Molly White's Citation Needed - Issue 74 – Stop asking me questions like “where does the yield come from”

Episode Date: January 18, 2025

Regulators and lawmakers eagerly prepare to abdicate any last traces of interest in the wellbeing of everyday Americans as they suck up to the powerful billionaires who will soon be publicly calling the shots. Originally published on January 17, 2025.

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 74. Stop asking me questions like where does the yield come from? Regulators and lawmakers eagerly prepare to abdicate any last traces of interest in the well-being of everyday Americans as they suck up to the powerful billionaires who will soon be calling the shots. This issue was originally published on January 17, 2025. Tech billionaires are eagerly awaiting Trump's inauguration, hoping that he will quickly follow through with his promises to slash regulations

and directly bolster their bottom lines. Many of them have already been named to various advisory positions throughout the White House, ensuring lockstep coordination between the new administration and powerful venture capitalists, crypto executives, and tech CEOs. As it happens, I'm not the only person rattling on about the tech oligarchy lately. In his outgoing address, President Biden said, I want to warn the country of some things that give me great concern. This is a dangerous concern, and that's the dangerous conversation of power

in the hands of a very few ultra-wealthy people. The dangerous consequences, if their abuse of power is left unchecked. Today, an oligarchic taking shape in America of extreme wealth, power, and influence that literally threatens our entire democracy, our basic rights and freedoms, and a fair shot for everyone to get ahead. We see the consequences all across America, and we've seen it before. More than a century ago, but the American people stood up to the robber barons back then and busted the trusts.

Six decades later, I'm equally concerned about the potential rise of a tech industrial complex that could pose real dangers for our country as well. Americans are being buried under an avalanche of misinformation and disinformation, enabling the abuse of power. The free press is crumbling. Editors are disappearing. Social media is giving up on fact checking. back-checking. The truth is smothered by lies told for power and for profit.

I've had more than my share of disagreements with Biden and wish he'd done a whole lot more and differently to tackle these problems during his tenure, but I do agree with his words here. In the courts, after arguing that the $110 million in fines imposed against them in July 2024 was plenty, thank you very much, Bitcoin derivatives exchange Bitmax has been fined another $100 million. This all still pales in comparison to the alleged $1.3 billion in revenues earned by the company during the five-year period it, quote, willfully ignored U.S. regulations, while allowing Americans to trade on the platform. While that revenue did not solely come from American traders, prosecutors alleged that around 11.5% of Bitmex's customers were based in the United States,

even as the platform claimed not to permit them. The Digital Currency Group has agreed to settle with the SEC for $38 million over charges that its Genesis subsidiary misled investors. When the hedge fund Three Arrow's Capital blew up and defaulted on a margin call in June 2022, DCG publicly downplayed the fact that their Genesis subsidiary's entire business with at risk and overstated its ability to bail out Genesis by taking on its liabilities and doing some weird accounting maneuvering involving a $1.1 billion promissory note. In November, with further crypto market turmoil, Genesis could no longer meet withdrawal requests and collapsed. U.S. prosecutors have asked

the federal judge in the Bitfinex hacking case to okay the return of the majority of the stolen Bitcoins that were recovered by the government. 94,643 Bitcoins, amounting to around 80% of the total number of Bitcoin seized in connection to the theft and priced at almost $9.5 billion today, will go back to BitFenex once the judge signs off. The remaining 25,000-ish bitcoins have to be handled separately, as the laundering by the now-imprisoned Ilya Lichtenstein and Heather Morgan has made the token's rightful owners challenging to identify. The New York law firm Berwick Law filed a class action lawsuit against the pump-dot-fund meme coin platform. I expected they would have a large pool of potential plaintiffs to

pull from, given analysis last year suggesting that most people who traded pump-dot fund tokens had lost money. However, the lead plaintiff in the suit seems to be some guy who lost $231 gambling on a peanut meme coin, which is themed after a squirrel turned very brief maga cause-seleb. A loss is a loss, I suppose. That said, I'm not sure it helps their case that said lead plaintiff, who is down almost $50,000 across all of his pumped-up fund trading, is still trading meme coins on the platform even after filing the lawsuit accusing it of being an unlicensed securities exchange

