This Week in Startups - Biden targets big corporations + Tether Investigation with Bitfinex’ed | E1243

Episode Date: July 9, 2021

Jason covers Biden's executive order seeking to increase competition and weaken the power of Big Tech (2:21). Then, we continue our Tether Investigation with @Bitfinex'ed (18:16), covering how Tether works (36:09), and why he believes there is massive risk to the crypto markets (48:55) & more!

Hey, everybody, hey, everybody. We've got a great show for you today. Tether, the stable coin that we've been talking about in our Tether investigation, has a longstanding critic. Many of you know this person from their Twitter handle, Bit Fenext. They are an anonymous Twitter handle run by a real person who has been riding Tether for, I think close to five years. And we talk about the history of Tether, potential implications of a crash, and much more. And he, he's a lot of, he's a He is anonymous. We don't know who he is. So this is the first time in the history of the program, we have an anonymous guest, but we know it's from that Twitter handle. But we could be being punked. Who knows who this person is? But they have been for years. That's what we do know,

on the Tether story. So take this for what it's worth. We could be getting punked. This could be somebody inside of Tether who created this account and why they would do that. Who knows? It could be a disgruntled employee. We ask them if they're a disgruntled employee or competitor. They say no. So you're going to have to take this one, buyer beware, as our first anonymous ever interview. But first, we're going to talk about Joe Biden's antitrust executive order, which was just signed today. Okay, stick with us. This week in startups is brought to you by Ladder. For fast, easy term coverage life insurance, choose Ladder. Check out Ladder today to see if you're instantly approved. go to ladderlife.com slash twist.

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While you're there, get an extra 10% off using offer code twist. Okay, in the news, Joe Biden has signed a new executive order on promoting competition in the American economy. As you know, we've seen a lot of saber rattling over the last couple of years from Obama to Trump and now on to Joe Biden about big tech. The scale of these companies, whether it's Amazon, Google, Facebook, Microsoft is larger than anybody ever really anticipated, including people in the industry. We never thought these companies would get to a trillion dollars, let alone two or three. And their impact on the world is becoming great. And in most ways, it benefits consumers. Antitrust law was designed to protect consumers and to keep a competitive marketplace.

That's why we're having a hard time deciding if these companies are in fact hurting consumers. If they were price fixing and every time you use Gmail, you had to pay 10 bucks a month for your Gmail account and then it went to 12 and then it went to 25 and they kept raising the prices and maybe they were in cahoots around that, that would be one issue. But if users can get free photo services with unlimited uploads on almost every service in the world, and they can get free email, and the price of an Amazon basics cable or battery is a fraction of the brand names, there's really no consumer harm. And you don't see consumers shouting from the rooftops break up big tech. But you do see a number of people in Washington over time showing concern about this.

It has now become acute. In other words, Joe Biden, signing an executive order and some of the people he's putting in place and the fact that the GOP, the Republicans and the Democrats are in agreement on this, is the big change. That's the big change we're seeing. What other issue can you think of where Republicans and Democrats are aligned and both want to see the same outcome? They can't even agree on infrastructure. They can't agree on pandemic regulations. They can't agree on our borders. I mean, they're just, it seems like they pick adversarial positions as a default. But here, they're both in agreement. My theory on this is a lot of people on the left felt that Trump in some way benefited from Facebook,

advertising, Cambridge Analytica. We can debate that. But there was clearly some shenanigans going on there and Facebook was influential in elections. In fact, Facebook is so influential in elections, we know this, that they have a team that trains people in elections on how to use their advertising services to win elections. They literally cannot say on one hand, as Facebook, we are not impacting elections and then have a team selling ads embedded in different people's campaigns to help them win elections. So we all agree on that. Whether you like Hillary, hate Hillary, think the election was stolen or not. Then in 2020, we had Trump get suspended from all these services. So if you're sitting there and you're in Washington and you're a career politician,

now you've seen both parties become disgruntled and you've seen somebody just basically get removed from public life, Trump. That, I think, has led Washington to believe it's now time to take action against big tech. That's my belief. Maybe it's cynical, but I believe that's why this is coming to a head. There are other issues that are not about competition, but are of concern to citizens in the United States. One of them is wealth disparity. They see Jeff Bezos becoming worth a lot of money and, you know, Zuckerberg, and they feel

that's unfair. What does that have to do with breaking up the companies? Feels vindictive. Feels like you're changing the rules of the game. Let's put that aside. I do think that's an undercurrent of public. support. Then you have these companies not paying any taxes. And then you have some individuals who are getting loans against their equity, which is totally allowable under our current law, but they're not

paying taxes the way we all pay taxes on our income. And then third, of course, privacy is becoming more and more of an issue. For some people, that's a serious issue. Other people, it feels Icky, many people, perhaps most don't even care. So that's the climate we're in. And that's the emotional sort of backdrop to what's happening right now. And just last week, James Bosberg, a judge, threw out a recent FTC case and said it was ridiculous to reverse a merger that was completed almost a decade ago. Of course, he was speaking about Facebook's Instagram acquisition in 2012. So that's the backdrop. What is this new order? Well, this order, this executive order, includes 72 initiatives by more than a dozen agencies to promptly tackle some of the most

pressing competition problems across our economy. And that's a, that's a quote there. Some things included in this are initiatives to ban or limit non-compete agreements. This is great. In California, we don't have non-competes. If you worked for Tesla or Apple or Waymo in self-driving, you can't take the documents and the IP from that company to another company, as we saw, with Waymo and Uber self-driving in that case, but you can go work at another company. Other locations, I believe Texas and some in the Northeast, allow non-competes, which means we can pay you your salary for the next four years, pay or play, so you can work for us, play, or we will pay you to not work on self-driving.

That limits competition, so that's good. Another item in here is lowering prescription drug prices, so obviously this goes beyond big tech, allowing hearing aids to be sold over the counter, make internet access more affordable by banning excessive early termination fees, that makes sense. Ends landlord internet service providers exclusivity arrangements, that's fantastic. So if you live in a building, you know, some would just previously offer Comcast because they had some side deal with the landlord or just using an example there. And here's the quote, the overarching objective with the executive order is to make sure the president

is encouraging competition in industries around the country. White House press secretary, Jen Saki, told reporters on Thursday. This follows Biden appointing Lena Khan, which we talked about as the chair of the FTC, which was approved with bipartisan support. So again, there it is, bipartisan support. And, you know, the way I always look at this is, why is this happening now? Again, I went through wealth disparity. Trump and Hillary and the impact, Facebook, Instagram, Twitter, have had YouTube on banning those people. or maybe putting their thumb on the scale and helping ones get elected,

at least that's the perception. We don't know if that's true. Tax avoidance is a huge one. People putting their IP in Ireland and not paying a ton of tax. This makes people feel really bad about it. So what's going to happen? We know that consumers are not being harmed

in the short term. They're not. In the long term, you have to make a really weird sort of argument that, okay, because there are not seven more photo sharing apps. And because Instagram is owned by Facebook,

you're not getting enough competition for your photo sharing, probably hard to make that argument. Now, if somebody like Amazon copies everybody's products and they went from having, you know, I think it's maybe hundreds or low thousands of Amazon basic services, and they decided they would have a million of them and they would put them first on the lists, or Google is putting their Yelp review competitor above Yelp,

Those are the kind of things where on the edges, on the margins, you might see some consumer harm. Again, it's just really hard to determine. So what's going to happen? I think what we're going to see is the big tech companies are not going to be allowed to make future acquisitions that are large. In fact, I think many of them are not even trying. So that chilling effect is here already. I think we would see some major acquisitions going on if people felt they could clear market. I don't think people feel, you know, Netflix being bought by Amazon or, you know, something of that scale.

