The Breakdown - FBI Raids Polymarket CEO -- Politically Motivated?

Episode Date: November 15, 2024

In the wake of a surprise raid on Polymarket's CEO, many in the crypto industry -- including Polymarket themselves -- believe that the action was politically motivated. Does it portend last minute actions against the industry from the outgoing administration? Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Monday, November 14th, and today we are talking about the FBI rating, the CEO of Pauly Market. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod.

Hello, friends. Well, today we have some more questionable behavior from the U.S. government, but we are going to cover a few update on the bull market type of stories in advance of that. First of all, a discussion around a cabinet appointment that has very big consequences for Bitcoin and crypto. With the Trump firing off cabinet nominations at a rapid clip, one senior position that a Treasury Secretary has been at least so far noticeably absent. Last week, the position was being viewed as down to two main candidates, hedge fund managers

John Paulson and Scott Besson. Paulson withdrew his interest on Tuesday, citing his, quote, complex financial obligations, and as Besson emerged as the frontrunner, some of the right expressed concerns due to his prior work as CIO of George Soros' fund. It appears that a new contender has emerged. Eleanor Terra to Fox business rights, Scott Besson was all but certain to be named Treasury Secretary and President elect Trump's new administration on Tuesday morning.

However, CEO of Investment Bank, Cantor Fitzgerald and Trump Transition co-chair Howard Lucknick, is said to be, quote, campaigning hard behind the scenes to get the coveted role over Besson. Now, why this matters for our purposes is that, in addition to being a Trump advisor, Lutnik is also on record as a massive Bitcoin bowl. In October, when asked about the size of his personal Bitcoin holdings, he said, I have hundreds of millions of dollars invested in Bitcoin, and it's going to be in the billions. While on stage at Bitcoin Nashville in July, Lutnik said, Does Cantor Fitzgerald own Bitcoin? A shitload of Bitcoin. My view as Bitcoin like gold should be free

to trade anywhere in the world. As the largest wholesaler in the world, we are going to do everything in our power to make it so. Notably, Cantor Fitzgerald also manages a significant portion of the Tether Reserve portfolio. Letnik has also criticized current regulators stating they have, quote, no idea about digital assets or any sort of coherent crypto policy. Sam Lyman, the director of public policy at Riot Platforms reposted the clip from Bitcoin Nashville, commenting, this man could be the next Treasury Secretary. If it feels like we're living in the middle of a global paradigm shift, it's because we are. Stack Hodler writes, holy smokes, this is not priced in. Lutnik understands the strategic significance of Bitcoin for the United States. Makesy believes this raises the stakes for the closing

months of the Biden admin, commenting, feds will probably yolo a tether indictment on a Friday after market closed before inauguration to get political retribution on crypto industry and Lutnik. The anti-crypto army didn't brazenly weaponize the entire government against us for years just to roll over. Now, to get a sense of what people think is the likelihood of this, although the polymarket odds are rising, Lutnik is still only priced at 30% odds to get the job. He's also viewed as a loose cannon on Wall Street so he could rattle markets. Investor Kyle Bass wrote, Scott Besson is eminently more qualified than Howard Lutnik to run the U.S. Treasury. Scott understands markets, economics, people, and geopolitics better than anyone I've ever

interacted with. Markets have already anticipated a Besson choice. Lutnik is not Trump's answer. To be clear, ultimately this is not a choice between a pro-Bitcoin Treasury Secretary and an anti-Bitcoin one. Besson has said that he is, quote, excited about the president's embrace of crypto. Crypto is about freedom and the crypto economy is here to stay. About Bitcoin, he said, one of the most exciting things about Bitcoin is bringing in a generation of investors who post-GFC have been looking for investment opportunities and soured on markets. Lutnik, on the other hand, well, as he put it, he owns a shi a ton of Bitcoin. With all the transition stuff happening, the thing that Bitcoiners are watching, most closely is, of course, the possibility of a strategic Bitcoin reserve. Since the election,

rumors have been swirling that rival nation states are already moving on their own Bitcoin accumulation. It's very hard to know how accurate the rumors are, but they are being repeated by multiple credible people. Yesterday, Bitcoin magazine CEO David Bailey tweeted, let me be clear, the United States is being front run on its Bitcoin strategy and must stand up the SBR as quickly as possible. Cynthia Lummis, who has made the SBR her entire focus over the past week responded, timing in so many facets of life is key. Now is the time. As Representative Thomas Massey suggested recently, the new Congress is in session two weeks before Trump's inauguration. The Bitcoin Act could be on POTUS's desk ready to go within days. If there is the will,

there is the way. Earlier in the week, Lummus said passing the bill would require bipartisan support to get through. With a filibuster still on the table, Republicans will need seven Democrats in support to force the bill through. We're also starting to see, as this transition happens, people who were previously against crypto, or at least far from vocal bulls, starting to change their tune. Minneapolis Fed President Neil Kashgari is having a change of heart, for example. Over the years, he's called Bitcoin worthless, fraudulent, and nonsense. As recently as October, he demonstrated a failure to grasp the utility, claiming, very few transactions were actually happening. They're not paying for goods and services using crypto.