that relies on shock value to pump token prices. The whole thing strikes me, not a lawyer. as a bit of a slapdash lawsuit. However, Pump. Dot Fun is also an absolute shit show, so perhaps slapdash will do. Prior to its filing, some crypto enthusiasts scoffed at the prospect of any lawsuit against Pump. Dot Fun, including blockchain sleuth Zach XPT,

who tweeted, Degenerate gamblers willingly choosing to gamble on microcap meme coins are not actual victims or investors. One of Berwick's founding partners, however, argued, as I have in the past, that the type of crypto activity he's dismissing as gambling is often actually far riskier than gambling, at least when it comes to the regulated variety of gambling, and that crypto activity like this is more akin to gambling in a rigged game. Berwick, a relatively new law firm, focuses on crypto-class actions.

Late last year, they filed suit against the creators of the failed Hokkahtua crypto token, and against Caitlin Jenner, over her apparently abandoned. and Jenner token. It remains to be seen how their lawsuits fare when it comes to grabbing legal victories in addition to just headlines. In Governments and Regulators. Coinbase has notched another win in litigation with the SEC as the Third Circuit has remanded the agency's decision to deny Coinbase's petition for rulemaking. According to the Third Circuit, quote, the SEC's order was conclusory and insufficiently reasoned, and thus arbitrary and capricious. And so they have sent it back to the SEC for a, quote, more complete explanation,

adding the smackdown that the agency, quote, should not give yet another poor explanation in an already long line of them. However, the court declined to go so far as ordering the SEC to begin the rulemaking Coinbase had demanded. While the appeals court decision is meaningful, the practical outcome for Coinbase and the rest of the cryptocurrency industry is likely not going to be very different from what we're already expecting with the new crypto-loving Trump administration's SEC, as I outline later in this issue. The United States has teamed up with Japan and South Korea to issue another warning to the

crypto world about North Korean state-sponsored hackers, highlighting the high-value hacks of entities like DMM, which is hacked for $308 million, upbit, hacked for $50 million, rain management, hacked for $16.13 million, Wazir X hacked for $235 million, and Radiant Capital hacked for $50 million. South Korea has tentatively suspended the local Upbit exchange, alleging they violated anti-money laundering regulations, particularly when it came to their Know Your Customer obligations. Upbit has the chance to respond to the penalty, but if it's finalized, they may be prohibited

from onboarding new customers for up to six months. The Korean regulator reportedly found around 700,000 suspected violations of KYC requirements, and each brings with it a fine of up to $100 million, or almost $69,000. Singapore's gambling regulators have shut down polymarket, deeming it a, quote, illegal gambling site operated by an unlicensed gambling services operator. They join a growing list of jurisdictions, including Taiwan, the United States, States and France, which have banned the site from soliciting bets from their citizens. Though Polymarkets' efforts to actually implement any meaningful barriers for Americans have been

half-hearted at best, Singapore didn't leave it up to them. The government ordered Singaporean internet providers to block access to the domain and redirect visitors to a warning that the platform is unlicensed, and that individuals who gamble on unlicensed platforms face fines of up to 10,000 Singaporean dollars, which is around 7,300 U.S. dollars, and or up to six months in jail. Taiwan has taken a similar stance on individual culpability, in December arresting 17 people who had placed bets on the outcome of the country's presidential election. They face stiff penalties of up to five years in prison and fines of up to 500,000 new Taiwan dollars, which are equivalent to around $15,700 U.S. dollars.

