the time.”
How solidly backed was USDT by the account at Deltec? About as solidly as it was in 2017 when Tether didn’t have a bank account at all for months at a time:
… in November 2018, Deltec Bank provided an assurance letter stating that USDTs were fully back by cash, one U.S. dollar for every USDT. However, the next day, Tether began to transfer hundreds of millions in funds out of its Deltec Bank account, such that within 24 hours, Deltec Bank’s assurance letter was no longer true.
The complaint postulates that Alameda was furiously printing tethers so that Alameda could make less than a tenth of a percent from arbitraging the price of USDT:
Upon information and belief, Alameda and Tether profited from the scheme as follows. Alameda would create USDT in amounts and at times that would inflate the market price of the stablecoin. Alameda would promptly sell the USDT in the market, at several basis points above the purchase price. Tether, in turn, would receive U.S. dollars for stablecoins it minted from nothing.
This sounds unlikely to us — there just isn’t the volume on any existing USD-USDT trading pair. To turn USDT into dollars in any quantity, you need to buy crypto then sell that at an actual-dollar exchange.
Deltec allowed Alameda a three-day grace period to pay for its freshly created USDT — that $1.8 billion line of credit. We think Alameda’s scam would have been to do some market-moving trades to make enough dollars to pay for the tethers they’d just bought.
Also attached to the complaint is a declaration from Caroline Ellison, former head of Alameda. Ellison apparently settled with this class action’s plaintiffs in January 2024 and offered to assist them. This declaration asserts the accuracy of the claims in the complaint as far as Ellison directly knows.
FTX former counsel Dan Friedberg adds a declaration. Friedberg has also settled with the plaintiffs of this class action. He only confirms the plaintiffs’ claim that Avinash Dabir managed FTX’s celebrity sponsorships out of FTX’s Miami office.
The last attachment on the amended complaint is a transcript of a podcast with Dabir talking to Joe Pompliano on the Joe Pomp Show about FTX’s celebrity sponsorships.
Christopher Harborne, shareholder of 12% of the Tether empire under his Thai name, Chakrit Sakunkrit, is suing the Wall Street Journal for an article it wrote in March 2023. The story was about Tether’s efforts to get banking after they were cut off by correspondent bank Wells Fargo in 2017. [Complaint, PDF, archive]
The WSJ story said that Harborne aided Tether’s efforts to skirt the traditional banking system by using his company AML Global to set up an account at Signature Bank: “The Sakunkrit name had earlier been added to a list of names the bank felt were trying to evade anti-money-laundering controls when the companies’ earlier accounts were closed, but Mr. Harborne’s hadn’t.”
Harborne states that “AML’s Signature Bank account was never used for Tether or Bitfinex whatsoever.” WSJ told him that the story didn’t imply that he had committed crimes, but he is suing over a claimed inference that he had.
WSJ edited the story on February 21 to remove the bits about Harborne. [WSJ; archive of March 3, 2023]
Harborne’s lawyers also reached out to Mike Burgersburg, a.k.a. Dirty Bubble Media, asking him to take down his article on Harborne. Mike kept the story up but made edits. [Dirty Bubble, archive of November 30, 2023]
Originally Mike had noted that the account Harborne set up at Signature was a back door for Bitfinex to access the US banking system. His source was the WSJ. “This was edited because WSJ removed those comments from their story. I am not making this claim, and there is no evidence at present for this assertion,” Mike said.
Tether is run by a handful of people, some known and many unknown. Former CTO Paolo Ardoino is the named CEO and he acts like a social media intern. This reeks of Ardoino being the fall guy for whoever actually is running Tether.
Harborne doesn’t want to be thought to be that person. He says he “is not now and never has been in any management or executive role at Bitfinex or Tether; he is merely a minority shareholder.” A large chunk of his net worth is apparently in ether. His son, Will Harborne, has worked for various iFinex entities over the years.
Pig butchering scams, a.k.a. romance scams, have taken $75 billion from victims, according to a study by University of Texas finance professor John Griffin and his student Kevin Mei.
Once scammers collect the funds, they most often convert them to tethers: “Funds exit the crypto network in large quantities, mostly in Tether, through less transparent but large exchanges—Binance, Huobi, and OKX.” [SSRN]
Zeke Faux researched Tether’s pig butchering use case in depth for his book Number Go Up. That chapter of the book was put up by Bloomberg as a teaser. [Bloomberg, 2023, archive]
Griffin has been following Tether for some years. He was behind another paper on Tether money flows, 2018’s “Is Bitcoin Really Un-Tethered.” That study showed how Tether was used to prop up the price of bitcoin for most of the 2017 crypto bubble.
Tether shills on Twitter have been frantically congratulating Tether on its “deal” with the Department of Justice to combat romance scams. No such deal has been announced. [Twitter, archive]
USDT tokens are currently available on 15 different blockchains. Most of the issuance is on Ethereum and Tron.
Tether has proudly announced a recovery tool in case any of these blockchains have problems and your USDT becomes inaccessible. [Tether, archive]
We doubt Tether would make an announcement like this without a gun to their heads. So this reads to us like Tether reassuring the crypto whales that their tethers will be protected if Tron goes down.
Tether crossed 100 billion USDT in circulation on March 5. This is completely in line with Dan Davies’ theory from Lying for Money that frauds snowball over time:
The reason for this is that unlike a genuine business, a fraud does not generate enough real returns to support itself, particularly as money is extracted by the criminal. Because of this, at every date when repayment is expected, the fraudster has to make the choice between whether to shut the fraud down and try to make an escape, or to increase its size; more and more money has to be defrauded in order to keep the scheme going as time progresses.
The news about crossing 100 billion made it into Reuters, which noted Tether’s remarkably non-transparent reserves and the risks Tether poses to crypto and the broader financial system. [Reuters; Reuters]
Tether needs to be shut down. We’ve been saying this since 2017. It’s a risk to anyone who holds crypto. It’s also helped to accelerate other scams, so they’ve grown to a whole new level.
As we write this, Tether has just printed 2 billion USDT — its biggest issuance yet. Tether has printed 5 billion new USDT in just the past week. Gotta keep number going up. MOOONNNEEEYYY TTTIIIIMMMMEEEE!
Image: Gregory Pepin photographed on the ipad 11 “ich sell phone.
(Updated March 12 at 5PM ET to add a quote from Mike Burgersburg and clarify why he edited his story on Tether.)
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There’s a time to move quickly, and this was that time. This one is on David’s blog.
Summary: it’s all about the stablecoins. Hey, that sounds like a song.
We were going to do a quick news update on the world of bitcoin mining —then we got hold of Riot’s 10-K filing for 2023. Hoo boy.
Bitcoin mining in Arkansas is making everyone miserable. The 24/7 noise caused by cooling fans is keeping residents up at night, chasing away wildlife, and lowering property values.
The Satoshi Action Fund, led by Dennis Porter, is making matters worse for homeowners. The advocacy group, founded by climate denier and former Trump EPA chief of staff Mandy Gunasekara, has been pushing policies that offer greater legal protections for bitcoin miners. [NYT]
In a world where scientists widely hold that the impact of climate change will range from bad to really bad, Gunasekara thinks the impact will be “mild and manageable.” She is unable to come up with any scientific evidence to support this claim. [NPR, 2023]
In Hood County, Texas, homeowners living near a Marathon Digital mining facility are equally pissed about the noise and environmental damage wrought by crypto mines. “It’s like sitting on the runway of an airport where jets are taking off, one after another.” [Time; WFAA, archive]
The Texas Coalition Against Crypto Mining, led by Jackie Sawicky, is now doing a weekly email newsletter: Proof Of Waste. We’ve been finding it super-useful already. [Issue 1; Issue 2; subscription form]
Bitcoin miners really don’t want anyone to know how much power they use. February 23, was the deadline for 82 bitcoin mining companies to cough up details of their energy use to the Energy Information Administration, the statistical arm of the US Department of Energy. The results were to be made public later this year to better inform policymakers about the climate impacts of bitcoin mining.
At the last moment, Riot Platforms and their lobbying arm, Texas Blockchain Council, filed a complaint in Waco, Texas, to delay the deadline. They claimed that the survey was rushed through on an “emergency” basis without a public comment period. The court granted a temporary restraining order on the data collection until a preliminary injunction hearing could be held. [Doc 13, PDF; Semafor]
The EIA reached an agreement with Riot and the Texas Bitcoin Blockchain Council. It will publish a notice on its planned survey and begin collecting public comments over 60 days. The notice will replace the previous survey. [Agreement, PDF]
The Sierra Club filed an amicus brief. “An outcome in this proceeding that prevents EIA from collecting data for months will materially increase the risk of rolling blackouts in extreme weather events or — as in Texas during Winter Storm Uri — cost customers tens of millions of dollars in payments to cryptocurrency miners to keep their lights on.” [Press release; Amicus brief, PDF]
As far as we presently know, bitcoin mining in the US consumes as much energy as the state of Utah.
Climate change is an emergency. In return for all the misery and destruction they bring, bitcoin miners contribute zero to their communities.
Riot is the largest crypto mining company in the US with facilities in Rockdale and Corsicana, Texas. It trades publicly on the Nasdaq with the ticker symbol RIOT.
Riot used to be a failing biotech under various names — Aspen Biopharma, Venaxis, Bioptix — whose stock traded under $5. In October 2017, in the heat of a crypto bubble, CEO John O’Rourke and Florida businessman Barry Honig figured out a way to pump the stock: blockchain!
The company rebranded as Riot Blockchain and BIOP became RIOT. The stock shot up from $5 to $46 in a matter of months. Fortunately, O’Rourke and Honig were well-invested!
They picked a good time to divest, too. In December 2017, after Riot’s stock hit a high of $46.80 — coinciding with the peak of the 2017 bitcoin bubble — O’Rourke dumped 30,383 shares for over $800,000. Honig dumped 500,000 shares for an undisclosed amount.
The SEC was not happy with companies adding “blockchain” to their names without any blockchain business. So Riot bought a two-week-old company called Karios, paying more than $11 million for mining equipment worth only $2 million. Honig just happened to be a shareholder of Karios as well.
Riot also acquired a majority stake in a “blockchain development company” called Tess based in Ontario, Canada. Tess was a shell company associated with bitcoin phishing sites, including a fake Mt Gox website.
O’Rourke’s stint as Riot CEO was short-lived. He stepped down in 2018, after he, Honig, and a fellow called Mark Groussman were named in a penny stock scam involving three companies. (Riot was not mentioned in the complaint.) Honig was the alleged “primary strategist.”
In 2018, short-seller Hindenburg advised investors to steer clear of RIOT and said the company was “hurtling toward the abyss.” An investigative piece by CNBC in February 2018 saw RIOT shares drop 33%. The CNBC report is comedy gold. [Hindenburg; CNBC; YouTube]
Riot has filed its full-year financials for 2023. The company reported “all-time highs of $281 million in total revenues, 6,626 Bitcoin produced, and $71 million in power credits earned.” [Press release; 10-K]
The company had no analyst call. This is not at all usual. But it’s not illegal!
As always, Riot made no profit. The company posted a net loss of $49.5 million in 2023. It’s hard to compare this to their net loss of $509.6 million in 2022 — a large part of that number was goodwill write-offs and bitcoin and mining rig value impairment.