Uber or Airbnb would probably be on the bubble under $100 million, $100 billion, rather, getting bought by, you know, one of the bigger services. I could almost see that happening. I think that's kind of the ceiling is, you know, maybe when, you know, Coinbase getting bought by Google, I could see that going through. But I maybe not when you get to $200, $300, $400 million services. So something under $100 billion, pretty easy, something at $200,000, pretty hard to get through. And things in between might take time. But a more likely scenario is people opt in and say,

you know what? Google spins out Waymo, does a SPAC, does a direct listing, YouTube goes out, and Google just becomes search, and they take all the other bets, Nest, and they just start spinning those things out. Amazon Web Services, if that became its own independent company and you had Amazon and Web Services, I think it would unlock more shareholder value as an independent company.

And then I always think about myself and about you, the audience, as startups, what does this do for you? Well, if these big companies get broken up or they're not allowed to buy large companies, that's good for the smaller companies. For the smaller companies, it means that maybe these big companies will not be as quick to compete against smaller companies. They'll stick to their lane. They'll stay in their lane, as it were. And David Sacks predicts Amazon spins out AWS. He predicted that on July 6th was a couple days ago. Because as he says, of all the big tech companies, they are the smartest chess players.

I think he's right. And I've talked about this a whole bunch. Jeff Bezos did something amazing. And it was a controversial decision inside of Amazon. We're going to let third-party sellers sell on Amazon and we're going to let them buy ads on Amazon. This seems crazy. You know, the idea that you could come onto our website and sell your products and you do the fulfillment, but people get the beautiful Amazon experience. It's like, wait a second, why are we giving

away this incredible Amazon prime experience to third-party sellers? And we're competing against them? This makes no sense. What Amazon, I think, realized was, you know, giving people more choice and having a big, robust platform was more important. And they can always point to that. I think it's 40 or 50% of the sales and the items. It's either the sales or the items on Amazon. Somebody fact-checked me on that. come from third-party sellers. So Bezos allowed these because it was better for consumers. And he said that. What's the best outcome for consumers?

And this is where the law is just really problematic. The law is to help consumers. It's in the best interests of all these big companies to help consumers. So what we'll probably see is some regulation around privacy, some voluntary spinouts, some blockages of large acquisitions, and then maybe even, you know, Google's search results will be tampered a bit and maybe, you know, they'll not be able to put certain things up top or, you know, they might even have to give some insight into their algorithm, which would be super interesting.

I know that's a hell marry and unlikely. But, you know, big tech will fight this and they may put in somebody into office after Joe Biden who is more pro big tech. At the end of the day, it's going to be the consumers are not losing right now. and the people who will lose are the people who have the large shareholders in those big tech companies. They're really the only losers here because they might lose, you know, control over the ecosystem because of their scale. Ultimately, they might actually wind up doing better. Bezos might be worth more. He might be worth more money when they split these up. And that's going to be the great irony.

Oh, we're trying to, you know, solve wealth disparity with this. That's not going to get solved with this. all it might do is make, you know, Larry and Sergey even more wealthy as Waymo, if it succeeds, becomes a trillion dollar company, or AWS becomes a trillion dollar company. You might have the baby bells when we broke up the phone companies. The baby bells in this situation could be the baby Amazon's or the baby Googles, and those spinouts could become worth as much or more than the original companies. Quite possible, Amazon Web Services becomes worth more than Amazon the economy. or store. So 55% third-party sellers in Q1. I said 40 to 50%. So I had some old data there.

So Amazon Web Services has been built to be easily separated from what I understand. Facebook did the opposite. They tied together all the backends of WhatsApp, Instagram, and they did that for a reason. They want to claim. I mean, I know it sounds cynical, but I kind of have the inside line on this one. So trust me, they integrated that stuff deeply. So that when people came and said, break it apart, they could go, oh, it's going to be too much work, you're going to cause us so much harm, only shareholders, people's jobs. We'll see if that flies in with this incredibly, this deepening resentment of big tech and wealth polarization. Sometimes you can overplay your hand. My advice, to the big companies, pay taxes. Stop,

even if you can, stop trying to do all these end runs, start paying people really well who may be working your stores, you know, increased, you know, your transparency in privacy, and maybe don't compete as savagely when a new startup comes out. You know, we saw this with Clubhouse. They came out and then all of a sudden Zuckerberg, Slack, Spotify, everybody had their competitor up and running immediately. It's that kind of quick copying that I think gets people worried about competition because the scale of these services are so big.

But I don't see anybody mentioning that. And that is a very interesting dynamic. Is it better? And I don't know if anybody has the answer for this. Is it better that Spotify, Slack, and Facebook and Twitter come out with Clubhouse clones, competitors, coexistors within the first year of Clubhouse or because it creates more activity in the space, gets more people exposed to this new feature, just like stories. Getting copied from Snapchat gave more people access to that.

technology, that service? Or is that worse for competition? I don't actually have the answer to that. I can see people arguing it both ways. Okay, let's get to this incredible interview with, and our first anonymous interview in the history of the program in over 1,100 episodes, our first anonymous interview with the Twitter handle, BitFinex.

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whistleblower. And you may know that we've been talking about the stable coin, basically a cryptocurrency called Tether on this program for a couple of weeks. And if you know anything about cryptocurrency, you probably know our next guest through his. Now we know it's a he. So we've narrowed it down to 50% of the population or thereabouts. But we actually don't know who this person is. We don't know what their motivation is. But we will get into that as we have the discussion. He runs a handle on Twitter called BitFINX'd, B-I-T-F-I-N-E-XED, B-I-T-F-I-N-E-D,

BitFIN-Xed. And he's been writing that account since April of 2017 when it was created. In order to, in his worldview, bring some attention to tether. And so welcome to the program, Anonymous, disguised, voiced, Bitfinexed. Hi, thank you for having me. Okay. So right off the bat, I guess it would be good for you to explain to us what is a stable coin? When did you become aware of stable coins? So I first became aware of Tether actually probably was early 2017. and I remember seeing, you know, BitFinix trading. And I always watched, you know, the trading BitSynex.

And I started investigating Tether probably, you know, around late March, early April 2017. And I went through the, you know, the Term of Service for Tether and trying to figure out what was exactly, you know, what was going on, you know, on there. And when I read the Term of Servers, you know, the Temp of Service basically said that, you know, it's not, you know, the Tethers were completely not readingable. So I was always already suspicious of it. But at that time, I didn't really put together that, you know,

Tether and Bithynx are owned by the same people. And that was, the website for Tether didn't actually list any, like, I didn't have it about us. And as I was watching Bithfinex and I was watching a trading on Bithfinex, I started noticing the late March of 2017 that the trading is, you know, peculiar. So that's kind of when I started, you know, kind of noticing me. And Bifenex is a crypto exchange for people who don't know. And it's an offshore crypto exchange.

It's not one here in the United States, right? Right. Yeah. Explain to us what the goal of a stable coin is and why a stable coin would be necessary. And then we'll get into the terms of service and your motivation here. Okay. So the whole point of tether was to solve a banking problem with Bitcoin exchanges. Bitcoin exchanges, they kept getting basically blocked from having any kind of bank accounts. Why were they being blocked from having bank accounts? Mainly because the exchanges, they don't want to really comply with K-Y-C-A-ML.

