The Breakdown - Will Bitcoin or Russia Be Blamed for the Latest Ransomware Attacks?

Episode Date: July 7, 2021

On this extended-brief style episode of “The Breakdown,” NLW discusses recent news, FUD and policy in the world of crypto, including: The ransomware group behind the Colonial Pipeline attack strikes again An increasing list of regulatory actions against Binance The China crackdown on crypto trading The attack against Colonial Pipeline pushed ransomware fears to a new level. REvil, the same group behind the Colonial attack, stuck once again. Kaseya, a company providing network-management services, was the most recent victim. With one million machines infected, the media and regulators look for an easy target to blame for the increase in ransomware attacks. Who will take the fall: Russia or Bitcoin? Binance continues to fall under increased regulatory scrutiny. Barclays Bank, one of the U.K.’s biggest, has stopped card payments to Binance. At the same time, Thailand filed a criminal complaint against the company, and the Cayman Islands said Binance would not be allowed to do business there. Though Binance is the current target, do these actions suggest a shift in sentiment from banks and regulators on crypto? China’s crackdown on crypto continues, this time with an emphasis on trading. The business administration department of the People's Bank of China and the Beijing Financial Supervision and Administration bureau issued yet another warning about crypto trading. This warning was joined by an enforcement action against Beijing Qudao Cultural Development Limited, as well as Didi, a popular ride hailing app. Is China banning itself from crypto?     -- Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW   The Breakdown is sponsored by NYDIG and produced and distributed by CoinDesk.com

President Biden discussed Russia again on Saturday, saying that there was no initial reason to think that the Russian government was behind this, but that that was part of why he was calling in federal investigators. At least for this attack so far, Russia seems more in the hot seat than Bitcoin, but definitely remember that even if Russia were to take the blame, quote-unquote, it doesn't mean that Bitcoin wouldn't get targeted as well. 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. The breakdown is sponsored by Nidig and produced and distributed by CoinDesk.

What's going on, guys? It is Tuesday, July 6th, and today we are talking, well, we're talking about a lot of things. It's been a long weekend. There have been a number of different topics that I thought were interesting. So today is one of those extended brief style episodes where I discuss more than the length of a normal brief topic, but less than perhaps the headliner story of a normal episode. Let's begin, however, with our our title topic. It feels like every few days, the breakdown is forced to turn into the FUD Digest as we try to piece through the latest reason people have to push back against the growth in Bitcoin and Crypto. The newest, loudest entrance to the FUD playing field is of course

ransomware. In many ways, this is a rehash of an older FUD, that crypto is just for criminals that is being given a new, scary, and urgent face. This was supercharged by the ransomware attack that shut down the colonial pipeline earlier this year, the largest oil pipeline. in the U.S. The event was significant for a number of reasons. First, it was a big deal. An energy pipeline this big is effectively a national security target, so it didn't just feel like an attack on a company, but an attack on a nation. Second, the impacts were not only felt by regular people. They were extremely visible even to people who weren't affected. We saw dramatic images of endless lines for gas in the southeast, people trying to fill up plastic bags with gas, and more.

The story was also big enough that media had to find all the angles to explore, and blaming the currency requested by the attackers was, unfortunately, an obvious and likely well-performing from a traffic perspective line of inquiry. Finally, this felt like the culmination of a trend rather than an isolated incident. There had been other less publicized attacks, but when looked at in context, it now seemed like, well, a thing. We pick up now on that trend with the latest. At the end of last week, the ransomware hacking group Reville targeted a software company

company called Kasea and use the company's network management tools to spread ransomware to over 1 million machines across 200 companies. Kasea is IT software that is used to manage network devices inside companies. An example of one of the worst affected companies was the Swedish grocery chain, Koup, whose 800 stores couldn't open because their cash registers weren't working. A Gardner analyst said of the attack, quote, the reality of this event is that it was architected for maximum impact, combining a supply chain attack with a ransomware attack. Reval is the same group behind the colonial pipeline attack, and this time they're demanding 70 million in Bitcoin. On Saturday, President Biden said that he had directed U.S. intelligence

