Front Burner - How Trump is fueling a crypto boom

Episode Date: December 12, 2024

Once crypto-skeptic, U.S. President-elect Donald Trump, has had a change of heart over the past year. Especially, after millions of dollars from the cryptocurrency industry poured into his campaign. Now, as he embraces the online currency, even appointing a crypto czar, the price of Bitcoin and other popular tokens reach new heights. Even memecoins are seeing a boost.But what happens if the volatile crypto market sees another crash like it did in 2022? Jacob Silverman, tech journalist and host of CBC’s The Naked Emperor, joins us to talk about why there’s so much crypto hype right now and what’s at stake if the boom goes bust.For transcripts of Front Burner, please visit: https://www.cbc.ca/radio/frontburner/transcripts

In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. This is a CBC Podcast. Hi, I'm Jamie Brusson. Hello, Bitcoiners. Thank you very much. Hello. It's good to be with you. This afternoon, I'm laying out my plan to ensure that the United States will be the crypto capital of the planet and the Bitcoin superpower of the world. And we'll get it done.

That was Donald Trump at the Bitcoin conference in Nashville in July. He was a hit. Thank you all. Have a good time with your Bitcoin and your crypto and everything else that you're playing with. And we're going to make that one of the greatest industries on Earth. Good luck and God bless you all. Trump hasn't always been a fan of crypto. He called it a scam when he was in office, a disaster waiting to happen. But his recent embrace of it and his election victory in part has sparked this crypto boom

with the price of Bitcoin skyrocketing to $100,000 for the first time. So why is Trump all in on crypto now? And why are we seeing such a huge run on the market? And if the boom goes bust, as it has before, what will that mean for investors and regular Americans, especially now that there's so much renewed hype around the volatile industry? Today, I'm talking to Jacob Silverman, the co-author of Easy Money, Cryptocurrency, Casino Capitalism, and the Golden Age of Fraud, and the host of the very excellent The Naked Emperor, CBC Understood's four-part podcast series about the rise and fall of FTX CEO Sam Bankman-Fried. Jacob, hey, it is so great to get you onto FrontBurner. Thanks for having me.

So we heard a bit of Trump's speech at the Bitcoin conference earlier this summer in the open, but I know it was this huge moment for the crypto world. And just tell me a little bit more about that appearance and what kind of promises he made to the industry and investors that day. The Bitcoin conference is the biggest annual event in crypto probably and usually in Miami or another city. And this year when Trump came to Nashville for the latest installment, it was a big deal because he had made a totally 180 degree turn on crypto. And from, as you said, calling it a scam to really offering the industry everything that they wanted. Number one probably is to fire Gary Gensler, the SEC chairman, who's the main villain in the eyes of the crypto industry at the moment. On day one, I will fire Gary Gensler and appoint a new SEC chairman. I didn't know he was that unpopular.

And they've already gotten that because Gensler announced that he would resign before Trump takes office. And then other things like the end of investigations or what they call regulation by enforcement, which really just means investigating and prosecuting scams or frauds. better access to the U.S. banking system, basically legalizing some of these crypto tokens that might be considered unregistered securities by different regulators or the courts. So it was really a roadmap that he laid out that everything you want to legitimize your industry, to bring it on shore, because a lot of it does operate in the Caribbean or overseas jurisdictions, he's going to help make happen. And just Gary Gensler, is that essentially why he became such a villain? Because he was pro-regulation. Yeah.

Gensler, first of all, is a trad-fi guy, as they might say in crypto, from traditional finance. And so as much as crypto still considers itself a little bit opposed to the status quo or kind of countercultural, they didn't really like Gary Gensler. But the real reason they didn't like him was because he would actually investigate and sue or launch actions against crypto companies and their, in some cases, their promoters, people who are illegally promoting tokens on social media, including celebrities. Well, this is a field, Becky, that's been rife with fraud and manipulation.