You know, Coinbase, they comply with KYC AML, so they have banking. Explain what those are, KYC and... So KYC is know your customer and anti-money laundering. So basically, when you trade on Coinbase or BitStamp, they verify your identity. They ask for your ID, you know, they ask for your social security number and stuff like that to make sure they know who they're doing business with. Those exchanges usually don't have any problems obtaining banking. BitFenics and the offshore exchanges, they don't want to do the KYC AML, so they have problems with banking. The idea of with Tether was Tether was going to go ahead and comply with all the banking regulations,

and they would go ahead and open the banks, and they would basically receive dollars, and then they would issue a token. And that token was supposed to represent those dollars. A legitimate version of Tether, but basically they do all the KYC, all the AML, and then they just allow the Bitcoin exchanges, hey, just implement Tether, and it's on the blockchain, it's backed by dollars, here's our audit. And, you know, that would solve a real problem, the cryptocurrency, all these exchanges basically constantly having these, you know, magical banking problems.

And that was the idea behind Tether. And, you know, that's, that's not a, it's still probably most likely to be illegal, but it wouldn't be a fraud. You know, it's just, it's just trying to try to work around the, you know, the KYC AML issues. So would I be correct in saying that people who want to get around KYC know your customer and anti-money laundering AML? would that group be people who maybe are part of the underground or a black market or a gray market? Or are these people who maybe are just from foreign jurisdictions? Like, why wouldn't, why would the customer need this service? I think the vast majority of the trading and the vast majority of users that they're going to have are going to be,

most likely going to be black market and potentially a gray market. you know, a lot of money potentially, you know, could be stolen, you know, or it could have, it could have bad, you know, who knows, you know, what could be going on with it. But I have noticed that when, when Bitcoin exchanges, like, implement actual KYC AML, for example, their volume goes down tremendously. Got it. It's friction.

Yeah. I feel that, you know, most of these users are going to be, you know, black market and, you know, maybe some great market stuff. But I think the black market stuff is going to be significant. higher than, like if you have a local country that has a, you know, they have, it has a bad, a bad currency and they want to hold dollars and, you know, they can't, maybe they can't get a bank account in the U.S., you know, okay, yeah, they might be holding tetherers, but there may be a few edge cases that are like that, but I think those are going to be edge cases.

Those aren't going to be the vast majority of people using tether. And some people said these stable coins would just make things faster even for legitimate people. Is that an accurate description of the legitimate use of, say, a tether? Is that it's faster to move money around? It certainly is, you know, Tether is faster to move than bank wires. That certainly is true. Got it. Okay.

So basically it's just a blockchain transaction. You read in the terms of service. So you're one of those folks who reads the terms of service, the 1% of users who reads the terms of service. And you see in the terms of service for Tether that you are not allow, you are not guarantee the ability to get your money back. In other words, to sell your tax. tethers back to tether.

So when you go to their website, their website basically said that, you know, you know, tethers are backed one to one, you know, um, with U.S. dollars. And then you go look at the fine print and, uh, they, they basically tell you that tethers are not money and not monetary instruments, you know, they're not stored value or currency. And then the keywords or the key sentence is there is no contract or right or other right or legal claim against us to redeem or exchange your tethers for a month. money. And that was the original terms of service. That's the original terms of service. And that

terms of service has changed. And in the beginning, they were marketing this, and this is super critical. In the beginning, they were saying every tether has a dollar and every tether will only be worth a dollar and that dollar will be stored in a bank account somewhere. So you'd never have to worry. If we have a tether and a tether exists, we have that dollar. And then if somebody cashes it in, we do what's called burning of those tether. correct? Right, correct. Got it. Now, something changed along the way, but it makes one wonder, why would they put that in the terms of service to begin with? Do you think this started out as being something Fugazi or shady, or do you think something happened along the way that made them change

the terms of service? And then I guess would be good to talk about what the terms of service says today. Okay, so those terms of service, I believe were added sometime after BitFenix, Phil Potter, and Juan Carlo Devazini, basically bought Tether from the original founders of Tether, which was Brock Pierce, Craig Sellers, and Reeve Cullen, I think. They kind of, they started up the business and basically Bitsynics just bought it from them. You know, we don't know how much they paid for it or anything like that. But they bought it from them and then they had those, they changed that, you know, they changed that, um, the term of the service basically adding that, adding that light in there. Um, I actually have one of the, the main Bitsynic supporters, um, he goes by the name of

Swatman, he actually admitted to me that they, they added that to try to bypass money laundering regulations. Ah. So they put in there that these aren't worth anything, therefore you can't come after us from money laundering or KYC rules because we're saying people are buying funny money. In essence, they're buying like Zinga tokens or something to play poker. They have no value is their claim. Correct. This is after claiming that there was a dollar in the bank for every So they're kind of having it both ways. They're marketing it as one thing, but then the terms of service, they're saying the exact opposite. This is virtual currency that has no value. Correct. Okay. That's confusing enough. Healthy and happy employees create successful companies. That's it. That's a fact.

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free after you attend a free demo at com.com slash twist. Once again, you know how to spell it. C-A-L-M dot com slash twist. That's why I invested in the company. I thought that this company could change the world and I am so happy to see Com doing that every day. So what's happened since that time? Because there's BitFinex and then there's Tether and people thought these were two different companies. But then they found out at a certain point, accidentally I believe, that these are the same company? So that's actually a very funny story, because I figured out that BitFinnix and Tether are run by the same people because BitFinnix and Tether sued Wells Fargo. So I literally had the lawsuit that BitFinnick and Tether filed against Wells Fargo, and I had sworn affidavits from the CEO of

BitFinnix and Tether where they basically admit that they're the same people. So I took excerpts from that lawsuit and I shared it on Twitter, like, hey, these are run by the same people. And nobody believed me. Oh, that's just fun. Oh, that's not true. You know, and I That's four and affidavits. And people claimed it was FUD, which is, I think, a classic, correct me if I'm wrong, any criticism of any cryptocurrency, the people who are stakeholders in that cryptocurrency are apt to say that you're spreading FUD, fear, uncertainty, and doubt. And that is like a way of sort of neutering any criticism.

But in this criticism, people told you it was FUD, but you knew that through these legal documents you obtained. Right. And this is public information. This isn't a secret. You can't really, I mean, you could fake it, but it's obviously you'd fake it, you know. But the only time people really started to believe that BitFix and Tether run by the same people was after the Paradise Papers League.

And another point I'd like to make is I actually had audio recordings of the chief strategy officer of Bit Finnick and Tether, Philip Potter, where he actually, at first he, kind of, it says that, oh, well, we just bank at the same banks. And then that was sometime in 2017. And in 2016, he actually admits that, you know, Yeah, we were majority owners of tether. The money is all there. I don't know what I can make people feel better about that, but doubt I will.

You know, that's basically, you know, what he says. He doesn't actually, you know. Those recordings are on the internet today, correct? Yeah, I published all those. BitFix tried to get them removed off of YouTube. They, unfortunately, they failed at doing that. Great. Okay, so we'll put those into the show notes here.

