Molly White's Citation Needed - Issue 50 – Bitcoin busts

Episode Date: February 2, 2024

Governments seize huge quantities of bitcoin, and a few people seem to be yearning for the days of peak crypto mania. Originally published on February 2, 2024.

I'm Molly White, and you're listening to the audio feed for the Citation Needed Newsletter. You can see the text version of the newsletter online at citation needed. news. Issue 50, Bitcoin busts. Government sees huge quantities of Bitcoin, and a few people seem to be yearning for the days of peak cryptomania. This post was originally published on February 2, 2024. Not only is this the 50th recap issue, but I've been a very last. also just crossed the 100 postmark. It's been just under a year and a half since I launched this newsletter with Issue Zero, and it's been an awesome time. Seriously, I love writing this so much,

and I am so happy that there are people out there who like reading it. Some housekeeping. For those of you reading this in your email inbox or RSS reader, I've added side notes to the web version that you might like to check out. They should make my compulsive footnoting a little more legible without having to jump around the page. I also published the script I wrote to format my footnotes and references on ghost, in case any other ghosters out there might find it useful for their own purposes. I've also moved the newsletter, along with my personal website and Web3 is going just great, off of Cloudflare, and onto Fastly, made possible thanks to their generous fast forward project. Thank you to them. Emails to at citation needed. news addresses are currently bound to

back due to an issue with mailgun. So please use my Molly at mollywhite.net email address if you need to get in touch with me for the time being. This should be fixed soon and I didn't want to delay publishing the newsletter just because of this. Now on to the latest. In the Courts. This has been the week of Bitcoin seizures, many from people who are not themselves operating crypto schemes, but who instead used the asset to store ill-gotten funds from other activities. For a cryptocurrency meant to be outside the reach of government's grubby little hands, governments sure do have an awful lot of it. In the U.S., Bonmeet Singh forfeited 8,100 Bitcoin, priced at around $340 million today,

obtained from selling drugs through the Silk Road and other dark web marketplaces. The forfeiture was part of a guilty plea to drug and money laundering charges, and he's expected to be sentenced to around eight years in prison. Separately, the government has issued a notice that they intend to sell around 2,934 Bitcoin, priced at around $123 million today, seized in relation to the Silk Road. Some of those tokens were seized in 2021 from Ryan Ferreys, who used to go by Xanax Man on the Silk Road, where he sold what you might expect.

Others were seized in 2017 from Sean Bridges, a former U.S. Secret Service agent involved in the Silk Road investigation who thought it might be a good idea to help himself to some of the Bitcoins. Zanax Man has just been sentenced to four and a half years in prison. Bridges was sentenced to almost six years in 2015 and a concurrent two years in 2017. In the UK, the Metropolitan Police disclosed earlier this week that they'd see, four devices containing 61,000 Bitcoin, priced at around $2.6 billion today, from a safe deposit box in connection with a Chinese investment fraud scheme run by a woman named Zemin Chen, who went by Yadizang. She allegedly operated this scheme from 2014 to 2017 and stole money from more than 128,000 people and is now on the run. The Bitcoins were seized in 2018.

but the news has only just come out now during the trial of a woman who allegedly helped launder money for the fraudster. In Germany, police just seized almost 50,000 bitcoins, now priced at around $2.1 billion from operators of movie 2K, a once popular movie piracy website that operated from 2008 until it was shut down in 2013. This hall adds to other movie 2K bitcoins seized by German authorities in 20, which were then priced at around 25 million euros. Movie 2K made money through advertisements and subscriptions,

though not to the tune of billions of dollars. Most of that is a result of their choice to start converting income into Bitcoin in around 2012, when the token price was somewhere between $4 and $14. Two suspects voluntarily moved the Bitcoins to a wallet operated by police and are apparently cooperating with the investigation. Moving past Bitcoin seizures, Estonia is preparing to extradite two operators of the Hashflare-Ponzie scheme, which solicited investments from people who were told they were running a cryptocurrency mining operation. In reality, they were mining only a tiny fraction of the cryptocurrency they