And look at all the bankruptcies. And you've had on this set people talking about those various bankruptcies. And it's not just one entity. It's entity after entity after entity. And then investors are just lining up in the bankruptcy court. They thought that instead of providing, this is the industry's attitude, instead of providing them what they considered a clear regulatory framework, Gensler's attitude was more, we already have a lot of laws and regulations on the books here, and I'm going to use those

accordingly. And when he saw evidence of fraud or a law breaking related to crypto, he was pretty vigorous about going after it. And I think, honestly, that's because there was a lot of that, especially kind of pound for pound in the crypto industry. Okay. And just sticking with Trump's 180 on crypto, am I right to say that donors poured a lot of money into his campaign? How significant was their backing during his election campaign? It was enormous. The cryptocurrency industry, I believe, was the largest donor by industry, meaning more than the energy and oil industry here, more than pharma, more than $200 million

in total. You'd have to look at what the latest numbers are now because they still get tabulated. But, you know, they spent $40 million just on the Senate race in Ohio to defeat Sherrod Brown, who's sort of an old school progressive stalwart. And instead, they got Bernie Moreno, this Republican car salesman who's a favorite of Trump. In Ohio, we have about 1.2 million crypto owners. So they want to have the freedom and flexibility to create new and exciting products. And what we should do in the government is we should create that and make sure the environment flourishes. Right now, we're doing the exact opposite.

Of course, a lot of money was going to support Trump, too. I think especially for an industry that while prominent in terms of visibility or in pop culture, crypto doesn't make a lot of money. It's not very economically productive, in part because the main use cases are still speculation or crime. And so I think what's surprising to a lot of people is not only did crypto spend so much money, but they had so much money to spend. And that if this came from the energy industry or came from some other big giant of American capitalism, it might be a little more understandable. But despite their kind of loudness as an industry, crypto is not necessarily that big a participant in American economic life.

So that's another thing that I think felt really out of sorts with this election. So Trump has now gone ahead and named David Sachs as his AI and cryptos are. What should we know about Sachs and what his approach will be? How does he think about crypto? Sachs and what his approach will be. How does he think about crypto? Sachs is definitely pro-crypto, but, you know, I would say he's not a pure crypto guy, as they might say in the tech industry. He's a venture capitalist. He's a PayPal mafia member. So he's one of those original PayPal employees. He was the COO of the company. He's very close with Peter Thiel, who he was friends and co-writers with in college. They wrote a lot of pieces together and a book. And so that's the milieu he comes out of. He has his own venture capital firm, which is called

Kraft Ventures. Crypto is definitely part of his portfolio. He's invested in crypto hedge funds. But this is not something he's banging the drum about every day. At the same time, like I said, he has some exposure to crypto and crypto companies. And in general, he's a let's slash regulations and make crypto more legal kind of guy. So he very much represents, I think, the tech and crypto mainstream, such as they are. And I think that he'll have the policies to follow. And what about Howard Lutnick, the CEO of finance firm Cantor Fitzgerald, who Trump has appointed his commerce secretary? What's the significance of that? What do we think he's going to do? Lutnick's firm Cantor Fitzgerald essentially acts as the U.S. banker for Tether.

And without getting too deep into it, Tether is kind of like the token used at all the crypto casinos. It's pegged to the dollar. It's sort of an unofficial digital dollar. And it's used throughout the crypto ecosystem. It can be a lot easier to use Tether than going back and forth between U.S. dollars and U.S. banks, which may not want you to be buying crypto or using your account for crypto. My view is Bitcoin, like gold, should be free to trade everywhere in the world. And as the largest wholesaler in the world, we are going to do everything in our power to make it so.