And people remember the Paradise Papers were this leak of documents of all of the 13.4 million, in confidential electronic documents relating to offshore investments that were leaked to German reporters and they shared them with the International Consortium of Investigative Journalists. And this led to a lot of revelations about different companies and individuals who were running all kinds of offshore accounts amongst them, Bitfinex. Right. And tether. And tether. So that proves the connection.

that they're the same thing. Right. Yeah. And at that point, people started to admit that, yeah, okay, Bit six and Tether

run by the same people. Got it. So we have multiple red flags there. One is the denial that these two companies are related. The other is the terms of service is saying this is a virtual currency

essentially. It's not real money. But the public positioning was every tether has a dollar. Right. Backed up somewhere. Now, at some point, well,

you tell me what happens next here. Okay, so what happened after that, I kept hitting on their terms of service. and they were getting a lot of flack for that because I was basically on Twitter to spamming. Anybody talked about Tether, I took a screenshot

of the Tether Term of the Service. It's not backed. And they're always trying to do damage control around that because obviously you can't. That's a pretty big indictment. Your website says it's not redeemable. So they finally updated the Terms of Service and it basically is the same

exact thing, but they just worded it a lot better, I would say. So now basically in order to redeem Tethers, you have to be a verified customer of Tether. So what is the verified customer of Tether? And that's somebody that they go to the Tether website and they go, you know, Tether does do some KYC AML for the people that issue Tethers. The thing is, it's a very, very small club of people. If you were an offshore entity, you know, and you actually try to go through the terms of service, they are not terms

of service, but you try to go through the approval process to get, you know, into Tether, I doubt that you would actually be able to go in there. It seems that their primary customers are basically just some big traders. I would doubt that they have more than, say, 25 customers. It's just a couple big, large entities. Got it. And so at some point in 2018, the tether price collapsed for some reason. How does a stable coin's price collapse? I'm curious. So at least in 2017, there was only one actual real legitimate trading pair for tether. And that was actually on Cracken. And there is very, very little liquidity on Cracken. So if you had 500,000 tethers, you could could actually cause the price of tether to go to zero, basically, on Cracken.

What's interesting about Cracken listing Tether is Cracken only listed Tether like immediately after Tether lost their bank account. And Cracken had a bank account. And I actually suggested to, you know, Bithfidix and Tether, like, hey, why don't you you guys go ahead and take some of your reserves and put up a large buy order for tethers, you know, so hey, you're claiming that you have to, this is back when they had, you know, say, 50 million tethers, you know. So why don't you go ahead and take $10 million dollars, send it to Crackin and put a $10

our buy order on tether and you can basically kind of use crackin to you know redeem tethers and uh they kind of say oh yeah we can't do that i'm like that doesn't make me sense you know why can't you just send some money to crack and and support your own your own peg um place a massive buy order so i guess right now the audience is wondering you seem extremely motivated to um uncover uh what's going on here what is your motivation for the people in the audience who are thinking about this um i do think that if tether is allowed to continue, I believe that they will eventually trigger a financial crisis. Okay.

So you consider yourself a concerned citizen, but maybe this behavior and your obsessiveness about it, people might say, well, that seems a little more extreme. Do you have an X to grind with them? Did you work for the company and get fired? Or do you otherwise have some relation to the company that we should know about? I have no relation. They never really, before I started doing this, they never did anything. to me. I didn't lose any money on BitFinnix.

I didn't lose any money in the hack. You know, I really would have, you know, I was originally, when I first started, I wanted to make sure that I was right, because I didn't want to be somebody that's just a troublemaker. I wanted to go out there and I wanted to make sure that they were actually, you know, that they were bad. And I very careful, I listened to all the, all the available recordings of Juan Carlo, Phil Potter. I tried to gauge their body language, you know, over their voice, you know, because I didn't want, to cause harm to somebody that's doing something and being honest.

That was it. The only time that I really started getting really, really nasty was when they really got nasty to me. Got it. So before we get to that, so people understand how tethers work. We know there's a blockchain, as it were, for Bitcoin, and the transactions can be seen and it's very transparent, let's say. How does technically tether work? Can we see every tether in existence?

Do we know where they've moved? Is it on a blockchain or some equivalent for non-technical people listening? Yeah. Yeah, so all the tethers, they are issued on a blockchain. So originally, Tether was only one blockchain, which was known as Omnichain, which the Omni Chain was originally MasterCoin. And then they kind of changed it. It was trying to do something very similar to Ethereum, but to do it on the Bitcoin blockchain. So you could actually see all the tethers being issued.

So every time they issued 100 million tethers, you know, you could see that on a chain. They created these new currency units. They would send them to BitFinnick. They said Napoleon X and some of the BitTrecks. And you could basically follow the tethers. What you don't know is you don't know if they actually have money in the bank account to follow that. And what's really sad is, you know, you could actually have a blockchain-based table coin. And what they could have done is when they get an incoming wire transfer of the $100 million to buy those tethers,

they could put the information from that wire transfer, you know, and they can hash it and they can actually encode it onto the blockchain. So essentially they have the record. All the banking records are secretly put onto the blockchain. Got it. And so they would never lose the records. How many tethers are in existence today? And then how much money does Tether claim to have? Because we're going to skip ahead here for a minute.

But there was a, we had the Attorney General from New York take action against Tether. Why did the Attorney General take action against them? I think they took action against them. because they figured out that they were $850 million in a hole after they had a bunch of money seized in April of 2018 and also October of 2018. So they were actually in a hole for a long time, but they kind of kept it quiet. Tether got hacked in November of 2017 right around the time that the New York Times article came out on BitFinnix.

And that hack was very suspicious because it's actually kind of pointing us to hack Tether because they can just freeze the tokens. It doesn't do anything. So nothing was lost in that hack. All they did is freeze those tokens, and that was kind of the end of it. Honestly, I'm a little suspicious about that hack, but anyways, I don't think that was why the Attorney General started investigating them. Every startup needs business insurance, and you should look no further than my friends at

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While you're there, you get an extra 10% off. If you use the offer code twist, please put in the offer code twist so they know that I sent you. Okay, let's get back to this amazing episode. But there was some loss of money between BitFenex and Tether, and then Tether covered for BitFinex

or that $850 million that was launched, that was lost. The $850 million that was missing was basically BitFinex was funds. And so BitFinex, because they don't actually have a bank, they didn't have a bank account They didn't have a bona fide bank account.

They were using this company called crypto capital. And they basically would instruct their customers. Instead of sending money to BitFenix, you would send money to this crypto capital. And the crypto capital would basically report, yep, we got a million dollars from so-and-so. And at BitFesnex with intern credit those accounts with U.S. dollars. You know, trusting that crypto capital actually got that money. What's interesting is there was no written contract between BitFINX and CryptoCAPT capital. No contract, but they had $850 million of Biffinix's money.

Basically, yeah. Wow. That's super strange. Mind-blowing. So BidFinix, they started asking for some of the money, you know, to honor withdrawals and the crypto capital started, you know, giving them problems. In April 2018, there was a, they had their Polish bank account was, uh, they basically shut down and the money got seized by the Polish authorities. And then when that news came out, you know, I obviously caught on to that. Um, because I, I knew that was BitFinnix's bank account because there was threads on Reddit showing that this post bank account.

And BitFinex puts out kind of like an announcement saying, yeah, we don't know what you guys are talking about. That has nothing to do with us. It's just fud. And at that point, they're $400 million in a whole. And the price of tether is still $1, you know. And so six months later, they have another $450 million go missing. And then I guess they got clued in from, you know, one of the guys that crypto capital that, yeah, this money is this money. I think early October 2015, I'm sorry, October 2018.

