Molly White's Citation Needed - Issue 78 – President on brink of bailout for bitcoin

Episode Date: March 3, 2025

Trump tries to breathe life back into the “Trump pump” while federal regulatory agencies wash their hands of any crypto industry oversight. Originally published on March 2, 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 78. President on brink of bailout for Bitcoin. Trump tries to breathe life back into the Trump pump, while federal regulatory agencies wash their hands of any crypto-industry oversight. This issue was originally published on March 2, 2025. The crypto industry has gotten everything it could have dreamed of in the U.S. after the elections, and yet the market has taken a dramatic turn for the worse.

Bitcoin prices have been tanking, dropping more than 25% since the previous all-time high price, which was set on January 20th. A 12% tumble last week became the new largest three-day drop since FTX exploded in November 2022. Although Trump had been hailed by the crypto industry as their night in shining armor, and although he quickly got to work fulfilling the industry wish list, prices have been on the decline since he took office. While cryptocurrencies were once viewed as a subversive financial instrument intended to be independent from governments, banks, or the traditional financial system,

and although many in the industry still like to repeat that narrative when it suits them, it's become clear that the crypto world is deeply dependent on outside forces propping it up. Earlier this week, Crypto Media Outlet Coin Desk published a headline that would make Satoshi blush. Quote, crypto market faces weak demand, needs Trump initiatives to kick in, J.P. Morgan says. Satoshi inscribed into the first block of the Bitcoin blockchain in the text, quote, The Times, 3 January 2009, Chancellor on Brink of Second bailout for Bank. This quote of that day's Times headline has long been interpreted as a nod to Bitcoin's ideology and a rebuke of banks and government financial intervention.

And although many still describe Bitcoin as digital gold, believing that it should serve as a hedge against economic turmoil in similar ways as some people view actual gold, Bitcoin and other crypto assets are once again demonstrating that they are among some of the first assets to decline among broader economic. uncertainty. With looming tariffs by the Trump administration against Canada, Mexico, and China, concerns from the Federal Reserve about those and other policies impacts on inflation, and continuing wobbles in the labor market, people are selling off risky assets like crypto in hopes of better weathering the economic storm on the horizon. The comparatively new Bitcoin

ETFs set new records for the highest single-day outflows on February 25th, with investors is withdrawing more than $1 billion in total from the 11 ETFs. Seeming to respond to the panicked pleas from the cryptocurrency world, Trump rescued Bitcoin from its below $80,000 slide in a Sunday Truth Social post, reiterating his plans for a, quote, U.S. Crypto Reserve, which he added, would contain the XRP token, which is Ripple's token, Solana, and Ada, which is Cardano's token. Further panic from Bitcoin maximalists likely prompted his quick addendum two hours later that, quote, and obviously Bitcoin and Eith, as other valuable cryptocurrencies, will be the heart of the reserve.

I also love Bitcoin and Ethereum. Nice save. These assets were certainly not chosen at random and give us some insight into who's got the ear of the presidents, at least at the current moment. Part of it has to do with Trump's nationalist and also rather absurd in systems. that the reserve feature assets that are, quote, made in the USA. But beyond that, Ripple's XRP token is an unsurprising, if controversial, choice. It's a divisive asset in the crypto world, but on the other hand, the company contributed $48 million to crypto-focused super PACs, and another $5 million to Trump's inauguration fund. The company's CEO, Brad Garlinghouse,

has been rumored to be on the short list of people to be named to the much-awaited crypto advisory board, and both he and the company's chief legal officer dined with the president in early January. Trump's crypto czar, David Sacks, is a big Solana guy, and Andreessen Horowitz has also heavily invested in Solana, both directly and in Solana-based projects, and in the Trump administration. Cardano founder Charles Hoskinson has also clearly been trying to woo Trump, claiming very shortly after the election that he was, quote, going to be spending quite a bit of time working, with lawmakers in Washington, D.C., and quite a bit of time with members of the administration to help foster and facilitate with other key leaders in industry the crypto policy.

