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Hack WatchNewsletter | June 9, 2023

Hack Watch: End Crypto’s Presumption Of Legitimacy and Other Quick Hits

CryptocurrencyEconomic PolicyMedia Accountability

This article first appeared in our weekly Hack Watch newsletter on media accountability. Subscribe here to get it delivered straight to your inbox every week, and check out our Hack Watch website.

It’s Time That The Media Accept What Even Wall Street And Venture Capitalists Have – Crypto Is One Massive Grift. Those Involved With It Should Be Treated Accordingly.

This week the Securities and Exchange Commission (SEC) announced lawsuits against both Binance and Coinbase – the world’s largest and second-largest cryptocurrency exchanges respectively. The SEC has taken its time to build the caselaw needed to go after these massive cryptocurrency exchanges and it has spent the past two years winning 130 cases related to digital assets. While some have attacked this process, SEC Chair Gary Gensler understood the need for legal precedent before going after the crypto industry’s largest fish. After years of catching minnows, Gensler clearly feels he is finally in the position to crack down on the entire crypto ecosystem that has flourished by plainly violating securities law. 

But Gensler isn’t the only one who believes the crypto ecosystem is built by grifters and upon a foundation of violations of American securities law: the investor class has now accepted this too. While cryptocurrency was once the new frontier of investment, venture capitalists and Wall Street are both rightfully fleeing the industry. In the past 12 months, every facet of the industry has faced a scandal large enough to tank its credibility forever. Amazingly though, the political press refuses to update their priors. Cryptocurrency is still treated as a legitimate industry at the forefront of tech innovation. 

Let’s do a brief (and incomplete) summary of the largest cryptocurrency news of the past year. 

May 2022 – Luna and UST stablecoins – crypto tokens that were supposed to retain a constant value through algorithmic processes – collapsed. The collapse resulted in a loss of $60 billion in the crypto market and drove the crypto firms Celsius, Three Arrows Capital and Voyager Digital into bankruptcy. The founder of Luna and UST, Do Kwon, was indicted for his role in the fraud back in March. 

July 2022 – Crypto lender BlockFi which had once been valued at $3 billion, was forced to look for an emergency bailout as a result of the Luna collapse and a massive $100 million settlement with the SEC for violations of securities law. BlockFi received a buyout offer from FTX which allowed the company to continue operating… until it was forced to declare bankruptcy after the collapse of FTX. 

November 2022 – Crypto currency’s third largest exchange, FTX, which was once valued at $32 billion, collapsed as it was revealed that the company had been committing fraud for years and stealing customer deposits to use in its crypto trading firm, Alameda Research. FTX CEO Sam Bankman-Fried was indicted on multiple counts of fraud. Customers lost almost $9 billion

March 2023Silicon Valley Bank, Silvergate Bank, and Signature Bank, three of the traditional finance industry’s most crypto-friendly banks, collapsed in a larger bank failure than the 2008 crisis. All three of the banks had significant risks as a result of their relationship with crypto. 

Now, the crypto industry’s two largest trading platforms have been sued by the SEC for widespread securities violations. In the case of Binance, the suit filing includes company executives openly discussing their ongoing violations of American securities law. The SEC filing reports that Binance’s Chief Compliance Officer once texted an underling “We are operating as a fking unlicensed securities exchange in the USA bro.” These securities violations aren’t coincidental to the crypto market – they’re integral to its function. 

But the instability and lawbreaking of the crypto market seems to have spooked investors. Fortune reported last week that “Fundraising for crypto VC has fallen off a cliff in 2023, according to PitchBook data provided to Fortune. Though the data is only through mid-May, it’s not off to a good start: Crypto firms globally have raised just $500 million—98% less than in all of 2022.” Investors have taken a logical approach to this industry and realized the days of overnight millionaires during the early crypto boom are over. The risks of investing in an industry that has shown itself to be rife with criminality are not worth it and investors are acting accordingly. 

This is not only the behavior of sophisticated hedge funds though. Wall Street pundits are seeming to sour on crypto too. Bloomberg columnist Matt Levine, who writes the extremely popular investment newsletter Money Stuff, wrote in March that “A decent rule of thumb, is that all cryptocurrency exchanges are doing crimes, and if you’re lucky your exchange is doing only process crimes.” Levine isn’t alone in his pessimism when it comes to crypto, however.  Prominent crypto-investor and Silicon Valley podcaster Jason Calacanis (you may recognize him as the guy who has a public meltdown during the SVB collapse) tweeted his pessimism regarding the industry yesterday, saying “If you’re in crypto pivot to AI,” seemingly revealing that he believes the era of crypto to be over.

