The Breakdown - Will the WSJ Retract Their Bogus Crypto Terror Financing Reporting?

Episode Date: October 26, 2023

Elliptic came out and said that the stats that the Wall Street Journal had used in their recent reporting around crypto terror financing -- which ended up being the centerpiece of a letter written by Elizabeth Warren and signed by 100+ members of Congress -- had been completely misinterpreted. Will the own up to the error? Today's Sponsor: Kraken Kraken: See what crypto can be - https://kraken.com/TheBreakdown 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 Thursday, October 26th, and today we are talking about crypto-Twitter versus the Wall Street Journal. 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. L.L.L. slash breakdown pod. Well, friends, if you have been anywhere near crypto Twitter for the last couple days, you know that there is a war going on. It is a proxy battle of our ongoing war with the Elizabeth Warren

faction and Operation Chokepoint 2.0 that is specifically focused now on the Wall Street Journal. Now, the leader of our faction in this battle has been Nick Carter. Yesterday on October 25th, Nick did a quick recap of the situation which we'll use to start before we broaden things out. Nick writes, so just to recap, Wall Street journalists Angus Burwick and Ian Talley, write a flurry of articles citing elliptic data claiming P.I.J, a Hamas, raised 93 million in crypto, and cites P.I.J., a Hamas raised 41 million in crypto. This article is her sole citation and her letter. The entire letter depends on the Wall Street Journal article. Over 100 members of Congress sign the letter, which asks for the Biden administration to further crack down on crypto. Chainalysis comes out with an article disputing the WSJ claims, saying that instead of 82 million of terror financing, the real figure is around 450K. It's unclear which wallets they are referring to. Either way, it looks like the Wall Street Journal analysis is vastly overstated. WSJ refuses to follow up or retract, instead writing more articles relying on their claims. Nick then asks a set of

questions about where the Bit OK report is, and whether they stand by it, whether Elliptic was going to make a statement, and could chain analysis confirm which WSJ claim they were responding to? When it came to the seriousness of this, Nick pointed out, because this letter was signed by fully 20% of the U.S. Congress and the entire thing relies on the WS.J article, and it is directing the national security apparatus against the crypto space, we urgently deserve answers. At the end of the day, if the WSJ analysis is correct, I want to know that. If it's false, it's a gigantic scandal, and we absolutely deserve to know that. Bitcoin is money for enemies, and yes, bad people will use it.

We also have tools to interdict that and limit its use in illicit finance. We just deserve to know the truth, and none of the WSJ, Elliptic, nor Bit OK, are helping us find it out right now. For the sake of the entire industry, Elliptic needs to do the right thing and either defend the WSJ or refute them. So that brings us up to where we start our piece, which is that the firm in question here, Elliptic, published a blog post seeking to set the record straight

on how Hamas was using crypto as a funding source. Eliptic had originally published in July that Israeli officials had seized crypto-woblasts, wallets containing $93.7 million. The seizure order was targeting funds raised by Palestinian Islamic Jihad, which is another designated terrorist group. The initial report from Elliptic clearly stated that, quote, since the order also involves crypto exchange wallets, it is not clear exactly how much of these funds belonged directly to the PIJ. Now, this report was picked up by the Wall Street Journal, as you might have groked by now, which used it as a source for an article published on

October 10th just days after the horrific attack in Israel, entitled Hamas Militants Behind Israel attack raised millions in crypto, the article was fairly clear in its contention. It stated that, quote, Hamas's lightning strike on Israel last weekend has raised the question of how the group financed the surprise operation. One answer? Cryptocurrency. Now, of course, as you also heard and as you've no doubt already seen, that article was used as the basis for a letter from Senator Elizabeth Warren and over 100 of her congressional colleagues. The letter was sent to the White House and the Treasury demanding action on crypto's use in terrorism financing. The following day, however, Chainalysis published a blog post questioning the numbers contained in the original Elliptic report,

and in particular, the way that they had been interpreted by the Wall Street Journal and Warren. Chainalysis noted that when Elliptic quoted the $93 million number, they were including funds held in an exchange wallet. According to blockchain forensics performed by Chainalysis, they found that only 450,000 of that larger sum was tied to wallets identified as belonging to terrorist organizations. The rest of that $93 million was presumed to be funds owned by innocent users of the exchange due to a lack of contrary information. Then from there, we waited. A week passed with no acknowledgement of this issue from Eliptic or the Wall Street Journal. And of course, as you've heard, this issue was a big deal to many in the industry.