agencies to investigate the attack, and also discussed one of the two potential boogeyman behind it, Russia. So what do I mean by potential boogeyman? I mean that from an explanatory perspective, someone or something has to be blamed for this, someone or something that makes it make geopolitical sense, rather than just acknowledge that anonymous hacking groups are now a part of the global landscape. Bitcoin is one possibility. We discussed last week how Bill Foster, the co-chair of the Congressional Blockchain Caucus, said that the rise of ransomware attacks is causing a serious rethink on the part of his colleagues about if and how cryptos should be allowed. He advocated for cryptographic back doors for judges to be able to reverse transactions that include

criminal participants. I noted last week that it was pretty meaningful and a little concerning that one of the industry's theoretical advocates in Congress was talking like this, threatening the fundamental immutability of these blockchain systems. I said then, and I still think now, that it showed how much regulators were pinning the blame for attacks like these on the crypto that was being exchanged. However, there is another possible boogeyman, and this is one that we know well. That is, of course, Russia. On June 16th at their summit in Geneva, one of the main points President Biden brought up with Vladimir Putin was a push for him to crack down on hackers from Russia. Biden apparently also warned vaguely of consequences if these types of attacks continued. President Biden discussed

Russia again on Saturday, saying that there was no initial reason to think that the Russian government was behind this, but that that was part of why he was calling in federal investigators. At least for this attack so far, Russia seems more in the hot seat than Bitcoin, but definitely remember that even if Russia were to take the blame, quote unquote, it doesn't mean that Bitcoin wouldn't get targeted as well. One of the most important developments in this space is that community banks, regional banks, and credit unions can now start offering Bitcoin to their customers. That's right. Checking, saving, and now Bitcoin.

It's all happening seamlessly thanks to a platform by NIDIG that offers institutional-grade custody and compliance. They're also the sponsor of The Breakdown. And if you want to find out more, go to nidig.com slash NLW. That's nydig.com forward slash NLW. Speaking of regulatory issues and boogeymen, the saga of Binance continues. I mentioned last week how the exchange has seen a string of bad news. Thailand filed a criminal complaint against the company while the Cayman Islands said they couldn't do business there. Not for nothing, what does it take for the Cayman Islands to kick you out?

Still, the biggest issue was the UK Financial Conduct Authority's warning that Binance didn't have authority to operate in the country. Now, the FCA warning technically applied to Binance markets, which is different than Binance.com, but that didn't stop Barclay's bank, one of the UK's biggest, from stopping card payments to Binance this weekend. Binance claims it's a mistake having to do with the Binance.com versus Binance Markets misunderstanding, but that is probably a little comfort for users of the company in that country. I still have no real sense of what's going on with Binance and global regulators, but it certainly doesn't seem good from the outside. Things like this Barclays action, as well as China's crackdown around crypto,

are contributing to something of a shift in sentiment among the bank analyst class. UBS had previously been thought to working on how to offer crypto to wealthy clients. Last week, however, they circulated a note to wealth management clients that pointed to China as exemplary. Quote, regulators have demonstrated they can and will crack down on crypto. We suggest investors stay clear and build their portfolio around less risky assets. Now, we've seen other wealth management flip-floppers of late, i.e. people who wrote analyst notes a couple months ago recommending that you get in because crypto is an asset class and here to stay and look at those numbers and who are now walking that back, but most of those flip-flops have come from firms who had to be dragged by unignorable

market performance to even look at the space. Remember that the grain of salt when it comes to these investment houses is that they're always talking their book. How does it look to your wealth management clients when a thing you've called a scam or volatile or too risky for years is routinely the best performing asset every year? It sort of calls into question the value of your investing advice, you know? Speaking, however, of China, the business administration department of the People's Bank of China and the Beijing Financial Supervision and Administration Bureau have issued another warning around trading crypto. Nothing new. It was simply reinforcing the policy that they had also recently reinforced, but the one thing knew that they added was an actual