While he has continued to boast vaguely about meetings with various influential figures, winkingly describing a, quote, VIP dinner where, quote, Diet Coke will certainly be on the menu, there's been little outside confirmation that he's had much access to the Trump administration. However, the inclusion of his AIDA token on the shortlist certainly suggests, us some degree of success in his endeavors. Besides the new mention of specific crypto assets, Trump's post doesn't actually appear to announce anything new, and instead reiterates that his, quote, executive order on digital assets directed the presidential working group to move forward on a crypto strategic reserve.

I will note that the actual wording of the executive order was more guarded, directing the working group not to move forward on a strategic reserve, but rather to, quote, evaluate the potential creation and maintenance of a national digital asset stockpile. Nonetheless, crypto prices rallied a bit, with Bitcoin returning to around $93,000. This was still somewhat of a subdued recovery, only juicing Bitcoin back to around its February 25th price, leaving me wondering how many promises Trump has left in the tank to keep Bitcoin prices pumped up as they are now. Without the actual government infusion of cash into Bitcoin markets, via this strategic reserve gambit, something that may yet be a ways off, could take various forms,

and could fail to materialize entirely, words alone seem to be running out. Adding to pre-existing market jitters, the crypto world has just experienced a new record-shattering hack of the crypto exchange By-Bit. By-bit is less known in the United States, as it is not permitted to serve U.S. customers, which is probably why this hack has not earned the media attention of some of the other major industry disasters. But Bybit is the second largest exchange globally, ahead of Coinbase and behind only Binance. On February 21st, attackers stole more than 400,000 Eth, priced at around $1.5 billion from one of the company's so-called cold wallets. Cold wallets are crypto wallets that are not routinely connected to the internet, making them less vulnerable to theft. As a

result, crypto exchanges often store substantial quantities of assets in cold wallets, transferring smaller amounts as needed to online hot wallets to satisfy withdrawals and purchases. However, any time these transfers happen, there's a degree of vulnerability, and that's what North Korea's state-sponsored Lazarus cybercriminals were able to exploit. They were able to manipulate the safe wallet, multi-signature system used by Bybit to authorize transfers from the cold wallet into the company's hot wallet, and when ByBid employees signed off on what they thought was a routine transfer, the wallet was drained. ByBit and Safe are now pointing fingers at one another, with ByBit claiming that Safe's infrastructure was compromised, allowing an attacker to

manipulate the transaction signing interface. While Safe acknowledged that a developer had been socially engineered and their device was compromised, they blamed Bybit for, quote, blind signing the transaction, that is, signing a transaction without full. fully understanding it. The Lazarus Group is an extremely sophisticated cybercrime group that has been responsible for many of the chart-topping attacks in the crypto world, including the previously record-breaking thefts of $625 million from the Axi Infinity game in March 2022, and the $300 million and $235 million hacks of the exchanges DMM and Wazir X in May and July 2024.

Their expertise means that they know how to. best launder the stolen funds without causing serious impacts to the ETH price, or risking the funds being frozen by exchanges and other centralized entities, and they had successfully laundered more than half of the stolen assets thus far, by swapping it across various chains and into different crypto assets. While a substantial $43 million in stolen assets was frozen and recovered by the M.Eath protocol, as was around $181,000 in tether, that amounts to less than 3% of the total. To put this theft in perspective, the $1.5 billion stolen from Bybit alone surpasses the North Korean cyber attackers' entire 2024 profits from crypto heists, which was around

$1.34 billion from across 47 separate attacks throughout 2024. It's more than double what they stole the year prior. According to the United Nations and the U.S. government, these thefts have been a substantial source of funding for the country's nuclear and ballistic missile programs. Bybit CEO Ben Zhao was quick to try to reassure customers that, quote, Bybit is solvent even if this hack loss is not recovered. All of clients' assets are one-to-one backed. We can cover the loss. Many customers weren't satisfied with his promises, and they withdrew a combined more than $5.5 billion from the exchange after the theft was announced. Bybit was able to satisfy the withdrawals, and has since said they, quote, closed the gap in eth supplies to back