RIOT reduced its losses on the books by $184.7 million by booking the rise in bitcoin price — that is, capital gains on the bitcoins they are holding, and not any sort of actual income — as “cash on hand, earned.”
Their “selling, general and administrative expenses” — mostly payroll — for 2023 totaled $100.3 million. That’s up $32.9 million from 2022.
Riot’s entire bitcoin mining revenue in 2023 was $189 million — only 2% higher than in 2021. Of that mining revenue, $71 million is subsidies from Texas for not mining bitcoin. That’s ordinary citizens paying to keep this company afloat.
Riot changed its name from “Riot Blockchain” to “Riot Platforms” in January 2023, hoping to diversify into anything that wasn’t bitcoin mining — such as using its supposed expertise in running large data centers. Nobody cared — almost all Riot’s revenue came from mining. Or from not mining.
Bitcoin miner accounting is very special, as we covered a couple of years ago.
The scheme is for the executives to leverage being a public company in a bubble to pay themselves money — e.g., as company shares that the C-suite prints and awards to themselves. The suckers are naïve institutional investors who want in on a bubble. The rug pull is when they go bankrupt.
Money comes into Riot from investors who should know better, and it goes out to insiders and operating expenses. This generates a small stream of income — which relies on past spending on mining rigs and the physical plant.
Riot pays its executives well beyond the company’s carrying capacity. Riot CEO Jason Les is getting $21.5 million a year, mainly in bonuses and stock. Executives awarded themselves another $213.6 million in stock and options as of January 2024 — but it’s performance-based! They’re really efficient at setting money on fire.
The company has a history of diluting stock. They’ve gone from 15 million shares in 2019 to 250 million shares in 2024. In 2023, the company netted $517.6 million from selling 45.8 million new shares. [Ycharts]
One of Riot’s big problems is that even the institutional investors who thought RIOT was a way to get bitcoin exposure have ETFs now instead.
Riot has been telling folks in Navarro County, where it’s building a massive one-gigawatt mining facility, that its servers will be immersion-cooled with oil to reduce noise pollution. A demonstration facility seriously impressed Navarro County commissioners with how quiet it was.
But in the 10-K, Riot admits they have no idea if immersion cooling will even work at scale:
Immersion-cooling is an emerging technology in Bitcoin mining, which is not in widespread use, and has yet to be deployed at this scale. As such, there is a risk we may not succeed in deploying immersion cooling at such a large scale to achieve sufficient cooling performance. All Bitcoin mining infrastructure, including immersion-cooling and air-cooling, is an evolving study.
The company also admits they’re absolutely screwed without the power subsidies from the state of Texas:
… our plans and strategic initiatives for the Rockdale Facility and Corsicana Facility are based, in part, on our understanding of current environmental and energy regulations, policies, and initiatives enacted by federal and Texas regulators. If new regulations are imposed, or if existing regulations are modified, the assumptions we made underlying our plans and strategic initiatives may be inaccurate, and we may incur additional costs to adapt our planned business, if we are able to adapt at all, to such regulations.
Denton in Texas used to have Core Scientific, who went bankrupt in late 2022 to the cheers of the townsfolk — but now the city is welcoming more of these bozos. The miner, whoever it is, appears to be pitching itself to the town as a “modular data center.” [DRC, archive; DRC, archive]
This is the latest swindle we’re seeing from miners — they pitch themselves as “high-speed computing” or “modular data centers,” as if they could use their computing power for something other than mining. They can’t. ASICs are specialized and run for about eighteen months before becoming e-waste.
Jaime Leverton, the CEO of bitcoin miner Hut 8, has stepped down after that short-seller report from J Capital we mentioned previously. Her resignation sent the stock (Nasdaq: HUT) down 8%. Leverton is succeeded by President Asher Genoot. [CoinDesk]
Analysts for the Bitfinex crypto exchange say that miners are dumping their bitcoins ahead of the halving. We think this means the miners are desperate for cash, they don’t think the current pump in price will hold, or they’re getting ready to exit the business. [Bitfinex, archive]
Ethiopia is suffering a plague of crypto miners, lured by cheap energy. A wave of Chinese miners brought their container data centers to the country after they were kicked out of China in 2021. Several Chinese companies have now invested in a $4.8 billion dam, which the miners would draw power from. Ethiopia has signed a preliminary agreement to establish a $250 million bitcoin mining and AI (apparently) data center, led by the Russian bitcoin miner BitCluster. While all this is going on, about 40% of Ethiopia’s population of 120 million have no electricity. [South China Morning Post, archive; Bloomberg, archive]
We hear tell that the bitcoin mining rigs in El Salvador, which President Bukele set up outside the LaGeo plant in Berlín, Usulután, are no longer running, which is unsurprising in a country where power is 15c-20c/kWh — the container mining rig data centers have been left rusting in the sun. There are rumors that much of the setup has been stripped for scrap metal. We look forward to the rest of bitcoin mining going the same way.
Bitcoin miners in the US don’t run on the naïve model of making bitcoins and selling them — they’re creatures of fabulously questionable financial engineering in public markets. And with leverage comes weirdness.
These companies are in an unprofitable business. The only ones making money are the executives, who treat company stock like their personal ATM.
We expect the US miners to finally admit they’re broke at some point soon — hopefully this year. Apart from mining income halving in a couple of months, the bitcoin price can’t be pumped with billions of tethers forever — ultimately, the retail dollars just aren’t there.
Bitcoin miners could be saved with another crypto bubble. Any moment now! We don’t think a fresh bubble will kick off this year — it would require a fresh influx of retail dollars that just aren’t in evidence — but we don’t want to bet against human foolishness.
When the companies go bankrupt, the shareholders will end up holding the bag. It’s hard to feel that sorry for them — most of these were institutional investors who really should have known better.
States like Texas will be left figuring out what to do with the mountains of e-waste they leave behind.
Our latest is just out! This one is on David’s site. [David Gerard]
We also have half-cooked standalones on Tether and the state of bitcoin mining. Coming soonish!
Bitcoin mining earns you half as many bitcoins every four years. The reward for mining a block of transactions started at 50 bitcoins in 2009. It dropped to 25 bitcoins in 2012, 12.5 in 2016, and 6.25 in 2020. Sometime in May 2024, the block reward will drop to 3.125 BTC.
“Halvening” is a silly bitcoin neologism for when the block reward — the amount of newly minted bitcoin a miner receives every time they mine a new block — halves.
To understand the “halvening,” you need to know about two things:
The halving is a serious problem for bitcoin miners.
We expect an apocalypse of miners. They will try to sell any bitcoins they’ve been holding in reserve just to survive.
The cost of the electricity to guess enough random numbers to mine one bitcoin is currently around $26,000. After May, the price of bitcoin will need to be at least double this ($52,000) for mining to break even. There’s also the costs of mining computers (“rigs”), facilities, and paying executives huge salaries.
If the price of bitcoin falls below $50,000, expect miners to just shut down their hardware. Some may keep mining if their electricity is super-cheap — such as the now-illegal bitcoin mines that still exist in China. Miners around the world will switch off and throw away older inefficient mining rigs.
As well as a reward of fresh new bitcoins, the successful miner of a block also gets all the transaction fees. We calculate that the transaction fee per block was around $4,000 on February 20. Miners can also make money from questionable deals for not mining bitcoins.
The price of bitcoin may be pumpable with judiciously applied tethers — if the miners are on sufficiently good terms with the rest of the broader crypto casino. Previous halvings have been preceded by price pumps and lots of talk of bitcoin going to the moon. Expect to see “finance experts” making inane and baseless price predictions.
The real problem is that bitcoin mining is a terrible business to be in and gets worse every four years — which is why the actual businesses tend to structure themselves in ways that look more like a stock market scam.
Bitcoin discussion is promotional memes all the way down, and it always has been.
One big promotional meme is that there will only ever be 21 million bitcoins. That’s if the bitcoin software never changes. We don’t hear this meme so much anymore.
Satoshi Nakamoto wanted to issue new bitcoins but limit the total amount to 21 million to make it “scarce.” So instead of each block granting 50 BTC forever, the number would halve every four years. By 2140, the issuance would be zero and bitcoin miners would have to rely on transaction fees for their income.
Why would you want the total issuance of a general currency to be limited to a particular quantity? That comes from the political ideas behind bitcoin — a variant of Austrian economics that wants a rigid gold standard where the currency is firmly pegged to gold in a vault.
The world went off the gold standard in the 1930s, with the last vestiges disappearing in 1971, because it just didn’t work anymore. But there’s no bad or obsolete idea that someone won’t decide “What if that was actually a good idea?”
So the pre-bitcoin cypherpunks got high on completely incorrect conspiracy theories and spent a couple of decades trying to do a “gold” standard digitally.
Quite a lot of the deep weirdness of bitcoin is because it starts from this wrong economic premise and extrapolates from it in the face of all real-world evidence.
The bitcoin market is incredibly thin and easy to manipulate. We’re seeing $2,000 swings in the price over a single day. That’s not a stable market.
This is tremendous fun for Wall Street traders, who love volatility — and now they have cash-create ETFs and cash-settled derivatives of the alleged price of bitcoin, all using actual money under proper regulation. Plus, they don’t ever have to do anything so gauche as to touch a bitcoin.
Traders will create a complex thicket of derivative financial products on two flies crawling up a wall, and in bitcoin they have particularly demented flies to bet on.
The real dollars headed into the bitcoin system are interested in gambling on things that have less and less to do with actual bitcoins and the parameters of the blockchain.
The dumbest promotional myth about the “halvening” is that the halvings cause the bitcoin price to go up! Because there’s less bitcoins now. With less bitcoins to fill the demand, there will be a shortage!
But there have always been large bitcoin holders with more than enough coins to flood the market, if only there were buyers. The supply of available bitcoins does not depend on mining output.
In the previous halving in 2020, the world was going nuts from COVID lockdown. Any supposed effects of the halving were just lost in the noise.
The current supply is a fresh 900 BTC per day in the form of block rewards. When 450 BTC of that disappears starting in May, existing whales already have a lot more coins they don’t want to just dump and risk crashing the price.
Miners were already holding coins while the price was going down through early 2022.
An even wilder myth is that the halving will come as a shock to the market, which can’t possibly have priced it in already.
While bitcoin is pretty solid evidence against strong versions of the efficient market hypothesis — that markets of any sort automatically incorporate all new information as soon as it exists — the crypto market isn’t so information-inefficient that it’ll be surprised by something that’s been scheduled since 2009.
All kinds of things can and do send the bitcoin price up and down. Most of them are shenanigans.
The various myths exist solely to convince fresh retail suckers — the most valuable bitcoin users — to get in quick while they can. The real price of bitcoin is what the next sucker will pay for it.
The bitcoin code will never change!
Unless enough stakeholders want it to.
The last serious attempts to change the parameters of bitcoin were SegWit, which would allow a few more transactions in a block, and Bitcoin Cash, which would make blocks much larger and perhaps make the bitcoin blockchain a bit less hopelessly clogged. SegWit was eventually adopted, but Bitcoin Cash failed because they couldn’t talk the exchanges into giving them the “BTC” ticker.