On October 15th, 2018, all of a sudden, the price of tether went from a dollar to like 80 cents, give or take a cent or so. And the price of Bitcoin on BitFenex, it went up on nearly $2,000 in about 15 minutes. And as the price of Bitcoin was going up on BitFinex because of their liquidity crisis, it was also going up on the exchange is to have real money, because there's bots that will basically automatically start buying Bitcoin every time it starts going up on BitFenix. You know, they don't actually know why it's going up. They just buying it.

But they got to the point where the price of Bitcoin on BitFenex. And BitFes comes out with a statement saying, oh, everything's fine. I don't know what you guys are talking about. There's no money missing. Withdrawals are working just fine. But in reality, Juan Carlo was completely freaking out. And on the same day that they had this liquidity spike, which I have a recording of it, by the way, which is kind of very, very amusing to watch.

The same exact day, Juan Carlo is basically going to. going out and saying that if we do not act quickly, the price of Bitcoin is going to fall below a thousand dollars. And that is from the chief financial officer of Bicinicin and Tether. And so the only way that makes any sense at all, the coin was manipulated. And you believe that. You believe they were manipulating the price of Bitcoin as they were using the stable coin. So in a way, and this was explained to me by somebody I know in the crypto, multiple people in the crypto industry explained it to me this way, that what's happening with Tether is maybe they're front running the Bitcoin trades, they're buying right before other people are buying, or they're creating this

massive volume and that tether, I guess the one conspiracy theory here or one theory is they were juicing the price of Bitcoin and then benefiting it from it in some way later on, and that was concerning people in the crypto industry. Yeah. So one of the dumbest things about tether, honestly, is that it opens you up to be front run because when the tether is good issues, they're on the blockchain. And for a while, really, the only currency you really could buy was Bitcoin. So if you're a large institutional trader, you know, and okay, I have a choice.

I can buy U.S. dollars. I'm sorry, I can buy Bitcoin with my U.S. dollars. Or I can take my U.S. dollars and I can send it to this offshore crypto capital account to buy tethers and then buy Bitcoin. And theoretically, you know, Bithynics, they decide when they give you your tethers, but they already have your cash. So they could take your, they can take your cash and they go ahead and they buy Bitcoin with your cash.

Pure speculation, yeah, but it's possible, yeah. At day later, you take your tether and you buy it back from them for more money. Crazy, yeah. So the idea of somebody buying tether, you know, with actual money, you're just opening yourself up to be front run by not only Bitsets and Tethered, but everybody watching the blockchain. Whereas you can go on a Coinbase, deposit money on Coinbase, nobody sees that on the blockchain and you just buy Bitcoin, you know?

And so then there's some sort of investigation by the New York Attorney General. And how did they find out about that in 2019 and to decide to do this investigation, then eventually ban tether from operating in New York City, or New York, rather. Yeah, I think they started investigating it sometime in 2018. And through discussions, if you actually, when you look at the New York Attorney General's case, basically Bithenick admitted that they had, there was money missing. And then the, you know, the Attorney General's like, you know, you guys haven't made this public, you know.

So Bidthens, obviously, they wanted to keep that, you know, they really wanted to keep that quiet. So I think that's when the Attorney General started investigating it. They didn't publicly disclose the whole lending agreement with, you know, with tether. And what's interesting is just before the Attorney General sued BitFinex, all of a sudden we had a bull market, you know, the price of Bitcoin started really skyrocketing, just for fire. And if you actually, when you look at the emails that was made public by the Attorney General's office, there seems to be like a breakdown of communication in late March of 2019. And this is my opinion.

but I suspect Bithfinx figured out that, you know, the attorney general is going to sue them. And it would be catastrophic if all of a sudden they get sued by attorney general and that's going to cause the price of Bitcoin to go down. Everyone's going to freak out. And the best way to get people to shut up about an investigation or FUD about Bithex is make them think they're all getting rich. So all of a sudden, on April 1st, 2019, the price of Bitcoin goes up like, you know, a thousand bucks in one day. It went from 3,500 to 4,500, and they basically, they triggered a whole new bull market. It went from $3,000 to around $13,000. Got it.

You know, throughout the whole investigation, you know, throughout the start of the Attorney General's And the investigation basically said, I'm just going to read from it here, according to counsel for Bitfinex and Tether, in 2014, Bitfinex began a relationship with a believed to be Panama, Panamanian entity called Crypto Capital Corp to act as one of their payment processors, in quotes, according to, the documents provided to OAG, by respondents, by 2018, Bitfinex had placed over $1 billion in co-mingled customer and corporate funds and crypto capital, and then crypto capital either lost or fled with $850 million in their money. This led to the New York Attorney General's office to sue IFNX, the parent company of Bitfinex and Tether in April of 2019. They alleged that IFINX had been co-mingling, blending client and corporate funds between Bitfinex and Tether to cover

up the missing 850. So they were dipping into the tether reserves to keep their crypto exchange solvent, I guess is the insinuation here. Right. One thing I want to point out is I generally like to say that $850 million is missing. One thing that people haven't really cut on, Reginald Faller, the guy behind, one of the guys behind Crypto Capital, he was caught with $14,000 of counterfeit money and the equipment to make it. So when you're running Crypto Capital and you're physically making counterfeit money. So he had previously done that, you're saying, the crypto capital guy, or he was doing a concurrent. Right. He was doing it at the same time. When they arrested him and they searched his offices, they found uncut sheets of 100-hour bills, $14,000 worth.

So he was counterfeiting physical currency. While doing crypto. While doing crypto and running crypto capital. So you know, it's a lot easier than going to all the hassle of counterfeiting money. Yeah, I got to $8 million from this account when there was no actual deposit, you know. And it's a convenient scapegoat for BitFex. Oh, yeah, we had no idea of the original file was issuing deposits that without actually, you're getting any money, you know. Since that time, the attorney general said, hey, you got to put out quarterly reports. And a quarterly report came out for the first time in May, 2021.

And this provided a breakdown of their reserves from March of 2021. And this is what started the whole interest in Tether again with Financial Times, Jim Kramer, Coffee Zilla, myself, and a bunch of folks watching what you're reporting on for these five years. And we said, wait a second, this is a little weird. It's a PDF with a pie chart, and it says they have $60 billion in assets, but 75.85% of them are cash and cash equivalents and other short-term deposits and commercial paper, that last part being loans to other businesses. And this was wholly unsatisfying to a lot of people because it

would have made them the sixth or seventh largest commercial paper holder. In other words, holder of loans of other corporate entities. And this is where the Black Swan store, The Black Swan discussion begins, which is, wait a second, this is $60 billion. What if 10%, 20%, half of it's not real? What if it's gone? What are the chances that you think it's gone? And what is the worst case scenario if, in fact, there is some giant fraud going on here, which we are not sure of.

But as we've discussed, the red flags are such that in my experience, when there's this many red flags, something is not right. Can I say it's a fraud? No. Can I say there's red flags? Yes. Can you say it's a fraud? Or there's just red flags? In my honest opinion, this is one of the largest frauds in financial history. And that's my opinion. Wow. As far as what their commercial paper is, the worst case scenario, the paper is junk. What they could be doing in theory is they can find commercial paper that's probably not selling at the full face value. And it's selling for 10 cents and a dollar. And they go ahead.