claimed, and when they did make payments to their investors, they were using other investors' money. Altogether, the scheme brought in around $575 million. The duo were charged. in the U.S. and arrested in Estonia in November 22, but the extradition was a bumpy process. South Korea has issued a warrant for the arrest of Bang, a key figure in a messy June 2023 collapse involving the Haru Invest Yield platform, the Delio lending platform, and a counterpart to Haru called BNS Holdings. Bang is the majority shareholder for BNS. Haru claims that BNS falsified management reports and lost 350 Korean won or $262 million in the FTX collapse. A lawyer for the massive one coin fraud has been sentenced to 10 years in prison for his role in helping

to launder around $400 million for the multi-billion dollar scheme. Although One coin's crypto queen, Ruha Ignatova is still on the lamb, her various co-conspirators have been receiving hefty sentences lately. Her co-founder, Carl Sebastian Greenwood, was sentenced to 20 years in prison in September. Another co-conspirator, the former chief compliance officer, entered a guilty plea in November and will be sentenced this month. Indictments are still trickling out in relation to the BTCE cryptocurrency exchange, a name which may sound familiar if you watched my Binance video.

The first legal action against that exchange and its operators was six and a half years ago in 2017, but one of its operators was only just charged with money laundering conspiracy and operation of an unlicensed money services business. Finland's National Bureau of Investigation claims they've traced Monero transactions related to a ransomware operator who targeted a mental health firm called Vastamo. This is a big claim because Manor, Minero is a privacy coin that promises to be untraceable. Manero fans say it's got to be the criminal's fault. They're probably right to some extent that it was various swaps on Binance from Monero to Bitcoin that were traced rather than Monero transactions themselves.

But if your privacy coin is only private so long as you never cash out, is it really that private? it? Eli Regalado, the crypto-scamming pastor from last issue, apparently jetted off to Zambia to preach about cryptocurrency instead of showing up for his court hearing in Denver. I assume God told him to do that, too. The judge signed off on continued freezes on the Regalado's assets and issued an order preventing them from selling cryptocurrency or other investments in the state. This is, quote, a case of just unmitigated greed, said the judge, who also said, it's one of the more egregious cases I have seen, where someone in the name of faith, the name of God, prayed upon his congregants, and he did so in the name of the Lord.

Genesis has agreed to settle their portion of the lawsuit from the SEC, which also names Gemini as a defendant. The bankrupt Genesis will pay out a $21 million penalty, if they can afford it after repaying creditors. The case against Gemini, which is not bankrupt, at least at the moment, will presumably continue. Abra has reached a settlement in principle with the Texas State Securities Board, who issued an emergency cease and desist in June 23 after finding that the crypto lending firm was insolvent or nearly insolvent. Abra will repay customers and continue to wind down. In Bankruptcies

Celsius has exited bankruptcy and will now start distributing the around $3 billion in cryptocurrency they've got left to creditors. Besides this payout, which will only provide creditors with a portion of the funds they once had on the platform, creditors will also get a stake in Ionic, the new Bitcoin mining operation that's being created, and which was previously only referred to as Nuco. Ionic's crypto mining will be managed by Hutt 8, which, as it happens, was the subject of a January 24 short-sellers report that claimed the mining company was, quote, hiding stock ownership through an undisclosed related party, a stock promoter cabal, and a host of left-for-dead

assets. Promising start. Headlines proliferated this week that FTX creditors might be able to be repaid in full after a claim to that effect by one of FTC's lawyers in court. You might think said creditors would be overjoyed, but this estimate is based on the Bitcoin price at the time of bankruptcy, around $16,800, or two and a half times less than recent prices of around $42,000. Despite a flood of objections from creditors to using this price for estimates, the judge has approved the approach. Meanwhile, FTC's team has blessedly abandoned the idea of trying to restart the FTCS exchange. According to one of their lawyers, quote,