None of these disputes were technical — it was all the politics of who got to make money.
As the bitcoin reward decreases, practical behind-the-scenes discussions of changing the code are becoming more prominent.
Miners need real dollars to pay their outrageous electricity bills. Power companies won’t accept tethers. The miners would very much like the issuance of bitcoin to change so that it no longer halves.
The reward per block is defined by two lines of code. A simple change and the reward could just as easily be thirty, sixty, or a hundred bitcoins per block.
Coiners will tell you that the code won’t change because it’s against the miner’s self-interest or the community would reject such a change. There are indeed those who would reject it — but their hold has been weakening since bitcoin finally failed hard as currency around 2017.
Bitcoin started in libertarianism. But approximately 100% of current crypto users are in it for the money. Crypto market participants subscribe to the bitcoin ideology only as long as it works for marketing.
Like conservatives and reactionaries in the wider world who don’t understand markets and condemn doing things that get you customers as “woke capitalism,” ideological bitcoiners will loudly decry as corrupt and unacceptable the actions of the actual existing crypto markets full of people who are in it for the money. Because they’re doing capitalism wrong, apparently.
So the biggest threat to the bitcoin ideology is a sufficient threat to the flow of cash.
The point of cryptocurrency is to create financial instruments that are obscured from regulators. The crypto markets are happy to trade centrally controlled tokens like XRP or most defi tokens on this basis.
When the bitcoin blockchain lost a lot of hashpower in the Bitcoin Cash wars in late 2017, the time between blocks could be over an hour. The crypto world barely noticed — because all the action was market traders on the exchanges in a bubble.
We would like to wish the bitcoin miners a very pleasant go broke and vanish. But we expect there will still be enough mining to keep the blockchain moving, even if very slowly.
The “halvening” only matters as a publicity stunt for bitcoin — a reason to get bitcoin into the headlines that isn’t Sam Bankman-Fried going to jail.
Our latest crypto collapse update is on David’s blog.
In this issue, FTX creditors will be getting back 100% of what they had as of the precise moment they lost it. Tether claims its “loans” — issuing money out of thin air — are no longer a problem as they’re making tons of interest from the thin air. Larry David feels silly after doing that FTX advertisement, especially after he took a salary in crypto, and ETFs may not be the holy grail crypto hoped for, but they’re a great way to dump your GBTC.
If you like this, share this, and also, please take a moment to support our work, and become a patron at the $5, $10, or even the very generous $100 level — links in story!
We asked readers what they were curious about in crypto. We posted part one of our answers earlier this month. Now here’s part two! [Twitter; Bluesky]
Sending us money will definitely help — here’s Amy’s Patreon, and here’s David’s.
Q: An update on the carbon footprint of the crypto industry for 2023, if this hasn’t been done by someone else already? Thanks [Thomas Endgame on Twitter]
The news is still dismal. The bitcoin network’s annual carbon footprint is a shocking 76.79 million tons of carbon dioxide, comparable to the entire country of Oman, according to Digiconomist. [Digiconomist, archive]
In terms of energy, bitcoin uses as much electricity as the country of Ukraine — 137.68 terawatt-hours annually. Energy consumption was highest in the first half of 2022 — 204 terawatt-hours per year — but started to go down in July, after the crypto collapse.
The network currently produces 23.75 kilotons of e-waste per year, comparable to the entire Netherlands, and every bitcoin transaction uses enough water to fill a swimming pool.
This is why some of the good citizens of Texas are fighting back against the crypto mines there.
Q: Who’ll be left holding bags when Tether collapses? [Julius Cobbett on Twitter]
Tethers (USDT) function as substitute dollars on offshore crypto exchanges that have no access to US dollar banking.
The biggest holders of tethers are arbitrageurs, such as Cumberland, who pass tethers along to secondary users in exchange for bitcoins and other crypto. [CoinTelegraph, 2020; Protos]
If all tethers were suddenly switched off tomorrow, that would be nearly 100 billion “dollars” in liquidity instantly sucked out of the market.
Any secondary users stuck holding tether would find their virtual dollars suddenly worthless. Arbitrageurs would have nothing to buy and sell bitcoin with on offshore exchanges — they would have to switch over to a different stablecoin — and the price of bitcoin would likely take a serious hit.
We would expect to see a large number of bitcoin holders trying to dump their holdings on actual-dollar exchanges like Coinbase in a mad rush to get out of the market. It might look like a bunch of mice trying to squeeze out of a tiny hole.
Q. We all know crypto is garbage, why does YAHOO finance continue to have the BTC ticker and other crypto related garbage up? I’d have thought by now it would be gone. [Barsoapguy on Twitter]
Sadly, with bitcoin ETFs and so on still all over the finance press, it’s a relevant number to put up. Even if they just pull the number from whatever CoinMarketCap says.
Q. In the bankruptcy of FTX, about 7B of the $8.7B said to be “lost” has been found, and with Crypto making a comeback all creditors may become whole or better. But SBF rots in prison for decades? And BK firms make over a billion in fees? [Bill Hochberg on Twitter]
There are two misconceptions here — one is that John Jay Ray and his team have found all the money and everything will be fine. The other is that Ray and his lawyers are gouging the creditors and nobody can stop them.
FTX got itself into trouble because it had stolen the customer assets, then inflated its balance sheets with worthless FTT tokens — its own illiquid supermarket loyalty card points. The FTT made up a third of its balance sheet. When FTX filed for bankruptcy in November 2022, it had a shortfall of $8.7 billion.
As we wrote at the time, FTX’s debts were real, but its assets were fake. The FTT was unsaleable garbage, not something that Ray and his team could turn into cash.
In August 2023, Ray estimated his team had recovered $7 billion — but that included spurious dollar values for trash crypto assets. A lot of it will be FTT and other worthless tokens that aren’t realistically convertible to cash in those quantities.
In October 2023, FTX said it would refund up to 90% of “distributable assets” to creditors. That’s 90% of the amount of funds that FTX was able to recover — not 90% of the amount owed to creditors. [FTX]
Bitcoin has gone up in price since FTX fell over. The price of bitcoin was $17,000 when FTX filed for bankruptcy. Now it’s over $40,000. If FTX held onto its crypto holdings, instead of converting them into cash as soon as possible, they might have made some money. But bankruptcy lawyers typically don’t gamble on volatile markets.
Bankruptcy professionals are super expensive. Ray’s team has so far cost about $200 million. That’s a lot of money, and many people questioned this — but even the independent fee examiner said, yep, that looked about right for the ridiculous mess Ray had to sort out here.
An appeals court has ordered the appointment of an independent examiner reporting to the US Trustee, paid for out of the bankruptcy estate, which will likely cost another $100 million or so.
Q: Eth staking and destaking? It was not possible to unstake at launch, does it work now? Are stakers happy? How scammy is the whole thing? There was some stuff about OFAC compliance for stakers too? I don’t know? I might use an explainer? [Laventeot on Twitter]
Ethereum proof of stake uses validators rather than miners like bitcoin does. Every validator has a chance at winning this moment’s ETH. If your block is the winner, you get the block reward, transaction fees, and all the MEV you can steal.
You can set up a validator at the cost of staking 32 ETH. When Ethereum moved to proof of stake in September 2022, this 32 ETH couldn’t be unstaked. But since Ethereum’s Shanghai upgrade in April 2023, it is now possible to unstake your staked ETH.
Unstaking has a queueing mechanism to avoid there being too much churn. So when there’s a big dump — such as when Celsius Network destaked 30,000 ETH recently to hand back to their bankruptcy creditors — it can take days or even weeks to process. [Nansen]
The staking process seems to work as advertised and the stakers are pleased with it.
The process closely resembles an unregistered security in the US — the Ethereum Foundation (incorporated in Switzerland) promotes that you put in your ETH and you get a return on it from the efforts of others.
Some exchanges offer staking as a service — this is probably okay if the customers are accredited or institutional, and an excellent way to accumulate cease and desist letters from the SEC and state securities regulators if the customers are retail.
Anyone moving money — or, in FinCEN’s terms, “value that substitutes for currency,” including “convertible virtual currencies” — as a business in the US is required to comply with sanctions law. This is usually assumed to mean not validating transactions for sanctioned blockchain addresses listed by OFAC. US-based validators would be very foolish to flout this.
OFAC compliance in transaction processing doesn’t directly relate to the economics of staking in itself — US bitcoin miners would similarly be liable under law for processing transactions for sanctioned entities, even if OFAC hasn’t called them up yet.
Q: maybe a check-in on the enterprise blockchain pitch decks? is the same dead horse still being beaten? [Stephen Farrugia on Twitter]
Enterprise blockchain has gone back into hibernation. Corporate interest in non-cryptocurrency blockchain goes up and down with the price of bitcoin — lots of interest in 2017 and 2018, almost none in 2019 and 2020, and a sudden burst of interest in 2021 as the number went up.
The problem with enterprise blockchain is that it’s a completely useless idea. A blockchain doesn’t actually work any better than using a conventional database in any situation where you have a trusted entity who’s responsible for the system. If you’re a business, that’ll be yourself. Just use Postgres.
The main remaining interest in enterprise blockchain is inside banks. We’ve had many reports of bank fintech research units infested with coiners trying to do something — anything — that they can say is “blockchain.” Société Générale’s completely useless euro stablecoin is one recent example.
Q. Something on the way that Bitcoin Magazine and BitMEX bought commercial places on the Peregrine Mission One so they could say they’d “gone to the moon” … and the spacecraft is going to miss the moon. [BiFuriosa on Bluesky]
Private companies have of late been offering to send personal items — cremated remains, time capsules, and even crypto — to the moon. Astrobotic, which owns Peregrin-1, is one of them.
In May, BitMEX and Bitcoin Magazine announced they were going to send a physical bitcoin to the moon via Astrobotic — that is, a metal medallion with a bitcoin private key engraved onto it. They declared that this would mark a “defining moment for bitcoin as we explore the possibilities of Bitcoin beyond planet Earth.” [BitMEX, archive]
Peregrin-1 made it into space earlier this month — but it never managed to land on the moon. So when it burned up on re-entry to Earth’s atmosphere, everything onboard burned up with it, including the time capsules, the ashes of more than 200 people, and the bitcoin. [Gizmodo]
Dogecoin fans had earlier funded a similar effort to send a physical dogecoin to the moon in 2015, also via Astrobotic. As of 2023, they were still trying to get it sent up. If the physical dogecoin had been onboard, it would have met the same fate. [Twitter, archive]
Sadly, even the moon hates crypto.
Q. Why are people still falling for this nonsense? [Peter Nimmo on Mastodon]
Dude, they can get rich for free! Maybe.
Thankfully, fewer people are falling for the nonsense. Retail trade is one-eighth of what it was in the 2021 bubble. Most of the dollars boosting the price of bitcoin since 2017 have been fake.
By the end of 2017, a billion USDT was sloshing around in the crypto markets; today in 2024, we’re coming up to 100 billion USDT. Bitcoin’s price is largely manipulated.