They buy that paper at a discount, maybe give somebody a commission, and then they print up all these tethers, and then they take those tethers, and they buy cryptocurrency. And they say, hey, yeah, it's backed by commercial paper. It's technically true. We don't know exactly what that commercial paper is. I suspect it's Chinese commercial paper. Ah, and we know everything in China is on the up and up and that the accounting systems over there are totally squeaky, clean. Now, they have a huge shadow banking system in China. Yeah. So if this were to come apart, What would that look like in your mind? In my opinion, once tether is actually done for, once it becomes obvious to everybody,

it's already obvious to me, but once it's obvious to everybody, this is a massive fraud, I believe you're going to see a huge capitulation of the entire cryptocurrency market. Because, you know, tether makes up, you know, 60, 70% of all the actual volume. And in my opinion, it's the tether activity that really drives in the real money. If you go back and you look at Mount Gox, Mount Gox was playing with $4,000, funny money. And they were able to put funny money to bring up the price of Bitcoin from $50,000, $2,000, $1,200, you know, and it brought up all the other Bitcoin exchanges that had real money. They followed that fake, that funny money. And once Mount Gawks blew up, they realized that that funny

money wasn't really there. And that's when the market starts crashing because you don't have that funny money, you know, pushing the price up anymore. So Tether is basically just the much, much, much bigger Mount Gawks. And the genius about the tether scandal is the fact that, you know, that they exported their funny money to dozens and dozens of exchanges. All the tethered exchanges, in my opinion, should be considered the same as a single entity because of tether. So now, if the people who own tether right now, whether they're exchanges or participant in exchanges, are seeing all this talk, especially since this PDF of the pie chart came out and everybody starts covering it and it's like, hey, this could be a black swan, would that not lead

to everybody who owns tether saying, get me out of this as quick as possible, I want to cash in my tethers. Interestingly, apparently not. You know, tether, you know, the only time there's ever been any mass redemption of tether was actually when they had $850 million used. All of a sudden, they started redeeming

about 700 million, 800 million tethers were burned sometime in October and November 2018. That's the only time we've ever really seen a big burn. There was one burn before that of 30 million tethers. I suspect that was Phil Potter redeeming his tethers, because that's just before he quit working for BitFinnix and Tether.

Got it. So if people are still using this, it's active, do you think they're out of compliance with the New York Attorney General that asked him to do these quarterly reports? I do believe that, you know, Tether is still doing business in New York, Pithynics is still doing business in New York, even if indirectly, you know, they're still, you know, and honestly, I've seen people that, you know, they're physically in New York. and they were trading on BitFinnix. So, in my opinion, BitSinix is still in violation of the settlement agreement.

Because, again, BitFINix is still not K-Y-C-A-M-L compliant. Why wouldn't BitFinex and Tether just go through a normal audit with Pricewaterhouse Cooper's Ernst & Young, somebody like that? Because it's hard to do an audit when you don't have the money. So in your mind, they're not going to put themselves through an audit because the money's not there, and that would prove it pretty quickly. but they do have an audit from some firm in wherever they're domiciled in the Cayman Islands. And this is more Cayman is the name of that?

That was not an audit. That was an attestation. Okay. So explain to the audience what the difference is between those two. So an attestation is basically that, you know, they'll come and say, hey, on this day, on this time, we saw that there was this much money in this bank account or this, you know, they had assets of this value. The problem with the attestation is they actually have cheated with those attestations. before. So if you actually look at the first one they did, which was in September of 2017,

they literally opened up the bank account the same morning that they did the testation. They transferred all the money in and then Friedman LLP, they say on this day and this time that there was this much money in this bank account and Friedman, they covered, you know, they did, they did it. They did their job. They basically said, hey, we don't know what happened. There's no opinion on what happened before or after this exact time. What's really interesting about the September 15th attestation is the price of Bitcoin fell by about 50%, maybe 40, 50%, just two weeks prior to that attestation. And then immediately after the attestation was done, the price of Bitcoin starts scarerocketing

again. And it was actually one of the largest four-hour candles of buying Bitcoin in history. The same day they did the attestation. So what is your theory there? They sold their Bitcoin and then bought back in to have a giant account? My theory on that was they basically were. were selling all their cryptocurrency that they were buying and they caused them, you know, because they weren't, they weren't buying Bitcoin to push the price up anymore. They were trying

to cash in to generate enough money to show money in the bank account. Got it. The CEO of Tether has been seen last when. And what's the name of the CEO? His name is Jean Lewis, Gene Lewis Vandervild. Sounds like a James Bond villain. Now, he's the CEO. Now, my understanding is people have not seen him in years. Is there video of that, do you know if there's video of him ever talking in a public forum? Who is this person? And if somebody was saying this about my company, I would be out there on CNBC talking about and explaining what the big misunderstanding is.

But this person hasn't been seen ever? I mean, there was somebody who told me that he may not exist. He's a real person. he absolutely exists. Okay. I looked, you know, I looked into it,

you know, because again, some people thought he doesn't exist. He definitely exists. I can tell you that, you know, beyond the reasonable doubt. Where does he live?

Do we know? I think it's an, you know, some I lived on, in Hong Kong. Got it. I can't, I can't think of the name off

to top my head right now. Yeah. I may be wrong. He also may live in the Netherlands. But the thing is, the CEO of BitSex and Tether. In my opinion, he does not actually run

Bit Fex and Tether. He's a very, He's a very important character, but he does not run it. The person that actually runs it is one Carlo Devoncini, the chief financial officer. And again, he's never been seen anywhere for a long time. They used to do voice interviews, you know, on their shareholder group, which is called Whalepool, which is run by a bunch of Bithec and Tether shareholders. But ever since I kind of started, you know, throwing shade at them, they really haven't done any real interviews.

So for my audience, if anybody knows where these individuals are and can let us know, We'd love to interview them. In fact, the CTO has told us he would come on the podcast after I interacted with them on Twitter. They seem to be interacting with people on Twitter. What can you tell me about their trolling back and forth with you and me and other folks on Twitter? The CTO of Bix and Tyler, honestly, it's quite possible that he doesn't actually know

what the hell is going on with their banking and the money because he's just a tech guy. you know that's like going to enter on and asking their IT guy hey what's going on with all those stuff yeah or in made off circle yeah made off circle like the IT department might not know even the ctel might not know because they were running this off of some see i think in the burdy made off case they were running a secret trading floor where only um the made offs were allowed so paolo who is their ctow you think might not even know that there's a fraud going on here right he he may just believe his employer you know he has he in my opinion he probably has plenty of the a plausible deniability. Hey, I was just the IT guy. I don't know what that was going on there.

You know, I certainly wouldn't want to know about all that stuff, especially if I'm getting paid, you know, you know, don't tell me anything. And I just don't just have possible doneability. The person you want to talk to is Juan Carlo, um, the Zecini, which has a shady history of himself. He actually used to sell counterfeit software. Um, he actually was fined by Microsoft, I think roughly $60,000 for basically selling, you know, massive amounts of, uh, This was years ago. Yeah, this was back in the 90s, you know, but it's, again, it just shows me it's a shady character. Yeah, some character. Yeah. What have you learned recently about the company and where they're at right now and how they're taking this recent round of

scrutiny? Because they interact with you, correct, on Twitter and social media? Indirectly, I do have the lawyer does have me blocked. I have Palo blocks. He hasn't actually blocked me yet, but he'll probably block me after this. But there really hasn't been, you know, it's usually kind of always indirect, you know, attacks. You know, he has, you know, kind of like, you know, tweeted, you know, some of my stuff. And he's got, he's taking pictures, screenshots of my tweets. Um, I think he, I think he noticed that he actually took, I think it was one of my tweets and one of your tweets.