the costs and risks of creating a viable exchange from what Mr. Bankman-Fried left in the dumpster were simply too high. FDX has also dropped its lawsuit against Grayscale, presumably because their claim that Grayscale had an improper redemption ban on GBT is now moot. GBT's recent conversion to an ETP has provided GBT holders an exit, which holders have been availing themselves of to the tune of billions of dollars. FTX has reportedly been a major participant in that, themselves dumping around 22 million shares priced at around $1 billion. Terraform Labs, the company behind the collapsed Terra and Luna tokens, filed for bankruptcy on January 21st. Now that they've filed their first day motions,

it's a little clearer why. They're anticipating a big fine from the SEC. and don't think they can afford to appeal it without bankruptcy protection. In Governments and Regulators. The U.S. Energy Information Administration, or EIA, is performing an emergency collection of energy usage data from cryptocurrency miners in the country. I am not entirely clear on what the emergency is exactly. Supporting statements cite strain on electrical grids during weather extremes, but this is not exactly a new phenomenon. Some Bitcoin miners have already come out to describe the

plan survey as Orwellian, because of course they have. The SEC has really not covered themselves in glory with the debt box lawsuit, which may be why they're now filing to dismiss it. SEC lawyers made false statements to the judge, who has been considering sanctions. It seems to me that the SEC is now hoping the judge will dismiss the case instead of following through with sanctions, although notably they are asking the judge to dismiss it without prejudice, which means they could refile a lawsuit later on. FINRA, a self-regulatory agency, performed a review of its member firms that, quote, actively communicate with retail customers concerning crypto assets.

They identified potential substantive violations of FINRA's rule requiring communications be fair and balanced in 70% of communications they reviewed. State regulators in Florida and Alaska want Binance U.S. gone. Alaska denied renewal of their license to operate in the state, and Florida issued an emergency suspension of Finance U.S.'s money transmitter license there. The Hong Kong Securities and Futures Commission says that staking the dog-themed Flokey meme coin is a, quote, suspicious investment product. The announcement seems to have been triggered by claims from Floky,

that their staking program can provide between 30% and more than 100% annual returns, which the SFC says is too good to be true. Flokie held a Twitter space to address the warning, claiming that the SFC's only complaint was that the program performs too well. I mean, yeah, kind of. Also in Hong Kong, the Office of the Privacy Commissioner for Personal Data thinks eyeball-scanning WorldCoin may have mishandled biometric data, They've rated six locations linked to the company and are worried that the company has not properly informed scannies about how their data will be used or properly obtained consent.

In journalism, Wired has published a profoundly weird story about Daos, titled A Dangerous New Home for Online Extremism, an extremism researcher has written about how, quote, neo-Nazis, jihadists, and conspiracy theorists don't actually use Daos, but could. The whole thing comes off as a weird, critter-hype-esque piece about how powerful Daoes might be, and how bad it could be if extremists started using them for organizing. Somehow ignoring that Dow's are broadly dysfunctional, and extremists aren't generally using them and don't seem terribly interested in starting. Utterly baffling. Andresen Horowitz's general partner and Web3's biggest fan, Chris Dixon, has published his book, Read, Write, Own, Building the Next Era of the Internet. It's about two years too late, but he's been doing the rounds on tech

podcasts anyway, and Entresen Horowitz is splashing out on full-page print ads in the Washington Post, asking people to, quote, forget what they know about crypto, like all the scams and disasters, I assume. I'm working on a review. Elsewhere in crypto. A bug in the Nethermind Ethereum validator software brought a whole bunch of validators offline. Luckily for Ethereum, the bug was in the Nethermind software and not the Geith software. While Netherminds, it was in the Nethermind software, while Nethermind currently powers around 14% of the network's validators, Geith powers more than 75%. A critical bug in Geith could be devastating to the network, and the Neithermine bug has drawn renewed attention to Ethereum's so-called diversity problem. Polygon laid off 19% of their staff, or 60 people,

and simultaneously gave everyone else raises, condolences or congratulations. Someone published leak code, infrastructure diagrams, and passwords belonging to Binance on GitHub. Binance first said, quote, it does not resemble what we currently have in production, but refused to address whether that meant it was old or fake. Finally, after 404 Media published an article about it, they acknowledged that it was real, but provided no additional insight into how someone got access to such sensitive data, outdated or otherwise. Chain Argos says 400 million Matic tokens, priced at around $320 million today, appear to be missing from Polygon staking allocation.