Bitcoin is the... And so there have been a lot of regulatory actions against Tether. They've settled for tens of millions of dollars here in the US. They're banned from doing business in the state of New York. And to say they're a little sketchy is putting it mildly. They're being investigated all over the world. Federal prosecutors in Manhattan are investigating the cryptocurrency company Tether for potential violations of anti-money laundering and U.S. sanctions rules. The Wall Street Journal in the past few minutes also reporting that the Treasury Department is considering sanctions against Tether because of the widespread use of Tether by criminals

on the internet. So, Lutnick has been buying Treasuries for Tether and basically helping them manage all this money that they supposedly have. Cantor Fitzgerald has also bought into Tether. They own something like 5% of the company. So this means that basically the future secretary of commerce is kind of a stone's throw from a company that is the linchpin of cryptocurrency money laundering. It's used all over the world for that. And I think that's a troubling connection for a lot of people. Okay. And then I think another pretty key thing to talk about here is the Trumps themselves. They're also getting involved in the industry very directly. His sons have been nudging him together. They've started a crypto company of their own, World Liberty Financial. Which will be run by his sons, Eric, Don Jr., and 18-year-old Barron, whose role at World Liberty Financial is visionary.

Barron's a young guy, but he knows that he talks about his wallet. He's got four wallets or something. And I'm saying, what is a wallet? What does Trump have to gain here? I think for Trump, endorsing crypto is about money, as it is for a lot of people. I mean, this is at heart a get-rich-quick scheme. It's about speculation. And for him, I think it's about putting his name on something just like he would stakes or a now-failed university or shoes or NFTs as he's done. And I'm sure the NFT experience showed him

that there's something like free money here if you just put your name or likeness on a crypto item or a crypto exchange itself. Now, the fact that they actually have a crypto platform or potential exchange being built here, I think is a bigger deal than just having a token or something like that, or just having a short lived NFT offering. What they're really doing is they're building a platform to trade crypto and to receive money from people overseas who we may not know who they are and they may not know who they are. But, you know, what I think is happening here is the future president is getting very deep into kind of a gray area, if not worse, of the illicit movement of money. And it may have this veneer of innovation or, you know, crypto is somehow the next big

thing, though I think it's already proven to be not. But more importantly, it's a way for Trump to collect money and fees without kind of going the traditional regulated route. It's just a matter of time before really crypto not only catches up, but just leap, you know, really leaps ahead. And so we're incredibly excited on a lot of fronts. And I think America will be the crypto capital of the world. And, you know, I fully support it. My father fully supports it. Our family, you know, is fully embracing it.

And again, America, you know, better lead the way. Otherwise, we're going to leave a lot behind. In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. Hi, it's Ramit Sethi here. You may have seen my money show on Netflix. I've been talking about money for 20 years. I've talked to millions of people and I have some startling numbers to share with you. Did you know that of the people I speak to, 50% of them do not know their own household income? That's not a typo. 50%. That's because money is

confusing. In my new book and podcast, Money for Couples, I help you and your partner create a financial vision together. To listen to this podcast, just search for Money for Couples. Jacob, all these guys, Trump, Sachs, Lutnick, when they're talking about crypto, their own skin in the game aside, what is their pitch to the American people? Why do they say this would be a good thing for the U.S.? And then how would you respond to what they're saying? I think their pitch is lacking in specifics. I think it's generally premised on the idea that crypto is supposed to be innovative and that the average member of the public is supposed to accept that as a given. And that somehow a rising tide lifts

all crypto boats and maybe we'll all get rich. I just really don't think that there's a lot of substance there. You do hear from Trump and some other political and tech leaders now that the US has to be the center of crypto or somehow the center of crypto and financial innovation. The banking system that we have around the world, the modern banking system is antiquated. It's antiquated. And it's just a matter of time before really crypto not only catches up, but just leap, you know, really leaps ahead. I will be the pro innovation and pro Bitcoin president that America needs and our citizens is there. This will be one. And to that, I would ask, you know, where's the innovation and how is

this helping people? Because we've seen several boom and bust crypto cycles and it hasn't really helped people very much. And also, I think most importantly, people aren't interested. The average retail trader has walked away. The volume is down on a lot of these exchanges. While this industry gets a whole lot of attention and now has real political power, they haven't really managed to live up to their own promises. And I don't think that there's much evidence that that's going to change. I just think that they're going to have the help and the government resources and the favorable regulatory environment to allow them to stick around for a long time and continue making profits, sometimes at the expense of everyday people. And just talking about the bus and that boom and bus