client assets through a combination of OTC purchases and loans from exchanges and crypto-VCs. The lack of skepticism around By-Bitt's solvency is a little odd to me. For one, it's clear that the assets were not one-to-one backed at the time of Zau's tweet, given that 400,000 ETH had just been stolen. By-bit later issued a press release boasting that they were, quote, fully backed within 72 hours, directly acknowledging themselves that customer balances were not fully backed for those three days. Furthermore, much of the so-called gap has been papered over with loans rather than with the firm's own assets. As we saw with Genesis's $1.1 billion, so-called loan to try to cover losses in 2022, a company's ability to secure a loan to cover a hole does not magically make that

hole disappear. While ByBitt's proof of reserves, that the company now holds a sufficient quantity of ETH to back customer balances, these reports do not evaluate Bybitt's ability to repay loans or provide any information about the terms of these loans. In the courts, the Seychelles-based OKX crypto exchange has pleaded guilty and will pay more than $500 million in penalties and forfeiture in a settlement as part of a U.S. Justice Department investigation into the company providing services to U.S. customers, without a money transmitting license. According to the DOJ, although the company knew it could not

serve U.S. customers without registering, and had an official policy prohibiting U.S. customers, the company actively sought out such customers and allowed them to use the exchange. According to the DOJ, quote, even after OKX began requiring all customers to provide some KYC information to trade, OKX employees on certain occasions advised customers how to provide false information to circumvent the company's KYC process and official policy prohibiting U.S. customers. For example, in April 2023, an OKX employee encouraged a potential U.S. customer to open an account by providing false information about the customer's nationality during the KYC processing, writing, quote, I know you're in the U.S., but you could just put a random country and it should go through.

You just need to put name, nationality, and ID number. You could just put United Arab and random numbers for the ID number. The payment will include an $84 million fine and another roughly $420 million in forfeited fees obtained from U.S. customers. For a period of three years, OKX will also retain a consultant to advise them on properly prohibiting U.S. customers. Around the time of the settlement, a crisis management document prepared by the company was leaked, outlining how the company's PR team should try to, quote, buy time.

by offering up leadership schedules if contacted by journalists about investigations, and describing a plan to, quote, contact key friendly publications for a parallel story to cede in a complementary narrative to the originating story. The DOJ has extradited Alexei Andrianin, the co-founder of the Gottbit market-making firm. Gottbit and several other market makers were charged with wash trading and other market manipulation in October, and a superseding indictment shortly afterward. added charges against Andrianin personally.

Gottbit actively marketed to their customers that they could stealthily wash trade cryptocurrencies to inflate their trading volume, in turn helping the tokens get listed on crypto exchanges and cryptocurrency tracking sites. Andrianin allegedly personally profited to the tune of millions of dollars. U.S. law enforcement has seized $31 million in crypto assets believed to be part of the proceeds from the April 2021 uranium finance. hack. At the time of the theft, the total amount of assets stolen was priced at around $50 million, and it seems this recovery is only a portion of that. While it's to be expected that crypto thieves

will try to launder their ill-gotten funds, this thief took the rather unusual approach of doing so via Magic the Gathering cards. A federal judge has dismissed the case from the SEC against Hex founder Richard Hart, determining that the agency failed to demonstrate that the Finland-based American had sufficient presence within the U.S. to fall within their jurisdiction. This is a win for Hart, who also took it as an opportunity to thank Trump, although neither Trump nor his new crypto-friendly SEC seemed to have much to do with the federal judge's decision. Hart still faces major issues abroad, where he remains on Europe's most wanted list on warrants from Finland, alleging hundreds of millions of euros in tax evasion

and physical assault on a minor. Although Nigeria in October finally freed Binance executive Tigran Gambarian, who they'd imprisoned for eight months in a seeming attempt to get leverage over the company, the country's legal action against Binance remains ongoing. Over the months, Nigeria has alleged that finance was evading taxes, undermining Nigeria's currency, operating without a license, and allowing criminals to launder money through the exchange. Most recently, the country's federal inland revenue service filed,

sued against finance, demanding $71.5 billion in compensation for economic losses and another $2 billion in back taxes. In U.S. regulators. SEC. Trump's nominee for SEC Chair, Paul Atkins, has not even been confirmed yet, but that hasn't stopped the agency from barreling ahead with the new administration's promises to the industry that all their problems would go away. Most notably, the SEC case against Coinbase was dismissed with prejudice, meaning the SEC cannot refile the case in the future. CEO Brian Armstrong was explicit with his thanks when announcing the dismissal on Twitter. Quote, I have to give credit here to the Trump administration for winning the election. He insisted that he believed, quote, we would have won this case in the courts either way,