The United Kingdom is considering prohibiting public sector entities like schools, railway operators, and the National Health Service from paying crypto ransoms. The apparent hope is that such a ban would discourage ransomware attackers from carrying out the attacks in the first place. The consultation also considers other changes, such as implementing a mandatory reporting requirement for companies that are hit by ransomware attacks and a review system for any ransom payments made by companies not subject to an outright ban. In elections and political influence. After his inauguration, Trump is likely to quickly release an

executive order designating crypto as a national priority. This would not be the first crypto-related executive order, Biden had his own, but the focus on consumer protection and financial risks in Biden's order is likely to be completely absent in Trump's. Instead, Trumps will most likely formalize the signal, already being received loud and clear in Washington, as I outline in a moment, that the crypto industry is a friend to Trump and needs to be treated accordingly. The order will also likely establish a crypto advisory council, though this is not any big surprise given that Trump has already announced such a council will exist when he announced it would be led by Bo Hines, for some mystifying reason that I would still quite like to learn more about. A quote,

top transition source told Axios that Trump, quote, is going to be very focused on the price of Bitcoin and would like to see it hit $150,000 early into his presidency. This does not give me a ton of hope as far as him not pursuing blatant efforts to juice the price of Bitcoin to benefit a minute few at the expense of the vast majority of Americans. The New York Post, such as it is, published rumors that Trump has been considering a so-called America-first strategic reserve that would prioritize tokens founded in the United States, such as Solana, USDC, and Ripple's XRP token. Putting aside Trump's enchantment with anything remotely nationalist and his complete ignorance of how crypto assets actually work, this is actually pretty hilarious to

watch. Bitcoin maximalists who were disgusted with the idea of altcoins, that is any crypto that isn't Bitcoin, have suddenly been expressing rather well-founded concerns. ones that happen to also apply to their strategic reserve asset of choice. Quote, it's not the government's place to be making venture capital bets on alt coins, complained hedge fund manager Quinn Thompson. Here, here. Anyway, let them fight. Other predictions of Trump's early actions in office can be found, of course, on Pollymarket.

And they paint a grim picture. At the moment, Pollymarket betters are asking whether Trump will issue an executive order relating to transgender rights on day one, 55% say yes, reinstate the global gag rule on day one, 39% say yes, say the words crypto or Bitcoin during his inauguration speech, 35% say yes, create a Bitcoin reserve within his first 100 days in office, 41% say yes, ban birthright citizenship within 100 days, 66% yes, and so forth. Further down the list, Polly Market has a 6% chance the Trump administration confirms aliens exist within 100 days.

There's something to look forward to, perhaps. Beam me up. SEC. Reuters, citing, quote, three people briefed on the matter, has reported that Republicans at the SEC are raring to go on a plan to remake the agency's approach to crypto, including by writing guidance around when cryptocurrencies are considered to be securities, and, quote, reviewing some of the ongoing crypto litigation. Reuters reported, quote, in the first few days of the new administration, the SEC is expected to begin a review of those crypto-related court cases and potentially freeze some litigation that does not involve allegations of fraud,

said two of the sources. Some of those cases could eventually be withdrawn. Some of the most prominent of the SEC's crypto lawsuits fall into that category, including ongoing litigation against Coinbase, Ripple, and Gemini, who also happened to be some of the top donors to the crypto industry's lobbying efforts. However, some ongoing SEC cases do also allege fraud, such as those against Binance, Gottbit and other market makers, and Justin Sun and his various companies.

Speaking of Justin Sun, remember last issue when I wrote about the Terra Fraud, quote, side note, if someone promises you a risk-free 20% annual yield, if you just let them hold on to your dollars for you, the risk that you never see those dollars again is in fact very high. Well, an hour after retweeting with the eyeballs emoji, a Reuters bulletin about the SEC enforcement freeze, a headline which did not make mention of the carve-out for cases like Sons, alleging fraud,