It appeared as though Elizabeth Warren was using a misinterpretation of blockchain analytics data to drum up support for her crypto-ante money laundering bill. That bill deals with on-chain KYC requirements and frankly isn't even related to the issue of exchanges servicing terrorist groups. Now, just a few hours after that viral tweet thread that you heard from Nick Carter a moment ago, Elliptic released a blog post claiming that, indeed, the Wall Street Journal had misinterpreted their report. They wrote, There is no evidence to support the assertion that Hamas has received significant volumes of crypto donations. A full understanding of blockchain analysis and the context of any analysis is needed when using these insights to draw conclusions.

Eliptic has engaged with the Wall Street Journal to correct misinterpretations of the level of crypto fundraising by Hamas. In addition, we have been in discussions with the Office of Senator Warren to ensure that the relevant parties have a proper appreciation of the complexities and nuances of analyzing these wallets. The rest of the Post explained how crypto had become an increasingly poor tool for terrorist financing with the rise of blockchain analytics. Elliptic noted the most public crypto financing campaign since the attack has been from pro-Homaz news organization Gaza Now. The campaign has only raised $21,000 in crypto donations, and most of those funds have already been

frozen. Elliptic was unequivocal in calling out the misuse of their report, stating that, quote, over the past two weeks, politicians and journalists have portrayed public crypto fundraising as a significant source of funds for Hamas and other terrorist groups, but the data simply does not support this. No public crypto fundraising campaign by a terrorist group has received significant levels of donations relative to other funding sources. They explain that, quote, careful and detailed understanding of blockchain analysis is needed whenever approaching a nuanced and sensitive topic such as this. As for the Wall Street Journal,

and Elizabeth Warren, at the time of recording, there has been no retraction or public statement. Ian Talley, one of the authors of the Wall Street Journal article, acknowledged the outrage on Twitter, but did not offer a retraction or admit that his article had been used in a misleading way by Warren. Instead, he doubled down, publicly standing by his reporting. Talley noted a few caveats that he had buried deep in the article, as if they were enough to offset the inflammatory headline. Throughout the article, Talley had used qualifiers attached to what we now know to be wildly inflated numbers based on no real evidence. For example, he wrote wrote that P.I.J received as much as $93 million in crypto. In his follow-up tweets, Talley seemed to be

making the point that these minor caveats were enough to live up to journalistic standards, despite the inflammatory and misleading headline and opening paragraphs. Later in the evening, as the full weight of crypto Twitter descended upon him, which is, to be fair, no easy thing to bear, Talley devolved into posting bizarre quotations, which seemed at times to insult his critics for not being smart enough to read his article properly and understand its nuance. Of course, the Warren letter contained none of this supposed nuance, stating plainly, between August 2021 and this past June, Hamas and P.I.J raised over $130 million in crypto. This false claim was wedged between two references of the Wall Street Journal article to give it an air of credibility.

Today's episode is brought to you by Cracken. For far too long, the whole financial system has been standing still, too slow, only on for certain hours, overly designed for some types of people, but not for others. Crypto, at its best, represents progress. It asks the question, what if? It invites people in instead of leaving them out. It's on 24-7-365 and moves at the speed of real life. Not everyone believes it. We've got our fair share of detractors, but that's the way it always is when you're building something new. Cracken is a crypto company that has been through the highs and lows of the industry, facing forwards towards progress throughout. And now they're inviting us to see what crypto can be. Learn more at cracken.com slash the breakdown. Disclaimer, not investment advice.