but noted that Trump's election, quote, certainly helped accelerate the process. Coinbase has spent $75 million on contributions to cryptofo. as super PACs, some apparently in violation of federal election law, and contributed $1 million to Trump's inauguration fund. A case against Justin Sun and his Tron project opened in March 23 and alleging fraudulent market manipulation, quote, through extensive wash trading, quote, orchestrating a scheme to pay celebrities to tout the tokens without disclosing their compensation, and unregistered securities offerings, has been stayed as parties, quote, consider a potential resolution. As a foreign national son is not permitted to make contributions to American

political candidates or committees. However, he has spent $75 million dollars purchasing World Liberty Financial's WLFI tokens, and Trump personally gets a 75% cut of that project's revenues. A case against consensus, the makers of the MetaMas crypto wallet will be dropped shortly by the agency, according to the company. Consensus contributed $800,000 to crypto-focused super PACs. Simultaneously, ongoing investigations of companies including Gemini, OpenC, Robin Hood, and Uniswap have been dropped, despite the agency previously having sent Wells notices signaling impending enforcement action. Gemini's Winklevoss twins contributed $4.9 million to crypto-focused super PACs and $2.6 million to Trump directly. Robin Hood contributed $2 million to Trump's inauguration fund.

Having succeeded in lobbying for the investigation into Gemini to be dropped, Cameron Winklevoss is not satisfied. Winklevoss, a billionaire, argues that the government should pay him three times his legal expenses, and that furthermore anyone at the SEC who is involved in cases or investigations such as the one into his company should be, quote, dishonorably discharged and publicly named and shamed on the SEC. website. In Gemini's case, although the twins have publicly declared victory over the SEC, it's not clear that there have been any changes to the ongoing case from the SEC in which both Genesis and Gemini were named. Docket activity in early February schedules deposition deadlines

ahead of a jury trial, and there has been no further activity. Other, as yet unaffected SEC enforcement cases include those against Cracken and Ripple, two other big spenders this political cycle. However, I'd be surprised if any of these cases remains ongoing much longer. Besides axing ongoing cases, the SEC has also issued a statement opining that meme coins don't fall within the agency's remit. This is somewhat predictable, at least in the same sense that so many previously unthinkable U.S. government actions are now predictable, once one's prediction model shifts to factor in Trump's authoritarianism. In that case, it would be wild for SEC to crack down on meme coins shortly after the president launched his own, in the current political

environment where Trump is bringing formerly independent agencies to heal. Yet it is still somewhat remarkable that the agency is washing its hands of one of the most fraud-ridden, manipulated sectors of the cryptocurrency world. They note that fraudulent conduct in the meme coin world could still be prosecuted, just by somebody else. Expect a lot of Spider-Man-style finger-pointing if you out who that someone else might be. Presumably the FTC, although the FTC is among the, quote, so-called independent agencies that Trump has mentioned by name in his executive order promising to, quote, reign in such entities, along with the FCC and SEC. The order purports to require such agencies to submit draft regulations for White House review, in another move by Trump demonstrating

that he believes he is entitled to unilateral and unchecked power as president. Meanwhile, Democratic Representative Sam Laccardo from California has proposed a bill called the Meme Act that would prohibit the president, congresspeople, and related figures from creating or sponsoring securities, commodities, or crypto assets, and would require Trump to return the money he's made from the sales of his Trump token. Needless to say, it has precisely zero chance of passing in the current Congress under the current president, where profiting off one's elected role is more openly accepted than ever. Elsewhere, a Biden-nominated Democratic CFTC Commissioner, Christy Goldsmith Romero, has announced she will resign from the agency following