It almost never happens unless people are buying drugs or other illegal activities. He added, other than as a speculative asset, what does it actually do in the real economy? It's been a dozen years. Still during a brief conversation with Coin Desk on Wednesday, Keshkari said, I will have an open mind. A small win, perhaps, but demonstrative that some of Bitcoin's fiercest critics can reassess their priors in the face of an election result and rolling all-time highs. Now to our main story, though.

As I said up front, the FBI has raided the home of Polly Market CEO and founder Shane Copland. Early on Wednesday morning, agents raided his Manhattan home, seizing his phone and electronics. He was not arrested and seemed relatively upbeat, tweeting shortly afterwards. words, new phone, who dis? According to Bloomberg reporting, the platform is under investigation by the DOJ for accepting trades from U.S. users. Under the terms of a 2022 settlement with the CFTC, the platform agreed to block U.S. users from the platform. According to a Polymarket spokesperson, the investigation is clearly political. They wrote, this is obvious political retribution by

the outgoing administration against Polymarket for providing a market that correctly called the 2024 presidential election. Polymarket is a fully transparent prediction market that helps everyday people better understand the events that matter most of them, including elections. We charge no fees, take no trading positions, and allow observers from around the world to analyze all market data as a public good. We look forward to standing up for ourselves in our community and continuing to help everyday people understand important world events. Through less official channels, a source close to the incident told the New York Post, it's grand political theater at its worst. They could have asked his lawyer for any of these things. Instead, they staged a so-called raid so they can leak it

to the media and use it for obvious political reasons. The government is likely trying to accuse Polly Market of market manipulation and rigging its polls in favor of Trump. And indeed, that's exactly how the story was reported across mainstream outlets. Reuters wrote, In the run-up to the presidential election, the site gained widespread attention for the way it placed Trump's odds high above those of Harris, when opinion polls had for months shown the race in a dead heat. The implication here is that Polly Market itself played a role in juicing Trump's odds. This belies a fundamental misunderstanding of how the platform works with the market in full control of determining real-time odds. Later in the morning, Shane Coplein issued a public statement on

Twitter stating, it's discouraging that the current administration would seek a last-stitch effort to go after companies they deemed to be associated with political opponents. We are deeply committed to being nonpartisan and today is no different, but the incumbents should do some self-reflecting and recognize that taking a more pro-business, pro-startup approach may be what it would have changed their fate this election. Polymarket has provided value to tens of millions of people this election cycle while causing harm to nobody. We're deeply proud of that. I'm also proud to say that the future of America and in particular American entrepreneurship has never been brighter. In the face of adversity, we build. At the heart of this story is the question of reasonableness and

government overreach. It has been widely reported that U.S. customers could access polymarket using a VPN throughout the election cycle. Whether or not VPN blocking is required in these situations is a somewhat open legal question. It also sounds as though Polymarket has been in active negotiations with the CFTC around a settlement on this issue. Regulatory enforcement is not usual in the realm of of the DOJ or the FBI, leading some to believe that this rate is about something fundamentally more serious. The assumption until something else is suggested is that charges of election interference are being considered for Polly Market or its founder. The DOJ probe also comes a little over a month since the Court of Appeals ruled that Kalsh could legally offer their election prediction market to

U.S. customers. The case also came with breathless commentary about the potential for election interference. We've had weeks of headlines about a French whale who bet tens of millions of dollars on Trump. At first, it was reported as suspected market manipulation, but an interview with the better uncovered that he had simply had high conviction that the polls were wrong and had commissioned his own polling to verify his gut feeling. The big takeaway from the rulings made in the Kalshi case was that if the government wants to ban prediction markets, Congress should pass a law rather than unleashing government agencies. Unsurprisingly, outrage across crypto Twitter was widespread.

Jeremy Kaufman, the one-time founder of LBRY, a platform shut down by the SEC after they attempted to come in and register, said, quote, Poli Market's persecution is a perfect example of massive harm caused by a rogue administrative state. Not only is money wasted on the investigation, but a huge multiple is destroyed by defending against it and the chilling effects it causes. Coinbase CEO Brian Armstrong was uncharacteristically vulgar, tweeting, What the F is wrong with his administration? This will backfire. They just made Polymarket even more powerful.

Later in the evening, he added, deleted my prior tweet until all the facts are in, but it doesn't look good. Nick Carter commented, What's with these lunatics at the FBI staging a dawn raid to humiliate in scare a 26-year-old tech founder who has done nothing wrong. On the flip side, trading act said, this is the single most bullish thing that could ever happen to polymarket. I give it a small window of time before Trump is on national news backing Shane. FBI are literal nobs. As regular listeners know, I'm always loathe to assume that the answer is some sort of devious lawfare

when it's plausible that there's a reason that doesn't require a twisting mustache. However, in this case, it's hard not to feel like the Occam's razor answer is that it's political retribution. I'm sure we'll get more information over time, but for now, it doesn't look good. Does this mean we're going to see these end of administration actions? Are we going to see that tether indictment that people are thinking about? I do not know, but I will certainly be here to cover it all for you. That's going to do it, however, for today's breakdown. Appreciate you listening as always, and until next time, peace.