Crypto media — CoinDesk, The Block, Decrypt, and others — play a major role in promoting the nonsense. These outlets, owned and/or financed by crypto companies, are the public relations machines for the crypto industry. The finance press treats these sites as specialist trade press rather than fundamentally a promotional mechanism.
Crypto has also put big money into lobbying efforts, so we see senators like Cynthia Lummis, Kirsten Gillibrand, and Rand Paul shamefully repeating the propaganda.
Crypto skeptics are a smaller group who try to warn people of the dangers of investing in crypto. So it’s important to send money to us. Instead of bitcoins, we spend it on useful things like wine to get through all this guff.
Q. Once Crypto blows over what will we salt our popcorn with? [EamonnMR on Mastodon]
We don’t expect crypto to ever disappear completely. We do expect the number to eventually go down to the point where fewer people pay attention.
Meme stocks blew out even harder than crypto did. The remaining devotees are like QAnon for finance, posting to Reddit with their theories of how much they’ll surely get for their deactivated BBBY shares when the Mother Of All Short Squeezes finally descends.
Now that the well of dumb crypto money has dried up, venture capitalists are pivoting to AI as the next big thing. The tech is running out of steam, though. But the power consumption is likely to be even worse than bitcoin mining by 2027, and the AI grifters are using the same excuses for it as the bitcoin grifters. [Digiconomist]
Suckers are eternal. As long as money exists, fraud and get-rich schemes will be with us. And we’ll have something to write about.
Image: Hans at Pixabay, CC-0
Our latest roundup of everything that’s falling over is on David’s site. [David Gerard]
In this edition:
Boy, those ETFs were the juice bitcoin really needed, eh?
The SEC approved 11 bitcoin spot ETFs on Wednesday, January 10, with media widely reporting what a boon this would be for the coiners. Surely this would lure piles of fresh dollars into bitcoin!
Not quite. The bitcoin price held around $46,000 — but just for long enough for the whales to start cashing out.
What the crypto world needs to understand is that bitcoin ETFs are not bitcoins. They’re a traditional finance product with bitcoin flavoring.
Except for the risk — that bit is completely bitcoin.
The first big post-ETF price drop came on Friday, January 12. Bitcoin slipped from $46,000 to $43,500 in two hours — only one hour after the day’s printing of a billion tethers was released. A few hours after that, another dump took the price from $43,500 to $41,000.
The bitcoin market is fake and in tethers. The retail securities market is real and in actual dollars. You can’t pump bitcoin ETFs with tethers.
After years of being severely discounted from the price of the bitcoins in the fund, Grayscale GBTC finally reached net asset value. This turned out to be not so great — it looks like long-frustrated GBTC holders are finally dumping now that they can. [CoinDesk; Bloomberg, archive]
Coinbase (Nasdaq: COIN) stock went down as well. It was up as high as $186 at the end of December. It dropped to $130.78 on January 12.
ETFs have put bitcoin on steroids! Asthmatic and with shrunken balls.
Bitcoins are still an awful investment for ordinary people who aren’t true believers in Satoshi and just want to grow their dollars.
The ETF S-1 filings go into considerable detail on the risks — none of which should be news to anyone here.
The main risk the ETF trusts see is that the base asset is still a completely terrible investment. Crypto is insanely volatile. A pile of crypto companies went broke from being run by crooks — the filings go into some detail on this. Everyone hates bitcoin miners. The regulators, from the White House down, increasingly just despise everything about crypto. And very few people like bitcoin anyway.
Securities broker Vanguard thinks the bitcoin ETFs are such trash that they’re not only not offering these spot bitcoin ETFs — they’re withdrawing the crypto futures ETFs they presently offer. [Axios]
Unlike a bitcoin futures ETF, a spot ETF is based on actual bitcoins — and these have to be stored somewhere.
Most of it, including $29 billion face value of GBTC bitcoin, is stored by Coinbase Custody. VanEck is storing their ETF coins at Gemini. Fidelity is storing their ETF coins at their own custody subsidiary.
So what happens if a hacker gets into the digital fortress and takes all the bitcoins?
In short: too bad. Sorry, your money is gone!
Coinbase Custody advised BlackRock that it has insurance covering up to $320 million losses of custodied crypto — but that’s for all its customers’ $144 billion (face value) of cryptos in custody. That’s a whole 0.2% coverage. [SEC]
The ETF trusts themselves do not have FDIC or Securities Investor Protection Corporation (SIPC) insurance.
The ETF trusts specifically disclaim liability for lost backing assets. Valkyrie, for example, says: “Shareholders’ recourse against the Trust, Trustee, Custodian and Sponsor under New York law governing their custody operations is limited.” [SEC]
Investors would likely sue anyway. BlackRock and Fidelity could cover such a loss, though it would sting. Grayscale would be utterly unable to cover it.
If Coinbase were to go bankrupt, it’s not clear legally if crypto stored in Coinbase Custody would belong to the individual customers or would be thrown into the bankruptcy estate!
The custodian just losing all the bitcoins is not a trivial risk — two crypto custodians, Prime Trust and Fortress, went bankrupt in 2023 just from losing customer coins.
At least Coinbase Custody would be unlikely to do what Prime Trust did and gamble remaining customer assets on the crypto markets to cover the hole. Probably.
We spoke to Frank Paiano, who teaches finance and investing at Southwestern Community College, about what would happen if a bitcoin ETF’s backing assets vanished. [Frank Paiano]
He thinks that customers “will be fooled into thinking” that the ETF assets are protected, even though they absolutely are not. “That is mostly why Fidelity has set up their own trustee. I would guess that companies such as BlackRock would do the same.” (BlackRock is so far just using Coinbase.)
Loss of ETF-backing assets happens quite a lot, said Paiano. “A simple Internet search for ‘gold investments stolen’ yields several examples. Then there are the age-old anecdotes of people being duped into buying lead painted or plated with gold.”
Paiano thinks bitcoin ETFs are profoundly unwise investments: “prudent, long-term oriented investors should stay far away from these abominations”— but they’ll find customers.
“If there are foolish, greedy individuals willing to part with their hard-earned money, there will be scoundrels happy to oblige them.”
The day before the SEC announced its approval of 11 spot bitcoin ETFs, the official @SECGov Twitter posted a fake notice saying a bitcoin ETF was approved. SEC Chair Gary Gensler issued a statement on the fake tweet, saying that an unauthorized party got hold of the phone number connected to the account but didn’t get access to any SEC internal systems. [SEC]
The new narrative we’ve seen is that the real bitcoin pump is in 90 days when financial advisors are finally ready to push bitcoin ETFs on their customers, for some reason. Probably the halvening, or sunspots maybe.
We don’t expect the number to go up just from bitcoin ETFs existing — anyone who wanted bitcoins could already buy them, and “anyone” numbers one-eighth of what it did in the recent bubble.
We do expect downward pressure on the bitcoin price to continue from the GBTC holders who can finally cash out near par.
Tether pumps only work if nobody tries to cash out into the pumped-up price. Unfortunately, that only works as long as nobody wants real dollars. It turns out they do.
With these ETFs, bitcoin is the dog that caught the parked car.
David was quoted by Cointelegraph on bitcoin ETFs. A bitcoin ETF is a terrible idea, but we don’t think the threat model includes the issuers stealing the bitcoins. [Cointelegraph; Cointelegraph; Cointelegraph]
David spoke to Davar about bitcoin ETFs and our friends at Tether. (“Basket fund” is the local term for “ETF.”) [Davar, in Hebrew, Google translate]
David went on Logan Moody’s podcast The Contrarian just before the ETFs were approved to talk about the state of crypto as of early 2024. [YouTube]
Image: Grayscale Bitcoin Trust, artist’s impression.
As predicted, the SEC today approved several spot bitcoin ETFs — Grayscale GBTC, Bitwise, Hashdex, BlackRock iShares, Valkyrie, ARK 21Shares, Invesco Galaxy, VanEck, WisdomTree, Fidelity Wise Origin, and Franklin.
Fees are cut throat, some less than a quarter of a percent. These companies can run the ETFs as loss leaders for a while, but eventually they’ll have to raise the fees or quit.
Today’s post is over on David’s blog. [David Gerard]
Image: Scrooge McDuck’s money bin
Crypto is still hungover from New Year’s and there’s no news. So we asked readers what they were curious about in crypto. [Twitter; Bluesky]
Keep your questions coming for part 2, some time or other!
Sending us money will definitely help — here’s Amy’s Patreon, and here’s David’s.
Q: I keep wondering what’s keeping the circus alive, given that the retail dollars are practically gone, and the last remaining on/off-ramps are all but down the drain. [Tomalak on Bluesky]
The circus is fed by dollars — real and fake — and its product is hopium, the unfaltering belief that number will always go up. The hopium runs on narratives, such as the current story that a bitcoin ETF will result in a magical influx of fresh dollars.
In crypto, the retail dollars have largely gone home — but too many people have large piles of crypto accounted as dollars to let the number go down. So they deploy fake dollars to keep the crypto flowing.
There are currently 93 billion dubiously-backed tethers sloshing around the crypto markets. We expect that to go over 100 billion as we get closer to the bitcoin mining reward halving in April.
The circus is advertised by the crypto media, which functions as PR outlets for the space. The CoinDesk live-wire feed on any given day is about half hopium, for instance. There are no respectable media outlets in a crypto winter.
(Except us, of course. Subscribe today!)
Q: Why can’t or wouldn’t the average investor make money in crypto? We criticize it, and rightfully so, but why should the person looking to make a profit care? [King Schultz on Twitter]
There is no source of dollars other than fresh retail investors. Old investors can only be paid out with money from new investors.
Crypto isn’t technically a Ponzi scheme — it just works like one. So investing in crypto will always be a slightly negative-sum game.
Functionally, crypto is a single unified casino, run by a very small number of people, with no regulation. Binance is the tables, Coinbase is the cashier window. The flow of cash is from retail suckers to very few rich guys at the top.
There are many, many complicated mechanisms in the middle, and they’re fascinating to look at and describe and watch in action. But the complex mechanisms don’t change what’s happening here — money flows from lots of suckers to a few scammers.
Some people make money in crypto, just like some people make money in Las Vegas — but gambling in Vegas isn’t an investment scheme either. And the house always wins.
You can make money in crypto if you’re a better shark than all the other sharks in the shark pool, who built the pool. It can be done! Good luck!
Q: be interested in reading about money laundering [Broseph on Bluesky]
Money laundering is when you try to turn the proceeds of crime into money that doesn’t appear to be the proceeds of crime. Laundering money is also a specific crime in itself.
With money going electronic, it’s harder to obscure the origins of ill-gotten gains and avoid unwanted attention from banks and the authorities. Many crooks have attempted to launder money by using crypto as the obfuscatory step.
Bitfinex money mule Reggie Fowler set up a global network of bank accounts. He told the banks the accounts were for real estate transactions. He was sentenced to six years in prison.
Heather “Razzlekhan” Morgan and Ilya Lichtenstein tried laundering the bitcoins from the Bitfinex hack through the Alphabay darknet market. This would have completely covered their trail! Except that the police had pwned Alphabay by then, and Lichtenstein’s transactions were all right there for the cops to track him. Whoops.
We also highly recommend Dan Davies’s fabulous book on fraud, Lying for Money.