Sun fired off one of the most spectacular tweets I've seen out of the industry in a while. USDD 2.0 is about to launch with a 20% APY, fully subsidized by the Trondau. All interests will be sent in advance to a transparent address. There's no other reason. It's simply because we have plenty of money. So stop asking me questions like where does the yield come from? Stop asking questions. Why can't you understand that we just have so much money

that we want you to send us your money so that we can give you our money? This fellow is the newest advisor to Trump's crypto project, a role he bought for $30 million, $18 million of which goes directly into Trump's pockets. More likely, he was interested in buying the proximity to Trump and his family members and trusted advisors. The new Trump administration is also likely to quickly overturn the SEC's staff accounting bulletin 121, which requires banks to report crypto assets as a liability on their balance sheets. The crypto industry has argued that the rule unfairly prevents banks and other financial institutions from getting into crypto by making it extremely expensive, and that the SEC overstepped its authority in issuing such a bulletin without going through its more formal rulemaking process or seeking new legislation from Congress. A bill to overturn SAB 121 passed in May, but was quickly vetoed by

Biden, who wrote, quote, this Republican-led resolution would inappropriately constrain the SEC's ability to set forth appropriate guardrails and address future issues. This reversal of the considered judgment of SEC staff in this way risks undercutting the SEC's broader authorities regarding accounting practices. My administration will not support measures that jeopardize the well-being of consumers and investors. Biden had far in advance announced his intent to veto the bill if it were to pass. Back then, I naively wrote that I thought it was possible that, quote, some senators' viewed this as a freebie opportunity to appeal to a promised, though quite likely mostly imaginary, base of single-issue pro-crypto voters without any real ramifications.

I was very wrong. It was the opportunity to appeal to the crypto industry and its overstuffed PAC's wallets that they were after. Indeed, very shortly after the voting, Sandwith Crypto added Congresspeople's votes on the bill as a mark in favor or against them on their crypto report cards and then allocated funding accordingly. Meanwhile, rather than waiting for any changes from the SEC, Coinbase is just barreling right ahead. They've already relaunched a program in which customers can borrow against their Bitcoin holdings, even though they'd previously shut it down following SEC warnings.

Coinbase's website suggests that people might take out these loans so they can do things like, quote, making a down payment against your mortgage. FDIC. As you may have observed by now, if you're a regular reader of this newsletter, a rather unexpected entity has been at the center of much politicking lately, the FDIC. In addition to Trump transition team members reportedly testing the waters with potential Trump appointees about eliminating the FDIC entirely, the FDIC has also been on the receiving end of a whole slew of accusations from the crypto industry with respect to what the industry has

deemed, quote, Operation Choke Point 2.0. As I've outlined in recent issues, the crypto industry has decided that the government has been involved in a choke point style campaign to illegally pressure banks to, quote, debank crypto companies. The actual specifics of what would constitute such an improper campaign seem to vary widely based on who in the industry you speak with, and in some cases, based on what moment in time you're conversing with one of those people. While I agree that there would be reason to be concerned if government entities were pressuring banks to baselessly deny services to broad swaths of people without any real risk analysis,

much of the conversation seems to have morphed into, quote, Crypto Company X was denied a bank account, and therefore Operation Chokepoint 2.0 is real, without any evidence that there was government pressure involved, or that the banks forwents any risk analysis. And to be clear, a bank denying a person or company, a bank account, or other services based on actual risk analysis is a normal part of banking operations.

And like other types of companies in the United States, banks are not required to offer services to everyone. Nevertheless, the crypto industry's complaints have found their way to those in or about to be in powerful places, who seem very concerned with making sure the crypto industry knows they're concerned about the issue. There has been a lot of bluster, including a speech from the current vice chair of the FDIC, who is likely on the shortlist to become chair and will be interim chair during any gap, and a very angry letter from Senator Cynthia Lummis, a Republican from Wyoming,

to the current, though not for very long, FDIC chair. While the crypto industry has celebrated both of these events as so-called proof that an improper chokepoint-esque campaign happened, actual proof remains sparse. Vice Chair Hill spoke only of, quote, various accounts of such a campaign reaching his ears, and Lemis was careful to couch a tweet about, quote, recent allegations of the same within, quote, if true.