the likely confirmation of Andresen Horowitz's Brian Quintends as its new chairman. She had previously spoken of the contagion risk from the crypto industry, saying in a 2022 speech, quote, the vulnerabilities seen during this beginning of what some call the quote crypto winter worn of growing intramarket risks with parallel themes seen in 2008. opaque, complex, leveraged and unregulated products, underappreciated risk, a lack of confidence that underlying assets were stable or of high quality, lots of connections between market participants, a market vulnerable to contagion risk, run risk, risk of defaults,

cascading losses, and a liquidity crisis. Just as regulators could not see the true exposures or risk in 2008 due to unregulated companies and products, we cannot see that today with unregulated crypto markets. Her exit will leave only one Democrat at the agency. I have been musing a lot lately on the fact that the cryptocurrency industry has spent years attacking U.S. regulators by claiming that they or would have stifled innovation and prevented crypto from fulfilling its true potential. Now that the crypto industry has obtained the friendliest possible regulatory environment in the U.S., they've lost their go-to excuse. When someone asks why, 16 years in, crypto has yet to fulfill the many lofty promises of reinventing the financial system or democratizing wealth,

or creating a fairer internet, or whatever else the entrepreneur sitting in front of you might have latched upon. This should be interesting to watch unfold. Along those lines, I couldn't help but laugh when I saw a coin desk op-ed from crypto industry lawyer Renato Mariotti, who writes in a piece titled, The U.S. war on crypto isn't over, that the crypto industry is still a victim. According to him, the absolute demolition of any federal regulatory oversight of the crypto sector isn't enough, nor would be potential future federal legislation to hamstring state regulators. because state attorneys general will continue to file lawsuits against crypto businesses. I'm beginning to think that anything besides massive sums of government money on a silver platter

and a red carpet welcome into the White House will be considered a war on crypto that is responsible for any of the industry's failures. And I'm also beginning to believe that the money platter and red carpet, both well underway, are only the first items on a much longer list of demands from the crypto world, as its wealthy executives continue to enrich themselves without much to show for it. In U.S. politics. Although he's currently in prison, Sam Bankman Fried has managed to resurface. Not long after rumors emerged that his parents were investigating the possibility of securing

a pardon for their son, Bankman Fried gave a jailhouse interview to the New York son. Bankman Fried, a Biden megadoner who was second only to George Soros in political controversy to the Democratic Party in 2021 to 2022, now claims he too is a victim of the Biden-led, quote, prosecutorial abuse and, quote, politicization of the DOJ that Trump has alleged for years. Why would they target him? Because, he says, they learned he was giving to and working with Republicans and conservatives more than was previously known. In the interview, he also gave an approving nod to Elon Musk's chainsaw approach to government cuts, something he would later extrapolate upon in a 10-tweet-long thread posted a few days later,

where he apparently felt the need to make his return to Twitter in order to give a thought-leader-style take on the widespread firings of federal employees. The sudden about-face is a rather transparent and groveling attempt to suck up to Trump, but it's not terribly surprising that Bankman Freed's once claimed strongly held moral beliefs have wilted in the face of the possibility of 25 long years in prison. The revolving door has spit out former representative and longtime crypto industry ally Patrick McKenry, the Republican from North Carolina, into roles at not one but three industry players. He will be joining Andreessen Horowitz as a senior advisor, where he says he will, quote,

help innovators navigate the policy landscape, touting his time in Congress, quote, removing bureaucratic barriers for American entrepreneurs. He wrote that, quote, it's time to level the playing field and ensure that little tech, the next generation of builders, gets a fair shot. Little tech, in this case, apparently meaning the largest venture capital firm in the world, which is so very small that it was able to blow $83 million on political contributions to ensure that no fewer than four of its employees were placed in major White House roles, including as the likely upcoming head of the crypto industry's chosen regulator, the CFTC. Any mention of the everyday American consumers and the fairness of their shots was conspicuously absent

in McHenry's statements. He subsequently revealed he would also be taking a role as an advisor to the fintech firm Stripe, as well as as vice chairman of the advisory board to Ondo Finance. Ando finance is a tokenized real-world asset firm that wants to do things like put U.S. Treasury bills or stocks on the blockchain, and McHenry will likely be a valuable asset in, in his words, quote, making sure that Ondo is heard by the right people in Washington, and, quote, helping shepherd them to new relationships. Ondo contributed $1 million to Trump's inauguration in late December. In early February, Trump's World Liberty Financial Project purchased almost half a