Q: Not so much baffled but curious as to how law enforcement can and does identify people using blockchain. Also, do some coins not have a public blockchain? [Bob Morris on Twitter]
Cryptocurrencies run on publicly available blockchains. In theory, you can trace the history of every transaction on a blockchain right back to when it started.
The hard part for authorities is linking someone’s real-world identity to a specific blockchain address. Achieving this was the key to busting Heather Morgan and Ilya Lichtenstein, for instance. The hardest part for crooks is cashing out successfully without being busted.
The trail can be difficult to trace, especially if the crook has put effort into obfuscation — e.g., running transactions through a mixer such as Tornado Cash. But specialists can get good at tracing blockchain transactions and several companies sell this as a service.
Privacy coins like Monero and ZCash try to obfuscate the traceability of transactions on the blockchain itself. But users often give themselves away by other channels — e.g., transaction volumes elsewhere that coincidentally correspond to amounts of Monero sent to a darknet market.
Even if you can protect yourself cryptographically, one error can leave your backside hanging out — and crypto users are really bad at operational security.
Q: nfts aren’t really relevant these days but I’ve never been clear on what ‘mint events’ are and how they relate to the icos. Are users generating new nfts paid for by using the coins they previously bought? [Robert Kambic on Bluesky]
Initial coin offerings (ICOs) were huge in 2017 and 2018 — but the SEC came down hard on them because they were pretty much all unregistered offerings of penny stocks.
Since that time, crypto has tried to come up with other ideas for doing unregistered offerings while making them look at least a little less illegal. There were SAFTs, airdrops, and now NFT mint events. These are all about creating fresh tokens out of thin air and promoting them as an investment in a common enterprise that will make a profit from the efforts of others.
A “mint event” is when you buy into an NFT collection early — when it first mints — hoping the value will increase astronomically over time.
But these are not securities, no, no, no. Yuga Labs wasn’t selling you shares in a company — they were selling you ape cartoons! You weren’t getting dividends, you were getting Mutant Apes, dog NFTs, and ApeCoins! You’re not investing in a speculative startup, you’re buying art!
The SEC has so far sued one NFT company, Impact Theory, after it raised $30 million through NFT sales. The SEC said the NFTs were promoted as investment contracts and not registered. [Complaint, PDF]
We didn’t say too much about NFTs in our 2024 predictions, but we expect that the SEC will go after more NFT projects this year, as they clear their backlog of violators.
Q. I’d like a definitive explanation on the amount of apes you can feed with a single slurp juice. [Etienne Beureux on Twitter]
Slurp juices were popularized in a tweet about Astro Apes, a Bored Apes knockoff, which also featured tokens called “slurp juices” that you could apply to your Astro Ape tokens to generate more Astro Ape tokens and get rich for free.
The tweet was posted on May 4, 2022 — just a few days before Terra-Luna exploded and popped the 2021-2022 crypto bubble.
Also, the guy who tweeted about slurp juices is a neo-Nazi. Welcome to crypto. [BuzzFeed News]
Q: I’ve often wondered why new languages like Solidity were necessary for smart contracts. [David John Smailes on Twitter]
The Ethereum team originally just wanted to use JavaScript, but it didn’t quite do what they needed in terms of functionality and data types — so they created Solidity, a new language based on JavaScript.
A blockchain is an extremely harsh programming environment. It’s hard or impossible to modify your code once deployed — you must get it right the first time. It’s about money, so every attacker will be going after your code.
In situations where programming errors have drastic consequences, you usually try to make it harder to shoot yourself in the foot — functional programming languages, formal methods, mathematical verification of the code, not using a full computer language (avoid Turing completeness), and so on.
Solidity ignores all of that — and the world’s most mediocre JavaScript programmers moved sideways to write the world’s most mediocre smart contracts and cause everyone to lose all their money, repeatedly. Smart contracts are best modeled as a piñata, where you whack it in the right spot and a pile of crypto falls out.
Other blockchains saw Ethereum-based projects making a ton of money (or crypto) and wanted that for themselves — so they tend to just use the Ethereum Virtual Machine so they can run buggy Solidity code too.
There are other, somewhat better, smart contract languages — but Solidity is overwhelmingly the language of choice, which keeps the comedy gold flowing nicely.
Q. Miner extracted value? [Cathal Mooney on Twitter]
Miners — or now validators — supposedly make money from block rewards and transaction fees.
There is a third way for validators to make money. Smart contract execution depends on the order of transactions within a block. Since the validator controls what transactions they can put in a block and how they order those transactions, they can front run the traders — the validator sees an unprocessed transaction, creates their own transaction ahead of that one and takes some or all of the advantage that the trader saw.
The term “Miner Extractable Value” was coined in the paper “Flash Boys 2.0: Frontrunning in Decentralized Exchanges, Miner Extractable Value, and Consensus Instability” in 2020. [IEEE Xplore]
Front-running is largely illegal in real finance. But since the Ethereum Foundation couldn’t stop their validators from front-running their users, they decided to claim it was a feature, which they have renamed “maximal extractable value.” [Ethereum Foundation]
Q: What do you think will eventually happen to all the Satoshi Nakamoto Bitcoin wallets? [Steve Alarm on Twitter]
Quite likely nothing. We suspect the keys, and thus the million bitcoins, are simply lost. Nobody has heard anything verifiably from Satoshi since April 13, 2011, when he sent a final email to bitcoin developer Mike Hearn. [Plan99]
If the Satoshi coins ever did move, there would be a lot of headlines. But we don’t think the crypto trading market would be affected much — the market is so thin, there are multiple large holders who could crash the market any time they felt like it, and the market is already largely fake. We think everyone will just pretend nothing happened and everything is fine.
Q. Did Do Kwon actually sell all his BTC to prop up Luna? [Saku Kamiyūbetsu on Twitter]
Terra (UST) was an algorithmic dollar stablecoin and luna was its free-floating twin. Terraform Labs ran the Anchor Protocol, which promised 20% interest on staked UST. At peak, there were 18 billion UST in circulation.
It turned out there was money to be made in crashing UST — so in May 2022, someone did. There is a strong rumor (and DOJ investigations) that it was Alameda. Other parties who collapsed because of Terra-Luna left the gaping hole in Alameda that eventually killed FTX. If Alameda fired the first shot directly into their own leg, that would be extremely crypto, as well as extremely funny.
UST was crashing, so Terraform Labs tried to prop up Terra-Luna. The bitcoins came from the Luna Foundation Guard, which promised to deploy $1.5 billion worth of bitcoin to defend UST. This didn’t work. [Twitter, archive]
We haven’t found a smoking gun that Luna actually spent the bitcoins on buying up UST or luna. In 2023, the SEC charged Terraform Labs and Do Kwon and said that Kwon and Terraform took over 10,000 BTC out of Luna Foundation Guard in May 2022 and converted at least $100 million into cash.
Q: I’m baffled at the lack of interest from crypto critics that the DoJ will not be pursuing additional charges against SBF. Specifically, the charges that could make some politicians very uncomfortable. [Amer Icon on Twitter]
The issue was specifically whether to further prosecute Sam Bankman-Fried. The prosecution letter to the judge quite clearly explains their reasons why a second case wouldn’t do anything useful in this regard. [Letter, PDF]
The evidence that Sam was the guy who made these bribes was presented in the case that just concluded and will be considered when he’s sentenced in March — they don’t need a second trial to nail those facts down.
Hypothetical other evidence that might have come to light about other parties wasn’t a factor in considering what to do about Sam Bankman-Fried. It’s quite reasonable to want to get those guys, but you will probably need a more direct method than a side factor in an additional case against a guy who is already likely going to jail forever.
Q. snarkier memes would be worthy [Chris Doerfler on Twitter]
“Esto no puede ser tan estúpido, debes estar explicándolo mal.”
We did a follow-up on this story. Part 2, though not labeled as such, is here!
Image: Amy Landers and Dear David reading today’s Web 3 Is Going Just Great
We shot our mouths off a year ago, and again in March 2023, and made way too many testable predictions for a good psychic. How did we do?
David and I look back on 2023 to see what we got right and what we missed and make our predictions for the New Year. Hint: more criming and more regulatory crackdowns.
This one is over on David’s blog.
* within acceptable margins of error
It’s not over until withdrawals are temporarily paused due to unusual market activity.
— Jacob Silverman
Tether’s been under some regulatory heat after the reports of how useful USDT is for financing terrorists and other sanctioned entities. Even Cynthia Lummis, the crypto-pumping senator from Wyoming, loudly declared that Tether had to be dealt with.
The US government isn’t entirely happy with Tether’s financial shenanigans. But they’re really unhappy about sanctions violations, especially with what’s going on now in the Middle East.
So Tether has announced that it will now be freezing OFAC-sanctioned blockchain addresses — and it’s onboarded the US Secret Service and FBI onto Tether! [Tether, archive; letter, PDF, archive]
Tether doesn’t do anything voluntarily. We expect they were told that they would allow this or an extremely large hammer would come down upon them.
There’s more to Tether’s criminal use case than sanctions violation. The most jaw-dropping chapter in Zeke Faux’s excellent book Number Go Up (US, UK) is when he traced a direct message scammer to a human trafficking operation in Cambodia that favored tethers as its currency. South China Morning Post follows up on this with an in-depth report on how Cambodian organized crime uses tethers. [SCMP]
Credit rating firm S&P Global rated eight stablecoins for risk. Tether and Dai got the lowest marks. S&P notes in particular the lack of information on Tether’s reserves. [press release; S&P; Tether report, PDF]
At least some of the claimed Tether backing in treasuries is held in the US with Cantor Fitzgerald — exposing Tether to US touchability. This has been known since February 2023, and was proudly confirmed in December 2023 by Cantor CEO Howard Lutnick: “I hold their Treasuries, and they have a lot of Treasuries. I’m a big fan of Tethers.” [Ledger Insights; Forbes]
Cointelegraph had a fascinating story on a company called Exved using tethers for cross-border payments from Russia! Then they deleted it, for some reason. Exved was founded by Sergey Mendeleev, who also founded the OFAC-sanctioned crypto exchange Garantex, which was kicked out of Estonia. Exved is working with InDeFi Bank, another Mendeleev venture. We’re not so sure the new OFAC-compliant Tether will be 100% on board with this. [Cointelegraph, archive; Telegram, in Russian; Protos]
In July 2022 — just after crypto crashed — Coinbase wrote to the SEC proposing new regulatory carveouts for crypto.
The SEC took its sweet time responding. Eventually, Coinbase sued in April 2023 with a writ of mandamus, demanding a bureaucratic response. The court told the SEC to get on with it, or at least supply a date by which it would answer.