Crypto trading involves risk of loss. Cryptocurrency services are provided to U.S. and U.S. territory customers by Payward Ventures Inc. PVI, BVI, DBA, Crakken. So let's talk about the community reactions beyond just Nick's fervent anger and dramatization of the stakes. One was about just how egregious this mistake is. Dysopia Breaker put it this way. To give you an idea of the rote incompetence and maliciousness involved in the Wall Street Journal, Hamas uses crypto propaganda, the way they attributed the number was to find an exchange which caught and blocked Hamas and proceed to attribute 100% of the total volume of that exchange to Hamas. This would be like if JPM caught a cartel laundering $5,000, then the Wall Street Journal reported

that cartels were laundering the entire market cap of JPM through quote-unquote banking. This is maliciousness, no doubt about it. It's easier to attempt to fabricate libel against your enemies than it is to fight them on the merits, especially when you know you can't win on merits. A second theme was like, this is complicated. It's okay that there was a mistake. Just fess up. Ryan Selkis from Masari wrote, this is why citizen journalists on X are more valuable than corporate media. The Wall Street Journal interpretation of data was wrong. Honest Mistake. The error was spotted publicly. Nature is healing. The journalist takes the error personally and prefers to deflect versus fix.

Baroken. Investor Mike Dutas, who was also the founder of the block, wrote, journalists who publish false information then double down with more false information and insanely wrong assumptions after being told why their reporting is provably wrong are not journalists at all. The conversation pulled in bigger names too. Brian Armstrong, the CEO of Coinbase, wrote, This is crazy. An inaccurate WSJ article citing evidence from Elliptic caused 20% of Congress to sign a letter. Eliptic has now refuted the evidence in the WSJ article. WSJ, will you issue a retraction or a correction? And once again, Nick came back and reminded us of just how important.

important this issue is. He wrote, Make no mistake. Journalists and senators lying about crypto financing terrorism and pinning the blame on us is an existential threat. If they win that information war, there is no limit to government aggression. This is a battle we need to win, and the truth is on our side. This is the number one most important issue in the crypto space right now. We need to hold fake news peddlers and lying senators to account. There is no other way.

Validating that, blockchain association CEO Kristen Smith begged practically, writing, members of Congress, please read this blog post before considering any action in response to the incorrect WSJ article on crypto and Hamas. So there are two really big issues here. One is just the state of media discourse. It really comes through in Ian Talley's defense of the article that he thinks he did nothing wrong, implying that he followed what he views or what the WSJ views as normal journalistic practices. Again, that as much as 93 million, as though that makes up for an incredibly incendiary headline and the dramatic implications of the first paragraph, which said crypto funding is the reason that Hamas was able to carry out these attacks.

Again, his defense for misleading the reader, and by extension, Congress, in the opening paragraphs, is that he hid caveats later in the article, and then attacked CT for being too stupid to read the entire thing carefully. Now, it is true that when you read this piece, what it seems like it's going to say at the beginning, based on that incendiary title in first paragraph, isn't exactly what it's saying by the end. But that's problematic all on its own, and shows just how warped towards clicks, even extremely formally reputable sources like the Wall Street Journal, have come. Now, of course, the second dimension of this is the impact on crypto specifically, and I think Nick sum that up perfectly, so I don't necessarily need to go into it.

Point being that this is a big deal. It's not some small thing. It's not just the latest crusade that we're using because we're bored of a bare market, it's a big one, and I'm glad that the pressure remains on. Now, in a semi-related story, on October 24, Matt Walsh tweeted, as first reported by Ryan Selkis, further proof that Elizabeth Warren is running financial services policy for the United States of America. Operation chokepoint 2.0 just got a new team member. So what he was referring to is that earlier this week, President Joe Biden selected Senator Elizabeth Warren's chief of staff, John Donenberg, as the next deputy director of the National Economic Council, the NECC, is the major advisory body to the White House on matters of U.S. and global economic policy.

Bloomberg reporting identifies Donenberg as the key architect in crafting Warren's tax proposals, as well as her calls for aggressive financial and technology regulation. Deputy Treasury Secretary Wally Adiyama, who has known Donnenberg for two decades, said that he expects the new appointee will bring a, quote, degree of creativity to the role. That legal creativity was put on full display earlier this year when a Donenberg brainchild, the student debt relief executive order, was struck down by the Supreme Court for being unconstitutional. Lail Brainer, the former vice chair of the Federal Reserve and now head of the NEC, said he will be a key member of our leadership team in implementing the president's economic agenda.