cycle, two years ago, when crypto crashed after the collapse of FTX, the company that you covered on The Naked Emperor, several companies laid off their workers and froze withdrawals. And just can you remind us why 2022 saw what the industry calls a crypto winter and what happened there? Yeah, crypto is a lot like capitalism and, or at least the kind of capitalism we practice, which is that it has boom and bust cycles, but it has exaggerated forms of them. They happen every couple of years, it seems. In 2022, a number of crypto companies were exposed as frauds. It was not just FTX and Sandbank and Freed, it was Celsius, it was Terra Luna, these other companies. Freed, it was Celsius, it was Terra Luna, these other companies. And this was part of a wider collapse that happened in the crypto ecosystem, really peaked in November of 2022 when FTX collapsed. And after that, a lot of people walked away, certainly some investors did, but also a lot of everyday people who had been convinced by the commercials with Tom Brady and Giselle that crypto was the place to be because now their money was gone. And I think a lot of people thought that that was

the end of consumer crypto for a while, but a while turned out only to be two years. And now somehow the industry has had a lot more money to pour back in and to help sort of pump up the prices of these tokens. So the token prices have been going up a lot in 2024. I wouldn't say there's necessarily, again, much new in what they're offering. What's really changed is the regulatory and political situation that may allow them to keep going. Is that the reason why we've seen crypto rebound so much? Is it all because of that? I think people would give you different answers. I mean, my answer would be that there's that the most important token besides Bitcoin is Tether,

which is an unregulated offshore stable coin that's been found before to print tokens out of thin air. And since the election, this is not even since the beginning of the year, but since the election, Tether has printed more than $20 billion worth of its token. Now, that either means that they're printing money out of thin air, and then that's being used to buy Bitcoin, or equally important, it means that $20 billion real dollars have gone to Tether to make those $20 billion worth of Tether tokens, and then those have been used to buy Bitcoin. So what I'm trying to say is there seems to be money entering the industry, real money, and that is what juices these token prices. When people get interested, even on the institutional level,

and they start buying huge amounts of crypto. And in some form or another, that does seem to be what's happening. And just whose money is it? That's an important question. Either some of this money, frankly, is made up, is counterfeit digital dollars. Some of it could be from illicit sources, because certainly crypto has been tied to money laundering before. There was a huge takedown of a money laundering network in the UK just in the last couple weeks. But then some of it we do know for sure comes from institutional investors or banks, because now you have these ETFs, these

exchange traded funds where this is, you know, real money entering the crypto ecosystem. So what you have here is now you have some very big Wall Street financial firms who are buying crypto. And what you can do as a customer is you can buy a share of one of these ETFs. So you're essentially buying exposure to crypto, but you're not buying the Bitcoin itself and don't have to manage it yourself. And that is another way in which everyday people might find their own accounts or their retirement accounts exposed to crypto in a way they may not have known before. So I just want to say, every time I really try to wrap my head around all this stuff, it's hard. It's hard to really understand it. So just for people listening out there, I get it. But I do want to ask you about meme coins,

which are a cryptocurrency named after characters, animals, or whatever, I guess. They have been outpacing Bitcoin over the last while, and there are millions of them with new ones popping up all the time. And let me give you an example. Hayley Welch, that hawk to a girl that went viral for a short clip from a street interview. Oh, you got to give him that hawk to and spit on that thing. She even launched her own token last week, but it went up in price as quickly as it crashed. And now it is basically seen as this rug pull scam. And could you just explain to me what happened there and how it fits in the conversation that you and I are having right now? Sure. She understandably got a lot of grief. How much does Haley Welch own?