Finally, the SEC has responded: “the Commission concludes that the requested rulemaking is currently unwarranted and denies the Petition.” The SEC thinks existing securities regulations cover crypto securities just fine, and there’s no reason for special rules for Coinbase. [SEC rejection, PDF; Coinbase letter to court, PDF; Gensler statement]
Coinbase general counsel Paul Grewal welcomed the opportunity to challenge Coinbase’s dumb and bad proposal being turned down. [Twitter, archive]
Binance founder and former CEO Changpeng Zhao will not be returning home to Dubai anytime soon. US District Judge Richard Jones ordered CZ to remain in the US until his sentencing on February 24. He can travel within the US, but he cannot leave. [Order, PDF]
After being busted hard, Binance is still behaving weird. At the FT Crypto and Digital Assets Summit in London, the exchange’s new CEO Richard Teng refused to answer even basic questions, like where Binance is headquartered and whether it’s had an audit. “Why do you feel so entitled to those answers?” Teng said when pushed. “Is there a need for us to share all of this information publicly? No.” [FT]
CZ and Binance have been trying to dismiss the SEC charges against them. This is mostly loud table pounding, wherein Binance claims that what the SEC argued were securities are not really securities. [Doc 190, PDF, Doc 191, PDF]
France was the first country in Europe to grant Binance regulatory approval. State-endorsed blockchain courses for the unemployed and NFT diplomas helped push the country’s most vulnerable into crypto. Since the collapse of FTX and Binance’s $4.3 billion fine for money laundering, French President Emmanuel Macron’s relationship with CZ has fallen under scrutiny. [FT, archive]
London law firm Slateford helped to cover up Binance’s crimes and attempted to intimidate media outlet Disruption Banking from writing about Binance’s sloppy compliance hiring practices. (Disruption Banking told Slateford to get knotted and didn’t hear from them again.) [Disruption Banking]
Binance is finally removing all trading pairs against Great British pounds. [Binance, archive]
FTX filed a reorganization plan in mid-December. The plan is 80 pages and the disclosure statement is 138 pages, but there’s a notable lack of detail on what happens next. None of the talk of starting a new exchange has made it into the current plan — this appears to just be a liquidation.
The plan treats crypto claims as their value in cash at the time of the bankruptcy filing on November 11, 2022, back when bitcoin was at $17,000 — less than half of what it is now.
Creditors will vote on the plan in 2024. The court must approve the plan before it is implemented. [Bloomberg, archive; Plan, PDF; Disclosure statement, PDF]
The IRS is demanding $24 billion in unpaid taxes from the corpse of FTX. John Jay Ray wants to know how the IRS came up with that ludicrous number — the exchange never earned anything near those amounts. The IRS originally wanted $44 billion, but brought the number down. Judge John Dorsey has told the IRS to show its working. [Doc 4588, PDF; Bloomberg, paywalled]
Three Arrows Capital was the overleveraged crypto hedge fund that blew up in 2022 and took out everyone else in crypto who hadn’t already been wrecked by Terra-Luna. After months of dodging culpability, co-founder Zhu Su was finally arrested in Singapore in September as he was trying to skip the country.
Zhu was released from jail and appeared before the Singapore High Court on December 13, where he had to explain to lawyers for the liquidator Teneo what happened when 3AC went broke. The information will be shared with creditors. [Bloomberg, archive]
A British Virgin Islands court froze $1.1 billion in assets of Zhu and his co-founder Kyle Davies and Davies’ wife Kelly Chen. [The Block]
Teneo expects a 46% recovery rate for 3AC creditors on $2.7 billion in claims. [The Block]
Crypto news outlet Decrypt has merged with “decentralized media firm” Rug Radio. No, we’d never heard of them either. The two firms will form a new holding company chaired by Josh Quittner. Decrypt had spun out from Consensys in May 2022, just before everything crashed. It’s reportedly been profitable since then — though crypto sites always say that. [Axios; Axios, 2022]
Forkast News in Hong Kong has merged with NFT data provider CryptoSlam and fired most of its staff. Forkast was founded in 2018 by former Bloomberg News anchor Angie Lau; it shut down editorial operations on November 30. [The Block]
Crypto news outlets ran seriously low on cash in 2019 and 2020, just before the crypto bubble, and they’re struggling again. We expect more merges and buyouts of top-tier (such as that is in crypto) and mid-tier crypto outlets. We predict news quality will decline further.
Amy recalls the old-style crypto media gravy train and eating in five-star restaurants every night in Scotland and London while embedded with Cardano in 2017. Thanks, Charles! Nocoining doesn’t pay nearly as well, but these days crypto media doesn’t either. There’s probably a book in those Cardano stories that nobody would ever read.
The Financial Stability Oversight Council, which monitors domestic and international regulatory proposals, wants more US legislation to control crypto. FSOC’s 2023 annual report warns of dangers from:
crypto-asset price volatility, the market’s high use of leverage, the level of interconnectedness within the industry, operational risks, and the risk of runs on crypto-asset platforms and stablecoins. Vulnerabilities may also arise from token ownership concentration, cybersecurity risks, and the proliferation of platforms acting outside of or out of compliance with applicable laws and regulations.
Yeah, that about covers it. FSOC recommends (again) that “Congress pass legislation to provide for the regulation of stablecoins and of the spot market for crypto-assets that are not securities.” [Press release; annual report, PDF]
IOSCO, the body of international securities regulators, released its final report on how to regulate DeFi, to go with its November recommendations on crypto markets in general. IOSCO’s nine recommendations for DeFi haven’t changed from the draft version — treat these like the instruments they appear to be, and pay attention to the man behind the curtain. These are recommendations for national regulators, not rules, but look at the DeFi task force — this was led by the US SEC. [IOSCO press release, PDF; IOSCO report, PDF]
London-based neobank Revolut is suspending UK crypto services — you can no longer buy crypto with the app — citing a new raft of FCA regulations, which go into force on January 8. [CityAM; CoinDesk]
Crypto exchange KuCoin has settled with New York. The NY Attorney General charged KuCoin in March for violating securities laws by offering security tokens — including tether — while not registering with NYAG. KuCoin has agreed to pay a $22 million fine — $5.3 million going to the NYAG and $16.77 million to refund New York customers. KuCoin will also leave the state. [Stipulation and consent order, PDF; Twitter, archive]
Montenegro plans to extradite Terraform Labs cofounder Do Kwon to either the US or South Korea, where he is wanted on charges related to the collapse of Terra’s stablecoin. Kwon was arrested in Montenegro in March. Originally it looked like Montenegro was going to pass him off to the US, but the case has been handed back to the High Court for review. [Bloomberg, archive; Sudovi, in Montenegrin]
Anatoly Legkodymov of the Bitzlato crypto exchange, a favorite of the darknet markets, has pleaded guilty in the US to unlicensed money transmission. Legkodymov was arrested in Miami back in January. He has agreed to shut down the exchange. [Press release]
The SEC posted a new investor alert on crypto securities with a very lengthy section on claims of proof of reserves and how misleading these can be. [Investor.gov; Twitter, archive]
It’s been nearly ten years, but Mt. Gox creditors are reportedly starting to receive repayments — small amounts in Japanese yen via PayPal. [Cointelegraph; Twitter, archive]
Some payouts are apparently bitcoin payouts — with the creditors not receiving a proportionate share of the remaining bitcoins, but instead the yen value of the bitcoins when Mt. Gox collapsed in February 2014. This means a 100% recovery for creditors! — but much less actual money.
There are still 140,000 bitcoins from Mt. Gox waiting to be released. If payouts are made in bitcoins and not just yen, we expect that claimants will want to cash out as soon as possible. This could have adverse effects on the bitcoin price.
In the Celsius Network bankruptcy, Judge Martin Glenn has approved the plan to start a “MiningCo” bitcoin miner with some of the bankruptcy estate. He says that “the MiningCo Transaction falls squarely within the terms of the confirmed Plan and does not constitute a modification.” [Doc 4171, PDF]
Bitcoin miners are racing to buy up more mining equipment before bitcoin issuance halves in April or May 2024. Here’s to the miners sending each other broke as fast as possible [FT, archive]
Riot Platforms subsidiary Whinstone sent its private security to Rhodium Enterprise’s plant in Rockdale, Texas, to remove Rhodium employees and shut down their 125MW bitcoin mining facility. The two mining companies have been brawling over an energy agreement they had made before prices went up. [Bitcoin Magazine]
The UK is setting up a crypto hub! ’Cos that’s definitely what the UK needs, and not a working economy or something. [CoinDesk]
Liquid is a bitcoin sidechain set up by Blockstream at the end of 2018. It was intended for crypto exchange settlement, to work around the blockchain being unusably slow. It sees very little use — “On a typical day, there are more tweets about Liquid than there are transactions on its network.” [Protos]
A16z, Coinbase, and the Winklevoss twins say they’ve raised $78 million as part of a new push to influence the 2024 elections. [Politico]
Little-known fact: coiners can donate to the PAC in tethers. All they have to do is send them via an opaque Nevada trust structure to hide the origins of the funds. And this is perfectly legal! [FPPC, PDF, p. 85, “nonmonetary items”]
Ahead of the SEC’s deadline to rule on a bitcoin ETF, Barry Silbert, CEO of Digital Currency, has quietly stepped down from the board of DCG subsidiary and ETF applicant Grayscale and is no longer chairman, according to a recent SEC filing. Silbert will be replaced by Mark Shifke, the current DCG senior vice president of operations. US regulators are suing DCG over the Gemini Earn program co-run by its subsidiary Genesis. [Form 8-K]
Ordinals are an exciting new way to create NFTs on bitcoin! ’Cos who doesn’t want that? The bitcoin blockchain immediately clogged when it was actually used for stuff. Now TON, the blockchain that is totally not Telegram’s, no, no no, has ordinals — and it’s getting clogged too. [The Block]
Image: Mark Karpeles with aggrieved bitcoin trader outside Mt. Gox in Tokyo in 2014.
Just what you wanted for Christmas — our survey of the bitcoin ETF landscape!
The SEC really doesn’t want to approve a bitcoin ETF — but we think it may be forced to. So it’s gonna make them compliant, which means they’ll suck a lot more for crypto’s purposes.
Image: Gary Gensler with Zeke Faux’s Number Go Up.
Société Générale’s euro-backed stablecoin, EUR CoinVertible (EURCV), has been listed on the Bitstamp exchange in Luxembourg!
This is the first stablecoin issued by a bank! If you stretch the word “first” and the word “stablecoin.”
EURCV is as useful as every other enterprise blockchain scheme — it doesn’t do anything, but you can market it with ancient bitcoin slogans with a different buzzword in them.
Société Générale (SocGen) is France’s third largest bank. SocGen Forge is their experimental blockchain unit, founded in 2018.
Jean-Marc Stenger, chief executive of SocGen Forge, promoted EUR CoinVertible to the Financial Times by talking about the huge US dollar domination of the stablecoin market — meaning Tether and USDC. [FT, archive]
Here’s the EUR CoinVertible white paper. [SocGen Forge, PDF]
SocGen has big ambitions for EURCV:
… we want our solution to be widely available through major Digital Asset exchanges to offer market participants a robust alternative for their needs. We also hope to see our solution used as a quality asset for various on-chain transactions (collateral, margining, wrapping to another blockchain etc.).
The trouble is that SocGen can do hardly any of these fancy DeFi tricks — because they can’t get away with setting up a money-laundering coin.
EUR CoinVertible is “open to anyone who wants to use it, either operations on our own platform or other platforms,” Stenger told FT. This is only true in the sense of “anyone” who’s signed up with SocGen as an authorized user of the token.