enforcement action against a company pretty much no one has heard of called Beijing Kudau Cultural Development Limited. That company was accused of, quote, providing software services to crypto trading activities, and subsequent to the crackdown, the company has been deactivated and the website suspended. It continues to appear that China is, in fact, truly intent on banning itself from Bitcoin. Meanwhile, that wasn't even really the most intriguing China markets news. On June 30th, Diti, China's biggest ride-hailing company had a $4.4 billion IPO in the U.S. It was the second biggest U.S. listing of a Chinese company ever. Now, just a few days later, the Chinese regulatory body focused on the Internet has effectively ordered Didi to be removed from the app store. This doesn't

stop existing users from using it, but it obviously stops growth. The Chinese authorities cited security risks. Apparently they had asked the company to delay the IPO because of security concerns around data, but Didi didn't. This isn't the first time China has exerted dominance around big tech. Remember the Ant Group's IPO, slated to be the biggest in history last fall, was pulled at the last minute, right before Jack Ma went quiet for about two months. Didi's price is now down 23%. Back to the U.S., however, one story that suggests. perhaps more possibilities and hope than the Chinese crypto community must feel right now? According to an entry on the Federal Reserve's calendar, Jerome Powell was slated to meet with

the CEO of Coinbase Brian Armstrong on May 11th. Former Speaker of the House of Representatives Paul Ryan was also supposed to be there. Now, it's not clear if the 30-minute meeting actually happened. The only thing we have is from a long thread on May 14th of Brian Armstrong locked in arms with various politicians, including former Speaker of the House Paul Ryan. Armstrong said then that the goal of the trip was to, quote, establish relationships and help answer questions about crypto. Feels like there may be a more on this later in that story. But for now, let's wrap with a few interesting tidbits from traditional markets. Robin Hood announced its IPO last week, and you know this is going to be extremely anticipated. In prospectus documents, it revealed that it had grown

funded accounts 151% year over year, from 7.2 million all the way to 18 million. It also planned to set aside 20 to 35% of the available stock of the IPO to be available just to Robin Hood users via the app. However, headlines today are reporting the extent to which Robin Hood has lost the trust of some users. On Yahoo Finance, the headline reads, despite Robin Hood's efforts to attract retail crowd, Redditors warn against its IPO. One super popular post on Reddit summed up the sentiment, quote, just forget Robin Hood altogether. Let them go down in lawsuits and loss of customer base. That poster is referring to a recent $70 million fin refined plus more than $50,000,000,000 deputative class actions currently on file against Robin Hood. The company, of course, lost a lot of trust

this year when it seemed to side with Big Wall Street when it shut down GME trading as well as other meme stock and dogecoin trading. It feels to me like this Reddit antipathy is a natural consequence of all of that. To sum it up with another poster, we apes buy stock we like, and we do not like that stock. Finally, the banner headline in all the economics and business sections today is about an OPEC crisis that has propelled the price of oil to its highest levels since 2014. There is a ton to these politics, but at the center is a very public fight between Saudi Arabia and the UAE. The immediate impact is that an output hike that was expected for next month and which would have alleviated the pressure on oil prices won't take place. In fact, the disagreement

is so bad that the parties weren't even able to agree to a date for their next meeting. With the world coming back online in the COVID-vaccine era, this demand for energy is going to start creating serious problems. Specifically, this will drive prices up even further, even past the psychological $3 a gallon barrier that was recently breached. Other countries like Iraq and America are urging OPEC to effectively get their shit together. If the price of oil does continue to rise, even if it's because of a specific political spat between two Middle Eastern states, you can expect people to associate it with a broader narrative around inflation. And if that happens, the Fed could yet again find themselves feeling more pressure to take that threat and the perception of

inflation seriously. For now, guys, though, I'm glad to be back after a long holiday weekend. I hope you had a great time with friends and family. Until tomorrow, be safe and take care of each other. Peace.