Now, Lemus has spoken in her angry letter of FDIC whistleblowers, who allege that the FDIC has been destroying materials to do with their crypto-related activities. I agree with Lemus that, if true, Those allegations are concerning. However, I suspect regular readers will not be surprised to hear I'm also hesitant to just take the crypto industry at their word without any firm evidence, particularly in the context of

their hopes to break down any firewalls between the banking system and the crypto world. My skepticism somehow has come as a shock to some influential figures in the crypto industry, a group that at one point used to endlessly repeat the phrase, don't trust, verify, and now some of them seem awfully concerned with my well-being, such as Nick Carter, who tweeted, Molly, for your sake, I strongly recommend you choose a different hill to die on. Nick Carter is a blockchain-focused venture capitalist, coiner of the Operation Chokepoint 2.0 naming and vocal advocate of the theory, and not a backstreet boy. I do hope that any such inquiries happen relatively publicly, something I assume the crypto industry and all of its self-described transparency advocates

would support as well. With so many crypto advocates now in Congress hoping to signal their support for the industry, I worry about closed-door proceedings where they establish, yep, we promise, we found proof that the crypto industry has been wronged by the big bads at the FDIC, and for that reason we must make it up to them by eliminating any banking oversight or regulatory hurdles. Everything else. Amid confirmation hearings for positions like the Treasury Secretary and Attorney General,

there have been relatively few questions about crypto, despite its prominence throughout the rest of the political conversation. Though mostly using it as an opportunity to soapbox about the non-existent, quote, Biden administration project to create a U.S. CBDC, Marsha Blackburn, a Republican from Tennessee, lobbed Besson to softball about whether he'd support the creation of such a thing. He took a meandering route to say he doesn't believe the U.S. needs a CBDC, which seemed to more or less suit her, although she seemed to be fishing, for a more emphatic no. The crypto industry is throwing its very own black tie crypto ball,

hosted by Bitcoin magazine, and a very long list of other crypto sponsors. Tickets go for $2,500 on the low end, and dinner will not be served. It does not seem Trump will be in attendance, and reporters are strictly forbidden. Elsewhere in crypto. Chainalysis has released its annual crypto-crime report,

estimating around $51 billion lost to elicit actors last year. However, this likely underestimates things, as chain aliasis omits, quote, funds derived from non-crypto-native crime except for cases brought to our attention by customers, quote, funds associated with crypto platforms accused of fraud, absent convictions in court, and, quote, transaction volumes associated with potential market manipulation, probably because they don't want to risk having to classify a much large, portion of crypto activity as illicit. One interesting trend is that the majority of illicit transactions are now made using stable coins, a trend that is held roughly steady over the last three years

after Bitcoin was ousted from its position in 2022. Speaking of which, Tether CEO Paulo Arduino has announced that Tether will be relocating to El Salvador. Quote, many others will follow, he wrote on Twitter, probably not intending to refer to all of the law enforcement investigators. The Financial Times has reported that pension funds are increasingly jumping into crypto, as many of us worried they might with the green lighting of crypto ETPs in the United States. Quote, we generally thought that even though crypto is risky, new, and not yet fully proven, that it had become too big, and its potential was too great to continue to ignore, said a senior portfolio manager at Australia's AMP Financial Services Company. It's not often you hear a fiduciary say,

well, it's risky, but we had FOMO, not only out loud, but to the press. Another small UK pension fund had put money into Bitcoin, quote, in the hope that outsized returns might help plug its funding deficit. If that doesn't work, perhaps next they'll go put it all on black. Some crypto enthusiasts have learned the hard way that not all crypto influencers are actually as good at trading as they make themselves out to be. A platform called Hyperliquid created a feature where people can put money into of funds that can then be traded by other people, potentially earning returns from those