This is Haley Welch's project. So she owns all of it. Coffeezilla. Coffeezilla. Did she just make a million dollars on fees on a rocket? But she was doing something that is pretty standard in crypto, not for the best, but this is happening every day. Sometimes hundreds or thousands of times a day with smaller amounts at stake. But people are launching these

tokens, meme coins, for a couple reasons. One, because it's really easy. Sometimes it takes minutes depending on what platform or software you're using. And so if I want to, you know, say I want to launch Jacob coin because I just went viral for making a funny joke, you know, I could do that in a few minutes. Maybe I'd reference the joke in the name of the coin or something like that. Then I would brag about on social media, get all my friends to boost it on social media. I would probably give them some of the tokens. And then we'd watch it go up really quickly. We'd sell our tokens as fast as possible and then watch the price crash. You know, it's not a very wholesome or socially useful kind of effort, but this is what's happening with these tokens. They're all basically

pump and dumps. None of them are really differentiated from each other except by the kind of the name or the meme or the intellectual property attached. And we're really talking about things that have the half-life or the life of fruit flies or of beans you know like things that last minutes or hours before they're they're kind of washed away in the in the cultural conversation and there may be people who think that they can make money off of this by trying to buy and sell them really quickly i really doubt that they can the way people make money off of these is by being on the inside. And so if you're on the inside and you get the tokens early or get them for a discounted price, you can dump them on the public and then just sort of wash your hands of it and say, oh, well, too bad. Yeah. I don't want to make you repeat yourself too much here.

I have such a hard time understanding how this keeps happening. Yeah. Like, why haven't more people sort of caught on to this pump and dump scheme yet? It seems like there's a new one every day, like a Mudang meme coin that like pygmy hippo, the chill guy one. Exactly. Anyways, I'm not missing something, right? Not at all. I mean, I hear that a lot when people ask me about crypto, even about, you know, Bitcoin or Ethereum, the sort of mainstream crypto stuff. You know, I think a lot of participation in crypto is kind of like gambling or other sort of risky forms of using your money, which is that people know the system is rigged in some sense, or that it's very

much stacked against them, but they hope to master it or to outdo kind of the person on the other side. And I think that's a very understandable feeling. And even though it can sort of lead to semi-logical or harmful or even self-destructive behavior when you start losing, I understand why people think that. And I think that's what drives a lot of this activity, that people who are buying meme coins, maybe some of them have a genuine belief that, hey, this could be something big. But I think a lot of them think like, hey, I'm entering into the arena here, it's going to be chaos, but I'm hoping that I can sell at the right time and make some money. Another term you hear in crypto is sometimes people call themselves degens, short for degenerates. You know, there's this sort of dark

sense, a cynical sense in crypto that, you know, they're proud degenerate gamblers, that they may not be doing things that are necessarily good for them, but they still are having some fun with it and they think that they can make money. And just look, we've talked about how you think another crash is inevitable with the oncoming Trump administration's promise to remove regulations. If more real money continues to go into crypto via these ETFs, exposing regular people like me, like you, what's at stake next time if we see another big crash like we did in 2022? I think the virtue of crypto regulation enforcement to this point is that it's

helped keep the industry mostly walled off from mainstream finance. FTX had a lot of investment money from the Ontario Teachers Pension Fund. And some of these other startups that have failed have done similar things. Some state pension funds in the US or elsewhere have invested directly into crypto. And I think that's what worries people is that when you get more of that kind of big institutional exposure, when people's retirement funds are buying into ETFs, or take Cantor Fitzgerald, which has a lot of money backing it from retirement funds, but retirement funds that probably thought they were buying into mainstream stocks. Then what happens is when this industry inevitably has a blow up in a couple of years, because that's the history it's shown for 15 years,

it could hurt a lot of everyday people. It could provoke a wider banking crisis or even a recession. And so far, we've been pretty safe from that. And there's been a lack of what's sometimes called contagion. But that's really the concern, I think. And right now, those doors are being thrown open to the crypto industry to make those kinds of connections, to put more dollars in and to get crypto more embedded in mainstream, you know, North American finance. And I think there's a lack of recognition from a lot of people or refusal to acknowledge that, you know, this is like gambling and this should stay in the casino if it's legal at all. It should not really be coming onto Wall Street.

Jacob, thank you so much for this. This was really awesome and super clear. So thank you. I really appreciate it. I'm glad to. All right. That's all for today. I'm Jamie Poisson. Thanks so much for listening. Talk to you tomorrow. For more CBC Podcasts, go to cbc.ca slash podcasts.