million dollars worth of Ando tokens. The Web3 is going just great recap. There were four entries between February 18 and March 2nd, averaging 0.3 entries per day. One point five one billion dollars was added to the grift counter. The Infini Stablecoin Neo Bank suffered a $50 million theft. Infini is a so-called stable coin Neo Bank, a fintech company that promises quote financial freedom, by, quote, democratizing banking, end quote, redefining the future of digital finance. Infini experienced a different form of financial freedom and a redefinition of its own financial future last week, when attackers liberated almost $50 million from the company after a thief with access to a wallet with admin rights, drained USDC stablecoins, then swapped them for the

die stable coin, which unlike USC cannot be frozen by its issuer. The attack came only a day after a celebratory tweet from the company in which it had announced that they had achieved $50 million in total value locked, suggesting that the theft affected substantially all of the assets on the platform. Despite this, they have claimed that transactions on the platform are unaffected, and when someone asked how that was possible, they simply replied, quote, We've got solid runway to operate, no worries. Everything else. The founder of the Mask Network lost more than $4 million to a wallet hack,

$1.5 billion was taken from the By-bit crypto exchange, and around 9,000 wallets used with the Cardex fantasy trading card game were compromised. Worth a read. In a January 24 press release, the Department of Education announced that they had, quote, ended Biden's book ban hoax. According to the DOE, books weren't being banned, But if they were, well, it was because they were, quote, age inappropriate, sexually explicit, or obscene. A new report from Penn America, titled Cover to Cover, an analysis of titles banned in the 23-24 school year,

contradicts this evidence-free claim, noting that only 13% of books banned from public school libraries in 23 to 24, included on-the-page sexual scenes. Purely coincidentally, I'm sure, 36% of the banned books. featured characters of color, and 25% featured LGBTQ characters, percentages that got much higher when looking at illustrated books or graphic novels. Jeff Bezos did us indie writers a solid this week when he cravenly announced that he would be, at least more overtly, turning the Washington Post into his personal soapbox. And I hope he helped people realize that they need to look outside the papers of record for their information and analysis. Look, this is me trying to be.

trying to find a silver lining to the fact that the largest and most widely red media outlets in the United States have been captured by billionaires who care very little about informing the public and very much about solidifying their personal power and wealth, okay? Parker Malloy gives it a good write-up in a piece titled Jeff Bezos just announced the Washington Post will now be his personal megaphone in the present age, and drew parallels to previous actions by other major outlets. In the news, I went on the majority report to discuss the risk from the crypto sector to the broader economy. It's in a segment titled, Can Crypto Crash Our Economy? We also talked about the deep ties between the crypto industry and the

Trump administration and the lobbying efforts over the past two years. Needless to say, the concern about crypto and the economy seems to be going around these days. I appear in a video titled Why Crypto Could Break the Economy by More Perfect Union, which also features the always fantastic Professor Hillary Allen. Finally, I joined Mia Wong on It Could Happen here, to talk in more detail about the Javier Millay-connected meme coin disaster that I wrote about last week. It's titled the President of Argentina's meme coin scandal. Come for the crypto disasters, stay for the detailed description of how Peronism led to the rather unusual political atmosphere in Argentina, whose chainsaw-wielding president has been rubbing shoulders with and lending his

chainsaw to U.S. Shadow President Musk. Before I sign off, later this week, I'm traveling to Austin to speak at South by Southwest. I will be speaking with the unparalleled Brian Merchant of Blood in the Machine about speaking truth to crypto power on March 7. Then I will be chatting with Flipboards Mike McHugh in a session entitled Digital Sovereignty is the new influencer status on March 9. You'll also be able to find me on the morning of March 9, opening up Flipboards Fedever's house with a brief manifesto on a better web. I believe all of the featured sessions are recorded, and my two sessions both are featured sessions, so hopefully I'll be able to share the recordings with you at some point if you will not be attending the conference. And if you are attending, come say hi.

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. If you enjoyed the podcast version of this episode, please consider leaving a rating or review in your podcast player of choice.