profitable trading strategies. Some people did so with a crypto influencer known as Rectober, which is ominous, who has 83,000 Twitter followers and once boasted of, quote, turning $3,000 into $330,000 in less than two hours, on a Luigi Mangione-themed meme coin, after having promoted said meme coin to his own followers. Within two weeks of opening the hyperliquid, fund, he'd blown a million of his and other people's dollars. The Web 3 is going just great recap. There were nine entries between January 9th and January 17th, averaging one entry per day. $2.72 million was added to the grift counter. NFTs are going just great. While cryptocurrency markets have undeniably had a rebound,

the same cannot be said for NFTs. Years ago, brands were tripping over themselves to launch NFT projects so as to be seen as cutting edge. Now they've been quietly discontinuing them, often leaving the holders of said NFTs in the lurch. The Australian Open is only the latest to do so, following in the footsteps of other projects like Nike and Lacoste that have jettisoned their short-lived, but often lofty and expensive ambitions. Those involved in selling the NFTs are having a similarly rough time, with Maker's Place admitting that the $30 million in funding they received from the likes of Eminem, Sony Music, and Coinbase Ventures in August 2021 is drying up, and that they have very little hope of new cash infusions.

They're shutting their doors and returning whatever venture funding they have left. Sony has been accused of rugging. Apparently not deterred by other brands and its own portfolio companies, failures to launch in the Web3 world, Sony has officially launched its own Sonium Layer 2 blockchain. Almost immediately, they were accused of rugging by those who had purchased meme coins that Sony quickly froze for infringing upon their IP, including an ibo token based on Sony's line of toy robot dogs and a Toro meme coin themed after Sony's unofficial Toro enu mascot. Sony's crackdown on these tokens perhaps should not have come as a big surprise,

given that the announcement of Sonium's launch promised, quote, protecting content rights and creating fair profit-sharing mechanisms among its goals. Everything else. The Digital Currency Group settled with the SEC for $38 million. Bitmex was fined an additional $100 million for regulatory violations. The Idols NFTE lost $324,000 to an exploit. Uniland was exploited for almost $200,000. The bank list hosts were slammed for dumping tokens on retail.

and $2.2 million was stolen by fake job scammers. Worth a read. Journalists at the Washington Post have shed some very chilling light on the influence of Mark Andreessen and his cronies in the Trump administration, where they are already working to push the tech agenda, call off any watchdogs that might reign in the industry's worst abuses, and oppose all things they fear could be tainted by woke. Andresen's confidants, quote,

will be scattered around all over the place, and have their marching orders, said one source familiar with Andresen's machinations. I remain fascinated by Andresen's ability to convince himself that big tech is his enemy, and I wonder if he's somehow avoided all mirrors for the last couple of decades. That article is titled, Elon Musk isn't the only tech leader helping shape the Trump administration. Space operas If any of you happen to share my affection for space operas,

that is the subgenre of sci-fi novels involving cinematic space battles, futuristic technology, and wars among alien races, I recently had the opportunity to curate a book display at my local library and chose that as the theme. I published on my blog the list of books I included, as well as a few more I wished I could have included, two of which I was later able to add after breaking into the library director's secret stash. I find they make a nice escape from the stresses of current politics and news,

though sometimes they are surprisingly relevant, as sci-fi so often is. In the news, I spoke to Allison Morrow at CNN about Wikipedia, and how it is shifted from that source your high school teacher told you never to trust, to one of the increasingly few places on the internet that won't fabricate absolute nonsense and then tell it to you with a straight face. Glue pizza, anyone? I also explained why I don't think Twitter's community notes will ever make Twitter the, quote, number one news source on earth, as Elon Musk claims to wish it to be.

That's all for now, folks. Until next time, this is Ben, Molly White. Thanks for listening to this issue of the citation-needed newsletter. If you would like to support my work with a free or pay-what-you-want subscription to the citation-needed newsletter, or if you would like to receive these issues in your email, go to citation-needed.news slash sign-up. If you enjoyed the podcast version of this episode, please consider leaving a rating or review in your podcast player of choice.