However, the question for many is whether it will truly be the president's economic agenda being advanced, or rather the agenda of Warren herself. Throughout the Biden presidency, it has been rumored that Elizabeth Warren cut a deal to drop out of the 2020 presidential race in exchange for veto power over administration appointees related to economy and financial services portfolios. Custodia Bank CEO Caitlin Long referred to this. this deal as an open secret in Washington, while Galaxy Digital CEO Mike Novogratz referred to the deal live on stage at Masari's main net conference in September. Novo added that he has no idea why

Warren hates the crypto industry so viscerally and that several of her senior staff disagree with her stance. It is believed, however, that Donnenberg is not one of them. Now, Ryan Selkis from Masari was the first to notice this issue. Back on October 14th, he wrote, rumor is John Donenberg, Liz Warren's chief of staff, is heading to the White House to replace Barat Ramamurti. Barat was responsible for most of the administration's deep crypto hostility. Some in D.C. told me to wait and see Biden softened with Barat gone. If Donenberg is in, that won't happen. Now, the reason that false reporting and the government actions that stem from it are so important at the moment is that crypto regulation is, of course, at a crossroads

in the United States. We've already seen the disastrous effects that Operation Chokepoint 2.0 has had on the industry, making it nearly impossible for legal crypto businesses to get proper access to banking and driving many U.S. firms to shut down or move offshore. This crypto crackdown appears to be entering a critical phase, with multiple new rules being proposed by government agencies which could cripple or irreparably limit the industry. Last week, the Treasury's Financial Crimes Enforcement Network, or FinCEN, proposed designating Cryptomixers as an area of primary money laundering concern. This designation would enhance reporting requirements for exchanges who accept deposits from wallets which have used mixers. In other words, more realistically,

it would likely act as a de facto ban on mixers in the U.S. The issue is that the definition of a mixer is intentionally broad. It includes any protocol where funds are combined or commingled. That would likely capture most of defy and make simply using on-chain financial tools a reason for suspicion for both exchanges and the government. The proposed rule would be the first time FinCenz's powers under the Patriot Act have been used to designate an entire class of transactions, rather than focusing on an individual financial institution known to be participating in illicit finance. Fincens said, said that they had considered writing a more narrow and targeted rule, specifically addressing platforms commonly used in terrorism financing, but chose to write the rules as broadly as possible

to capture edge cases. The rule is currently open for comment until mid-January. Now, the other major rule currently in its public consultation period is the IRS and Treasury's crypto reporting rules. This set of rules would change the definition of a broker to include almost all crypto intermediaries, including decentralized exchanges, self-hosted wallet platforms and maybe even validators. By designating most of the crypto industry as a broker, those firms would have to provide tax reporting on their customers' transactions. For some entities like centralized crypto exchanges, this would massively increase their reporting requirements and add a huge amount of regulatory cost to their operations. For other entities

with less customer data, the reporting requirements would be impossible to comply with. This would likely lead to even more crypto services shutting out U.S. customers. This tax reporting rule has been coming since it was included in the 2022 Inflation Reduction Act. It has been pushed off multiple times and is now expected to come into force for transactions conducted in 2025. Elizabeth Warren, once again, together with six supporting senators, recently expressed displeasure with this delay, urging the IRS and the Treasury to get the rule finalized and enforce, quote, as swiftly as possible. On Wednesday, however, the public comment period was extended by two weeks until November 13th due to strong public interest.

Anyways, just to reiterate one more time, this is big stuff. This is a battle worth having, and it's one that's taking place in the Court of Public Opinion right now. So, once you finish this episode, take out your AirPods, fireup Twitter slash X. Go check out the latest thing that Nick Carter said, and let's get into it. One more big thanks to my sponsor for today's show, Cracken. Go to crackin.com slash The Breakdown and see what crypto can be. Until next time, be safe and take care of each other.

Peace.