He actually like, you know, I did see that. Yeah. Screenshot posted it. Yeah. You know, in case I delete it. Like I don't, I really, I, I, I, like, I, I, I, like, I, I, the only tweets I are ones would have typos or something like that. Yeah.

Yeah. And to be clear here, we just would like to see. I'm just speaking for myself here. You've, you've, you've given your position. My position on it is, um, you know, having watched Theronose and having watched Enron when I was a journalist and seen multiple scams and frauds. They always had a very slow burn up until they were found out. It took, the Madoff case took, I think seven or eight years of whistleblowers talking about it for it actually to implode. And so my spidey sentence just went off with this

and I was like, huh, this doesn't seem right. So let's get some answers. And when you probe and you don't get answers, okay, then maybe there's something there. So let's pivot here, I think. Is there anything else on Tether we should discuss? Because I was going to pivot over to circle and their stable coin for a moment. Not at the top of my head. I mean, it could go on forever. It could go on forever, if you know. Is there another, because it's only 13 people who work at this company? Is that correct? Where that's the reported number of people or nobody knows. That's the reported. They hire people just to use their name. So they're real people, you know, and they, do officially work there, but they don't actually...

So sock. Basically, like, window dressing for it. Yeah. Is there another date or time when you'd think there's going to be a critical come-to-Jesus moment for Tether? Or is it just unknown when this is all going to come to a lot? I think eventually people are going to figure out where their commercial paper is if they have the commercial paper. Because Financial Times is on that, right? Yeah.

Yeah. And so the Financial Times being on the story, they said, all the people they know who trade in commercial paper, I've never heard of Tether. Right. Which is kind of interesting. They could, if Tether wanted to, just give a details report on who, which paper they own. And then we'd all go, okay, then you could make a better decision here of is that quality money,

or not. Right. The reason why they don't do that is because it's going to cause another problem. That, that breakdown that they, that they were kind of forced to by the attorney general, you saw how the market reacted to that. That was bad. You know, so they don't want to do that. The only reason why they published that was because they were kind of forced to.

So they did it. They tried to hide as good as they can, but again, it's just brought in a lot more scrutiny. So if they do like with the SPACs, you know, the SPACs lists everything that the SPACs owns. If they do that, people are going to realize this is junk. And that would basically be the end of it. So that's a perfect segue. I've known Jeremy Aller, a famous internet entrepreneur. who created Colfusion.

I've known him or known of him since the late 90s when he created Colfusion because we built a lot of software in the industry on Coal Fusion. Then he went on and did, I think, Brightcove, a video company that I remember. And I think I've had him on the podcast talking about Brightcove or, you know, I'm not friends with him as such. I'm just colleagues in the industry. You know, we would recognize each other and say hi at a conference or maybe, you know, I'm trying to think of the last time I ever saw I'm in person, probably 10, 20 years ago.

But I do know him. And Circle bought a friend of mine's company Seed Invest. They've raised from very knowledgeable people, and they have their own stable coin called USDC. So US dollar T is tether, USDC is Circle. They operate in the United States in all these different jurisdictions, and they've given some indication of what they have in their reserves, and they have. Grant Thornton, which is pretty notable firm here in the United States, doing that attestation.

What are your thoughts on the difference between USDC and USDT, especially in light of the fact that today it was announced that Circle is going to spack? So they will be under even more scrutiny as a public company. So USDC, I think, again, it started just like Tether. They're kind of being transparent. They're, you know, showing that the attestations were showing that it was U.S. dollars in a bank account. And sometime in around, I think it was around March of 2020, they changed the format of their attestations. And in the attestations, they went from saying, you know, U.S. dollars in a bank account

to U.S. dollars and approved investments. And the problem with that is they do not exactly explain to us what the approved investments are. And again, I have PTSD from Tether. So when I see something like that, It's a red flag. I just want to know what they approved investments are. And I wrote a couple of blog posts on Circle. And I want to be sure that I'm not accusing him of really doing anything wrong.

The only thing that he's doing wrong right now, in my opinion, it's they need to be transparent. Yeah. A higher level of transparency would make you more comfortable seeing what happened with Tether. And, you know, I might give him the benefit of the doubt, knowing he's in, you know, somebody who's been in the industry for 30 years and that they're spacking and that they have Grant Thornton who wouldn't want to touch this if it was something, Fugazi, but what is the business model do you think of these stable coins? Because I'm curious why people can't just make a stable coin that is $1 in the bank account. Is it that everybody wants to try to make money on the spread or provide a return on the investment? You know,

interest in other words? It seems they want to do something more risky than just buying treasuries for some reason. Because you can actually make a lot of money. If you have $60 billion and you're making, you just buy government T-bills, even at a very low, interest rate. I mean, if you made 1% you'd make $600 million a year. Yeah. And then that would be your money for running the service. Just like what you see with SPACs, you know, the SPACs, they, they mad as $220 billion, and they take, you know, a little bit of, I think they take 0.4.5% for themselves. Yeah, they get what's called a promote for putting it all together, yeah, which makes sense. Everybody has to get paid in some way, yeah. Right. And it shows, they show, they show all their reserves. They've been running for about 30 years.

I think it was sometime in 1990 or 1980 when they started doing the specs. And I actually cited that as an example that, hey, you know, to Circle, like, hey, here's an example of how to do a, you know, even if you can't do an audit, you know, just publish what your reserves are.

Yeah, I mean, I think it's pretty clear that what Circle is doing is a hundred times more regulated than what Tether's doing. We'd agree on that, correct? Right. Yep. You would agree on that as the most critical person.

So it's 100 times more and you just want another 10% more. Clarity, totally agree with you. And I have been DMing with Jeremy O'Lear, and he has said he's going to come on the program. So I think in the next two weeks he'll be on the program. Now, the CTO also said he would come on the program. But he's not responding to us now.

So we will keep going after that. The only people I would really suggest talking to would be Juan Carlo Devazini or Vanderveld. Well, I'll talk to any of them just to kind of get a feel for them. Now, let me ask you this. You have been super critical. You said here, you believe it's a fraud. Now, if it wasn't a fraud and I was them, I would find out who you are and sue you into oblivion. Have they sued you into oblivion and taken legal action against you? No. Interestingly, though, they did threaten me to sue me sometime. I think they had a PR firm out of New York called 5WPR. He put a press release basically saying that going to explore legal options. And I was actually December 4th of 2017. So that hasn't happened yet, right? No, they haven't, you know, they haven't sued me. They did threaten me and I did take some precautions because, you know, I was, you know, I was a little concerned.

Yeah, of course. They're still doing the, you know, they're still allegedly doing the audit with, uh, with Freeman LLP. So, you know, there was always, hey, there's a possibility that, you know, they do the audit with Freeman LLP and the audit comes out and says that everything's okay. and hey, you were wrong. But very interestingly, two days after they threatened to sue me, they got subpoenaed by the CFTC. Fascinating. So that happened.

The PR guy quit, you know, because the PR guy, I kind of, I basically only tweeted him like, because he started attacking me, you know, doing his job and calling me a liar, blah, blah, blah, blah, blah. And unfortunately for him, the PR guy, his press release that he sent out to reporters, I found that he made a false statement in that press release. And I took the fault, I had proof of the false statement because he contradicted what the auditor would Freeman LLP did for the attestation. And after that, he disappeared. And their reporters, apparently, they, they went to ask him about a question about BitFenix. And he responded saying,

yeah, we no longer represent BitFenex. Got it. So I don't know who you are. Just to make it clear to everybody, we contacted you through your Twitter handle. You decided you would come on and talk to us. Thank you for doing that. We don't know who you are. So disclaimer, who knows if what you're saying and what percentage of it is true, but you have been chronicling this for four or five years now, and we thought it would be good to just have you on record talking about it. Do they know who you are? No.