On the other hand, quote, essentially every project we've ever looked into wasn't done correctly. Ah, well, that's reassuring. Blizzard won't be allowing teams with crypto, NFT, or AI sponsors in its Overwatch E-Sports League. Pixelmon, the project that raised $70 million in February 2022, only to launch some of the most hilariously bad NFTs I've ever seen, has just raised $8 million in seed funding. They now have the opportunity to do the funniest thing ever. Fingers crossed. The Web 3 is going just great recap. There were 14 entries between January 20 and February 1, averaging 1.1 entries per day.

$142.57 million was added to the grift counter. Dwight Howard Rugpoles Chris Dixon isn't the only person a few years late to capitalize on a trend. Basketball star Dwight Howard thought he'd get an easy payday by dropping 3,000 low effort ballers NFTs, but discovered that the days of celebrities rapidly selling out NFT collections based on their celebrity status alone have, long since passed. Howard tried a few desperate moves to gin-up interest in the project after initial

reception was muted, including replacing all the artwork, slashing the supply in half, and even just giving out free crypto. In the end, he seemed to give up, because the project's Twitter account has been taken offline, and the open-sea page for the collection is gone too. 490 of the original 3,000 NFTs have sold. Magic Internet money loses its peg. The thing about putting money into a stable coin called Magic Internet money is that you're really not going to get much sympathy when it falls apart. Magic Internet money dropped from its intended $1 peg after the Abra-Kadabra lending protocol,

yes, really, was hacked. This is actually the second time it's deviated from its peg. The first was in the wake of the Terracobra. collapse. Hyperverses Sam Lee has been indicted. The U.S. Department of Justice has charged Sam Lee, one of the people behind the hyperverse scam that's stolen somewhere in the range of $1.5 billion from people. Lee lives in the United Arab Emirates, and given the DOJ didn't announce an arrest as a part of their press release, I assume he's still enjoying his freedom in the non-extradition country. The DOJ has also charged a hyperverse promoter who went

by Bitcoin Beauty. She's the second promoter to be charged in connection to this scam, following in the footsteps of Bitcoin Rodney. I'm starting to think that people who have Bitcoin in their monikers maybe shouldn't be trusted. The SEC has also filed suit against Lee for securities fraud and the sale of unregistered securities. Everything else. Sim swappers have been charged over hacks, reportedly including that of FTX. The crypto exchange created by Three Arrow's Capital Founders will shut down. $112.5 million in XRP has been stolen from Ripple's CEO, Chris Larson. Golito Finance was hacked for $1.7 million.

The Korean crypto karaoke platform, Samsung, was hacked. The Wall Street meme's token price plummeted after the staking contract was exploited. A Mailer Light hack enabled over $700,000 in cryptocurrency. Fishing. Anamoka brands owned gamee tokens were stolen. Concentric finance was exploited for $1.8 million, and Terraform Labs filed for bankruptcy. Worth a read. In the wake of the news that that so-called AI-generated George Carlin stand-up routine was just written by a guy, now's a good time as any to reread Jathan Sadowski's excellent article on Potemkin AI. In the news, I'm quoted in a piece by Erica Page on trust in crypto.

Betteridge's law strikes again. The headline is, crypto was started to address a collapse of trust. Can it be trusted? And it's published in the Christian Science Monitor. That's all for now, folks. Until next time, this has been Molly White. Thanks for listening to this issue of the citation-needed newsletter. To learn how to support my work, visit mollywhite.net slash support.

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