EURCV will be issued on the public Ethereum blockchain as an ordinary ERC20 token. But you will only be able to move tokens if you’re whitelisted with SocGen as an authorized customer. Only “qualified investors” under French law — analogous to “sophisticated investors” in the UK or “accredited investors” in the US — can become EURCV customers.
So you can trade EURCV on Bitstamp against EUR and USDT — but you can’t move it off again unless you’re a fully qualified and KYCed customer of SocGen. [Bitstamp, archive]
Functionally, EURCV is a zero-interest bank account with SocGen — but less flexible.
EURCV is so locked down that we can’t even think of a way to use it for scamming.
SocGen Forge has produced multiple blockchain products. Very few of these have more than pilot usage. That doesn’t matter, because the project existing at all matters much more than whether it’s of the slightest use. [Forge]
Banks want to chase the crypto buck — they think it’s cheap, free money from morons. This is true, but only if you break as many laws as crypto does.
Banks can’t really do that — so they end up creating things that don’t work for the crypto guys and also don’t work for conventional finance.
The potential is incredible, of course. Just imagine the hypothetical wins!
Banks were worried that a new wave of fintech startups — online banking, mobile lending, etcetera — were going to steal business from them. So in the mid-2010s, they formed fintech innovation teams.
Those bank innovation teams have to justify their existence. Sometimes they come up with something useful! But usually they just go with blockchain. We hear it’s the future of money.
Bank blockchain teams tend to coalesce around a few hardcore coiners who see it as their sacred mission to evangelize the good news about crypto. Anyone who isn’t a hardcore coiner moves elsewhere, to spend their life on something less futile.
The only reason to put EURCV on the public Ethereum chain is so that SocGen can say they’re doing a public stablecoin.
For similar reasons, SocGen Forge did an 11 million EUR “green bond” on Ethereum in November. It’s got all the finely permissioned and documented legal requirements of any other bond — but it’s also on Ethereum, for no functional reason. [Press release]
The attraction for SocGen is to claim it’s bringing “tech” to France, and it doesn’t matter if the tech is incoherent trash.
Bank culture is about minimizing risk. So banks are terrible at innovation. Issuing a “stablecoin” is easier than being in any way actually innovative.
There are also many in the financial sector who want things to stay just as they are: lack of transparency, bad systems, no competition.
And there’s no better way to keep things the same than to invest in “innovation” that can’t work.
Blockchain is the perfect solution to this Byzantine Manager Problem:
Images: Teodor Kreczmar-Schuldorff
The current favored euphemism for bank stablecoins is “tokenized deposits.”
Tokenized deposits represent traditional bank deposits — e.g., J.P. Morgan’s JPMCoin is a token traded on a private Ethereum instance they run in-house, and only JPMCoin customers can access it. This sounds pointless because it is.
Citibank has Citi Token Services. This doesn’t do anything. But it could and it has potential! Citi did a test transaction with Maersk. [Bankingdive; Citigroup; Bloomberg, archive]
ANZ Bank in Australia issued a tokenized deposit in 2022. It did two test transactions!
The crypto world has TassatPay, the successor to Silvergate Exchange Network and SIGnet, for internal settlement between US crypto companies. Somehow the banks involved don’t talk this one up so much.
When you read a puff piece that talks about companies doing a real, genuine single blockchain transaction, it means the two companies’ blockchain innovation units are both trying to justify their existence.
SocGen’s innovation is to put their useless private altcoin on a public blockchain — but they have to maintain the same level of absolute control as with anything else that touches real money to keep the crooks out, or the regulators will be deeply unhappy with them.
You might think that all of this sounds completely pointless, and you must just be missing the subtle reasons why it’s actually very clever and useful. We would just tap the sign again:
Bitcoin is over $44,000! By complete coincidence, Tether has printed five billion USDT in the past month out of thin air as “loans.”
In its attempts to explain number go up, the mainstream press keeps repeating crypto talking points — a bitcoin ETF is coming soon, and all the crime is behind us now — without mentioning Tether! David and I break down what’s behind the current pump — and why the crypto talking points are absolute rubbish.
This one is on David’s blog. [David Gerard]
Most of the deliberation time was spent saying “Wow, that was a lot of crime” “Just so much crime” “Maybe too much crime”
— Allistair Hutton
The crypto industry demands regulatory clarity! So the SEC keeps stating the regulations as clearly as it possibly can. Isn’t that nice of them? On November 20, the SEC sued the Kraken crypto exchange.
The causes of action are very similar to those against Coinbase and Bittrex. Kraken deals in crypto securities and acts as an exchange, a broker, a dealer, and a clearing agency, all in the same company and without the proper registrations for each. The particular crypto securities in this case are ADA, ALGO, ATOM, FIL, FLOW, ICP, MANA, MATIC, NEAR, OMG, and SOL.
The SEC also alleges Kraken commingled customer assets with its operating accounts. Kraken’s own auditors said this created “a significant risk of loss” to customers and led to “material errors to Kraken’s financial statements for 2020 and 2021.”
The message the SEC is sending in this series of cases is that it just isn’t going to put up with crypto exchanges doing all the securities jobs in one company anymore, and they need to stop. [SEC press release; complaint, PDF]
The Financial Stability Board, which monitors the global financial system, thinks what the SEC is doing is very good and cool. Its new report “The Financial Stability Implications of Multifunction Crypto-asset Intermediaries” sets out precisely how and why crypto exchanges combining all these functions (an exchange, a broker, a dealer, and a clearing agency) “can exacerbate structural vulnerabilities in those markets.” It uses precisely what happened in the crypto collapse as its example. Risk to the actual economy is limited, says the FSB — though the biggest issue is how the exchanges wrecked the few banks willing to talk to them. [Press release; cover sheet; report, PDF]
It’s not just the SEC cracking down on crypto. The US government is generally sick of crypto nonsense and looking to shut it down. This is what we’ve spent the past year and a half advocating for as loudly as we possibly could.
IOSCO, the International Organization of Securities Commissions, released its final policy recommendations to securities regulators on crypto. In short: regulate the heck out of this stuff for what it clearly is — and don’t accept handwaving about technology. IOSCO will release a second part on DeFi before the end of 2023. [Press release; recommendations, PDF]
Judge Martin Glenn approved the Celsius NewCo plan on November 9, giving creditors fresh hope that all the nonsense they’d been trudging through since July 2022, when Celsius initially filed for Chapter 11, was finally coming to an end. But it was not to be.
The original plan was that NewCo would be managed by Fahrenheit LLC, which won the bidding for Celsius’ assets in May. This business would focus on bitcoin mining and ether staking. [Doc 3972, PDF]
Creditors would get shares in NewCo, which would trade on NASDAQ. NewCo could issue shares without registration — under an exemption in the bankruptcy code that would allow it to do the initial issuance without filing an S-1 form with the SEC. Creditors would also get back $2 billion in crypto in January 2024.
But within hours of the court approving the deal, it fell afoul of the SEC — who would not approve the staking and lending portion of the business. [CoinDesk]
The SEC also wanted more details on the company’s assets and accounts for the “predecessor entity,” i.e., Celsius Networks. Unfortunately, Celsius’ pre-bankruptcy accounts are comical trash, somewhat documented in QuickBooks and some Google spreadsheets. This wasn’t quite good enough. [Doc 4050, PDF]
Celsius is now pivoting to “MiningCo,” a mining-only company with US Bitcoin as the manager and a board of directors. Fahrenheit members will not be part of the new entity.
Celsius’ lawyers argue that the “toggle” to mining-only is just fine, and they had this in their back pocket the entire time. Judge Glenn is not convinced: “This is not the deal that creditors voted on,” he said in a November 30 hearing. Celsius may have to seek a new creditor vote to get approval on the revised plan, putting them right back in the mud again. [Reuters, archive]
Blockchain Recovery Consortium (BRIC), who had been selected as a backup bidder in May if the Fahrenheit plan fell through, argued that Celsius should have gone with its backup bid, rather than pushing forward with this stripped-down “MiningCo” plan.
A hearing on this mess will take place on December 21.
If the MiningCo plan is not approved, Celsius may be forced to liquidate in Chapter 7.
If this new plan does go through, creditors should count the cash and liquid cryptos they get in the settlement as their actual return — and treat their MiningCo shares as lottery tickets.
Spain has arrested Alejandro Cao de Benós, a long-time Western agent of North Korea and founder of the Korean Friendship Association, on behalf of the US, for working with Virgil Griffith. [Reuters]
Cao de Benós was indicted in April 2022, along with Christopher Emms, a UK citizen, for signing up Griffith to travel to North Korea in April 2019 to give a talk on crypto at the Pyongyang Blockchain and Cryptocurrency Conference, which the pair organized. Emms, a crypto entrepreneur, is still at large. [DOJ; FBI; FBI]
We’re guessing the US wants a long discussion with Cao de Benós concerning all of North Korea’s other money laundering as well.
The US is currently working to extradite Cao de Benós from Spain, a process that can take months.
In the US, FinCEN wants to declare crypto mixing to be primarily about money laundering, for no better reason than money laundering is precisely what crypto mixing is primarily about. [FinCEN; Federal Register]
Court to Coin Center over their spirited defense of Tornado Cash: LOL, go away. [Doc 74, PDF]
Following “requests from its wealthy customers,” Ferrari is looking to sell cars to sanctioned Russians (ahem) unspecified entities in a currency-substitute that they have to hand. [Reuters, archive]
Sam Bankman-Fried is in a cell, where he belongs. [DOJ statement]
But there was much more to FTX than one crook — or five crooks if you count the guilty pleas of Sam’s former fellow executives. The use case for crypto is crime, and FTX was a money laundering machine. Jacob Silverman and Molly White discuss Sam’s many, many as-yet-unindicted co-conspirators. [The Nation; Molly White]
If you ever need a moment of cheer in your life, imagine how Alex Mashinsky, the criminally charged founder and former CEO of Celsius Network, feels seeing Sam be sent to jail in less than five hours. (The amount of time jurors deliberated.) Mashinsy’s trial is scheduled for September 2024.
Over in the FTX bankruptcy, John Jay Ray is suing the Bybit exchange to recover $953 million. Bybit had a private line into FTX and successfully withdrew $327 million in the run on the exchange just before FTX declared bankruptcy in November 2022. [Complaint, PDF]
The more foolishly ambitious parts of the UK government are still talking up crypto. So the Financial Conduct Authority has a new discussion paper on fiat-backed stablecoins for “consumers who wish to pay for their everyday shopping with stablecoins” — a category that does not presently exist. [Discussion paper, PDF]
So far, the plan is to allow UK-issued asset-backed “regulated stablecoins” supervised by the FCA. Overseas-issued “approved stablecoins,” with a UK “payment arranger” taking local responsibility, will come later.
The FCA will be requiring consumer protections, consumer right of redemption, protections in case an issuer fails, coin value stability despite market conditions, and ways to “mitigate the risks and harms that we have observed in the market, and those that arise from existing business practices” — i.e., all the crime.
Anti-money-laundering requirements will apply only on redemption — not on every transaction.
This initiative is not about our friends at Tether or USDC — though the FCA uses them as cautionary tales, particularly with USDC breaking its peg when Silicon Valley Bank went down.