They still don't know. They think they know, but they don't, you know, so. You are telling us here, you don't have an axe to grind with them. You didn't work for them. You weren't a former partner. You're not a disgruntled co-founder, nothing like that. No. Got it.

But you are pro-crypto, if I can just get your, take generally on crypto, you are a fan of crypto and you own crypto? I have zero cryptocurrency. You have zero cryptocurrency? Yeah, I have absolutely no holdings of any cryptocurrency. Until the tether issues resolved, I would advise anybody to stay away from it. Once tether goes away and it's kind of resolved, you know, then we'll see what happens. Did you trade crypto back in the day?

Were you a crypto holder and a fan of crypto over the last decade? I was a speculator, yes. I actually, so by trade, I was a programmer. And I've been, honestly, I've been programming for decades, mostly C++ plus. So I actually, when I first heard about Bitcoin, back in 2009, I actually downloaded it. I looked at the code. I actually thought it was quite beautiful. But then, you know, I didn't really do anything with it.

I just kind of, you know, I just went back to work, you know. And basically in April 2011, I think there was an article in Slashdot saying that Bitcoin reached parity with the ULSTR. And so I used to basically kind of look back into it. And this was a gamble. I put a little bit of money into it, you know. And I really never. after that, I didn't really buy any more Bitcoin. I just would slowly sell off small,

small portions of it, you know. So you've done well for yourself in crypto. Yeah, I, you know, in 2017, that's kind of when I started, you know, it became an amount of money that, you know, I need to look closer into this and see what the hell is going on with this. Because I always thought there was something wrong with the trading. But because the price always went up over time, I didn't really care. But I always, there's something wrong with the trading. And so I decided to just, you know, if you're holding a lot of something and you're trying to investigate it, you're going to have a clouded view of what the hell's going on. You know, you're going to have, you're going to have a bias.

To wrap up here, you believe that Bitcoin is a great fundamental, you know, revolutionary technology and that there are other actors, bad actors, manipulating it. So this would explain maybe part of the tension that we're feeling in the crypto economy is there's a real technology which is beautiful as you describe it, and that could be great for humanity. But because it is not owned or controlled or audited by anybody and has no regulations associated with it, people can then manipulate it and do all kinds of scams around it.

Is that an accurate sort of description of your take on what's happening here? It's pretty accurate. There are some fundamental problems with Bitcoin itself that actually, even when I was a speculator, I felt that they need to increase the block size. They need to increase the trajectory of Bitcoin. And as a programmer, I struggle with how they, that's a very difficult problem to solve to actually have, you know,

the scalability. How much of Bitcoin's price do you think is the result of manipulation? Everything passed 2017, early 2017. So anything past $3,000, $2,000? Is that about where it was back then? Honestly, I believe that we don't know. It's impossible to determine. where the price would be right now.

Without manipulation. But you believe there is a lot of manipulation, some manipulation, an extraordinary amount of... Extraordinary amount of manipulation. Extraordinary. Okay, I don't want to put words in your mouth. So that's why I gave you a number of choices. They're from minor to occasional.

That's a good. It's extraordinary. See, I've always felt watching this, knowing that people can paint the tape and create false volume, that a lot of the volume was false on coin market cap and those kind of sites and that all of these, they were putting together all of these exchanges that are unregulated. So I, you and I, for example, could create a hundred different exchanges, pop them up. Nobody would know the providence of those exchanges. Then we could take our $10 million in cryptocurrencies and just slashed between our accounts and

create volume while we had already bought in a large percentage of crypto and sell it off. Then if we could stop trading, which would then create less demand. And for Bitcoin, watch it collapse, buy some more, and then do that over again. Buy it back and do it over and over again. One thing I want to add, even Coinbase had Washtrick. You know, they actually admitted to it in the CFTC fine that they actually had an employee that worked with them. I suspect it was Charlie Lee because, you know, Coinbase listed like coin. And 99% of the trading of Lightcoin was a Coinbase employee.

Really? So very interesting. Yeah. Now it was Coinbase. And Coinbase is supposed to be the leader, you know, of compliance. And they had an employee that was wash trading. Yeah, and they got fine. The CFTC fined them $6.5 million for this improper trading from a forum employee.

So the concept of wash trading here would be I buy a, I'm a bad actor. I buy a bunch of this coin, light coin in this case. Then I create fake trades between accounts, different wallets. I could do that. you're a developer, we could write a script to do that, fire up a bunch of different instances and start trading between them. Other people see it's getting more and more active on coin market cap or other rankings of coins.

And they say, oh, well, there's a lot of activity. I should buy that one because people are interested in it. Is that what the strategy is? Right. Then they end up buying it from, you know, these these washing accounts and they keep the, you know, they keep pushing the price up and then they buy it again. And, you know, and you don't realize that you're buying from, you know, you know, the person that's wash trading it.

It's both wash trading and painting the tape. So they're kind of, they're very similar, you know, wash trading. A lot of times when they're actually doing wash trading, the price usually stays about the same. They're just trying to increase the volume. They're not trying to push the price up. Painting the tape, you know,

they're trying to either push the price up or push it down because they do both. They do both. Is that the difference? I was wondering what the difference is. So wash trading, you're creating volume. But painting the tape, which comes from back in the day when you would have the tape coming out of a ticker tape, With stock quotes on it, painting the tape means trying to, we decide, you know, to buy shares in a company from each other if it was a stock had increasingly higher prices to create excitement that it's going up.

Other people buy in, but they don't know that we bought in for a dollar. And we painted the tape up to $5. And then the suckers come to the poker table and start buying in at 5, 4, 3, 2, and we double our money or more. Right. And in crypto, they do it both ways. They'll go ahead and they'll put a bunch of their own biore. orders, for example. Let's say they know that, you know, the amount of legitimate buy orders is a small amount, you know, between two prices. So they'll go ahead and they'll fill up their own, the order book with their own buy orders. And they'll just craft the price. And they'll make the price go down 20, 30 percent. And yes, there's going to be some of the, some buy orders that get lucky and they got into that. But they really, they sold, you know, 50 million in Bitcoin, but, you know, 48 million of it, they sold it to themselves, but they caused it. the price to go down a lot and they cause a panic and people pile into it. And if they're short

on Bitmex, for example, now all their front positions are, you know, in massive profit. And they didn't actually really have to sell any Bitcoin. You know, they sold a little bit to the people that, you know, we're lucky and put it in a buy order. All right, listen, thanks for coming on the pod. Thanks for being on the case, as it were. Hopefully, uh, this all resolves itself. And it's all a giant misunderstanding. But in my experience, when there's just many red flags, you know, maybe some agencies, three-letter agencies should get really deep in this and find out what's going on here because the longer this goes on that is unresolved, the more egg people are going to have on their face right now. I got to think that there are a lot of three-letter

agencies up in these people's grills and in their books or tracking them because with this much public scrutiny and the press on it from Jim Kramer to the FT, you got to think that the feds and everybody know what's going on here? You would hope. Yeah. There's a reason why my logo is a flame. It's a business and it's the logo and it's on fire. There you go.

All right. We'll see you all next time on this weekend startups. Bye-bye.