Instead, the FCA seems to be setting a path for non-banks to issue their own asset-backed pounds — a regulated form of wildcat banking, with crypto as the excuse to even contemplate doing this weird thing. Or a privatized CBDC, if you want to be generous. The listed examples don’t even really need a blockchain.
There is nothing a regulated GBP stablecoin would do for ordinary UK consumers that they can’t already do with debit cards. But the FCA says that prospective issuers are already in the wings. Our psychic powers suggest these may be Conservative Party donors, given the present government’s recent track record of blatant kleptocracy.
CoinDesk spoke to Matthew Long, the FCA’s director of payments and digital assets, who confirmed that their intent is not to let rubbish through: “We’ve seen lots of things that we’re really concerned about and at the end of the day, the person this actually affects is the customer.” [CoinDesk]
Submit comments by January 22, 2024.
The Bitfinex crypto exchange apparently suffered a completely trivial wafer-thin leak of almost no customer information at all sometime in October. They announced this complete non-news at 21:30 UTC on Saturday November 4. [Bitfinex, archive]
How bad do you think Bitfinex’s customer data spill was? Clearly so very insignificant — a mere trifle! — that they couldn’t get away with just saying nothing at all to the very large and important customers with short tempers.
We’re sure it’s fine. “Bitfinex has a very close relationship with law enforcement,” and maybe it’ll get much closer.
CoinDesk has been sold in an all-cash deal to Bullish, the crypto exchange backed by Peter Thiel via Block.One — and not to the Vessenes consortium that was sniffing around the site in August. Terms were not disclosed. CoinDesk will operate as a totally independent entity, for sure! Bullish says it will inject lots of capital. [Press release; WSJ, archive]
Binance is finally killing its BUSD stablecoin as of December 15, 2023. The remaining BUSD balances will be converted to the totally trustworthy stablecoin FDUSD on December 31. You can redeem BUSD directly at Paxos up to February 2024 — if you can pass their anti-money laundering. [Binance, archive]
Binance had previously been trying to switch to Justin Sun’s TrueUSD. But TrueUSD was having problems in July 2023 — such as billions of pseudo-dollars being minted out of thin air. It turns out TrueUSD was hacked. The company waited a month to announce the hack, giving themselves plenty of time to furiously mint more TUSD tokens and send them to Huobi. [Twitter, archive; Twitter, archive; Protos]
Bankrupt crypto lender BlockFi is winding down at last. Payouts will be between 39.4% and 100%! … so, 39.4%. [Reuters, archive]
Circle, the company behind the USDC stablecoin, reportedly wants to try going public again in 2024. Circle tried in 2021 to go public through a SPAC offering. But they failed to get SEC approval for the proposed merger with Concord Acquisition, and by early 2023 they had given up. [Bloomberg, archive; WSJ, paywalled]
OpenSea is laying off 50% of its staff, as all the air has been let out of the NFT balloon. When it laid off 20% of its employees last year, around 230 people remained. So now they’re down to about 100 employees. [Twitter, Nitter]
The trial of crypto trader and alleged exploiter of Mango Markets Avi Eisenberg has been delayed until April 8, 2024. Eisenberg’s lawyers say they need additional time to prepare for the case. He is currently residing at MDC Brooklyn, also the temporary home of Sam Bankman-Fried. [CoinDesk]
Alex de Vries (Digiconomist) has a new report out on bitcoin’s water usage. Each transaction on the bitcoin blockchain uses 16,000 liters of water on average, about 6.2 million times more than a credit card swipe — and enough to fill a backyard swimming pool. [Cell]
We also suggested that someone should become the Digiconomist of AI power usage. It turns out that guy is Digiconomist! De Vries’ article “The growing energy footprint of artificial intelligence” was published in Joule in October. [Joule]
When you buy a nice house, make sure the previous owner wasn’t a crypto Ponzi scammer. Basketball player Shai Gilgeous-Alexander bought a house in Toronto previously owned by Aiden Pleterski, the guy who was kidnapped and tortured over three days by an extremely upset investor inquiring as to where his funds had gotten to. Further aggrieved investors are still showing up at the house — and so Gilgeous-Alexander wants to reverse the sale. [NYT, archive]
Image: Kraken founder Jesse Powell in a random tie he found out on a road somewhere.
Binance and CZ himself just settled with the US Department of Justice, the Treasury, and the CFTC. The stake through Binance’s heart won’t be the $4.3 billion in fines — it’ll be the compliance.
Real finance businesses that don’t run on crime can do compliance — they just don’t like it. Businesses that run on crime are screwed.
We wouldn’t be surprised if Binance files for bankruptcy next year, and the regulators just become creditors in the bankruptcy.
This one is on David’s blog. [David Gerard]
No one has ever attempted to move a 700-person polycule from SF to Redmond but I’m told the resources exist.
— Jacob Silverman
After Sam Altman was booted from OpenAI on Friday, the one question was: what will Microsoft do?
Microsoft has put $13 billion into OpenAI. It put in $1 billion in 2019 and another $2 billion in the years since. In January 2023, the company pledged an additional $10 billion in capital and infrastructure credits — i.e., compute time on the Azure cloud — though not all of that has been drawn.
Microsoft CEO Satya Nadella announced early on Monday morning that Microsoft would be starting its own AI unit — with Sam at the helm. Microsoft would also hire Greg Brockman, the former OpenAI president who was also booted from the board and quit his job in solidarity with Sam.
Microsoft’s stock price shot up on the news — even as the deal isn’t signed as we write this. [Twitter, archive]
OpenAI is not a regular tech company. It was formed as a nonprofit to develop artificial general intelligence (AGI) to benefit “humanity as a whole” and keep developers from creating a Torment Nexus. [Twitter, archive]
OpenAI’s chartered duty is to humanity, not to making big money into bigger money. But it turns out big money is also important. Training machine learning models isn’t cheap.
If OpenAI does put Altman back on the board, he wants the remaining board members — Adam D’Angelo, Helen Toner, Ilya Sutskever (maybe), and Tasha McCauley — replaced with Sam-friendly people who aren’t full-on AI doomsday cultists. He also wants his name cleared.
If a Sam-friendly board is put in place, then no enterprise or government will take anything OpenAI says about AI safety seriously henceforth — and OpenAI will just become a regular tech company focused on number going up, not a research company with AI doomers guiding its ethics.
Sam is venture capital’s guy. He’s the face of “AI” for the VC world. The VCs simply could not suffer the humiliation of Sam being ousted. They want him back.
Sam’s VC buddies have been working the press hard since Friday, trying to pressure the remaining OpenAI board members. If you see an article sourced to “multiple people familiar with discussions,” think to yourself which of the warring factions the “multiple people” likely belong to.
Right now, the VCs who put money into the for-profit arm of OpenAI are talking up the idea of suing the nonprofit board for their losses, to put added pressure on the board to resign. [Reuters]
If Altman and Brockman do go to Microsoft, OpenAI becomes an empty shell with no funding — a nonprofit board of nothing.
Sutskever, who led the coup against Sam, has already crumbled. He says he’s sorry — “I deeply regret my participation in the board’s actions. I never intended to harm OpenAI. I love everything we’ve built together and I will do everything I can to reunite the company.” [Twitter, archive]
Altman now needs two of the three remaining Sam-opposed board members to flip. [Verge]
Nobody has revealed precisely why Sam got booted — but several past and present OpenAI employees who spoke with the Atlantic said the tension started with the release of ChatGPT. The company was growing too quickly.
“After ChatGPT, there was a clear path to revenue and profit,” one source said. “You could no longer make a case for being an idealistic research lab. There were customers looking to be served here and now.” [Atlantic, archive]
OpenAI was torn between two growing factions at the company — the idealistic, like Sutskever, who feared AI taking over the world, and the commercial, like Altman and Brockman, who were pushing for more product releases, sometimes before the products were ready.
Sutskever began to behave like some sort of cultist:
At OpenAI’s 2022 holiday party, held at the California Academy of Sciences, Sutskever led employees in a chant: “Feel the AGI! Feel the AGI!” The phrase itself was popular enough that OpenAI employees created a special “Feel the AGI” reaction emoji in Slack.
Altman, meanwhile, was trying to drum up money from Softbank and Middle Eastern investors to build a chip company so OpenAI could own its computation. He wanted an OpenAI that worked like any other fast-growing Silicon Valley startup. [Bloomberg, archive]
OpenAI has hired a second interim CEO, Twitch cofounder Emmett Shear, to replace Mira Murati, who held the position for two days. Shear wants to hire an independent investigator to find out what the heck happened here. [Twitter, archive]
Shear appears to fall into the idealistic category. He takes Eliezer Yudkowsky seriously. He also had a cameo in Yudkowsky’s Harry Potter and the Methods of Rationality. [Twitter, archive; HPMOR]
But unlike Yudkowsky, who thinks that the rogue superintelligence will absolutely, positively, destroy humankind one day, Shear puts the probability of AI doom at a mere 5% to 50%. [Twitter]
In the manner of AI doom prophets throughout recent history, Shear has never done anything so tawdry as showing how he worked out these numbers. You might be forgiven for thinking that these guys pull this sort of number out of their backsides so that they can announce scary numbers in a confident voice.
Altman’s job at OpenAI was not in any way technical. He dropped out of Stanford computer science after two years to chase money in startups. But he inspired the team. So OpenAI’s 770 employees want their old CEO, not this new guy.
When Shear called for an all-hands meeting on Sunday at the company’s San Francisco headquarters, the employees refused. One responded in Slack with a rude emoji. [Verge]
By Monday afternoon, 700 of the OpenAI staff had signed a letter saying that they would quit and go to Microsoft if Sam didn’t return. They wrote that they were “unable to work for or with people that lack competence, judgment and care for our mission and employees.”[Wired; archive]
Sutskever also signed the letter — because hey, we all want to find the guy who did this. Murati signed too.
Microsoft also has rights to OpenAI’s source code and training data. It could start a unit with Altman as an inspirational tech leader and let him cherry-pick who he wants there. Microsoft could effectively buy OpenAI for nothing. The company is already extending feelers out to OpenAI staff — though on a very noncommittal “if needed” basis. [BBC]
Whether Microsoft actually wants to swallow OpenAI is another question. Working for a startup is a very different experience from working for a large corporate office supply company. Nobody who thought they were changing the world is going to stick around to work on text generation for Outlook email, including Sam. And Microsoft is smart enough to realize this.
Microsoft’s ideal outcome is that Altman goes back to OpenAI and the flows of cash and firewalling from culpability continue as they did before all this unpleasantness.
What Microsoft wants is to rent out computation on Azure. Cloud computing is a commodity, and one that’s only getting cheaper. But the supply of graphics cards for number crunching is rather more constricted. [Paris Marx]
If there’s demand for “AI” products — whether or not they even work — then there’s money renting out the number crunching the machine learning will need. That’s what Microsoft is in this for.
This provides a more robust and business-friendly substrate — without those annoying “ethics” people — for AI’s real use case: abusing labor and customers.
Update 11/22/2023: Sam has been reinstated. Venture capital won and OpenAI is now just another startup whose goal is to grow like a cancer. The paperclip maximizer is satisfied. [Twitter; archive]
Image: Sam Altman
Amy Castor 