Even Jim Cramer, who once predicted Coinbase would hit $475 a share (it is currently trading at $54) said yesterday that “because unlike the banks these crypto assets all seem to be scams and I want you out of them. Many of you traffic in them every day. You shouldn’t. You’re wrong. Gensler describes Binance as the wild west, I wish someone would’ve told the people messing with crypto that in the wild west, it’s possible to lose everything because there’s no regulation.” 

And while some may claim that widespread capital flight would result in a corresponding drop in Crypto prices, that may not be true. Because of the crypto market’s opaque nature, it is relatively easy to manipulate the price of crypto. It has been done before, and some believe it may be happening again. If so, the industry could become even more hollowed out than it already is before its price facade comes tumbling down entirely. 

Despite even formerly pro-crypto voices like Cramer becoming suspicious of the entire industry, the media has failed to update their views. To them, the industry remains as it was a year ago, an innovative tech sector rather than a high financial grift.

When Ron DeSantis launched his presidential campaign on Twitter last month, he spoke at length about the importance of Bitcoin. “You have every right to do Bitcoin. The only reason these people in Washington don’t like it is because they don’t control it…I think that the current regime, clearly they have it out for Bitcoin, and if it continues for another four years, you know, they’ll probably end up killing it,” said DeSantis in the Twitter space. DeSantis’ firm embrace of crypto even earned him an op-ed in the crypto publication Cointelegraph entitled “DeSantis looks like the choice for crypto enthusiasts in 2024.” Despite this, The New York Times only mentioned Bitcoin once in their writeup of the governor’s announcement, and the Washington Post didn’t mention it in their analysis of the speech or their news coverage. Would either outlet have done the same if DeSantis had delivered an impassioned speech on behalf of the multilevel marketing industry? 

Not only does the media turn a blind eye towards public officials embracing an industry that investors feel is untrustworthy, but they have given a platform to the crypto industry. Just yesterday, CNN had a softball interview with Coinbase CEO Brian Armstrong where they not only allowed him to attack the SEC without pushback, but CNN’s reporter finished the segment by reiterating Coinbase’s longstanding PR by saying “clearly Coinbase and the broader crypto industry, they want clarity. They want it from the courts, they want it from politicians and they want it from regulators.” This is not only dishonest but blatantly false. In the filings against Binance, the SEC not only made abundantly clear that crypto executives knew they were violating securities law, but in private messages they stated “we do not want [Binance].com to be regulated ever.” Unless the world’s largest crypto exchange somehow does not count as part of the “broader crypto industry,” it’s clear there is no consensus that they simply want “clear” regulations from the SEC. 

If CNN had viewed the crypto industry with more suspicion, perhaps they would have been more prepared to push back against Coinbase’s claims. But in the absence of suspicion, the reporter allowed Coinbase to use their platform to make a dishonest case – and then the reporter himself promoted the dishonest claim. 

If any other industry were embroiled in these same scandals it would be a pariah, treated with the same suspicion as multi-level marketing schemes or timeshares. Instead, the veneer of tech innovation has allowed crypto to retain a presumption of legitimacy in the political media, being treated as a respectable disruptor to traditional finance. 

The media has been entranced with crypto’s “innovation” for so long that it has become a legitimate industry in the eyes of many reporters. Not faced with the prospect of real monetary losses, the media has been slower to update its priors than the investor class, and the resulting disconnect has allowed crypto lobbying to remain respectable in the political media long after even Wall Street investors have determined the industry to be a scam. It’s past time that those working on behalf of the crypto industry in Washington are viewed with the suspicion their industry deserves. 

Quick Hits

Any Coverage Of Wildfires Without Centering Climate Change Is A Failure. 

The wildfire smoke currently smothering the Eastern Seaboard is rightfully being covered in depth. So too should its real cause – climate change. While most of the media has done a good job of including the fact that climate change fuels these fires, articles too regularly feature climate change only in the later paragraphs of the piece. A reporter would never wait until the fifth paragraph to mention that the driver that caused a massive pileup was drunk, so why would they leave the contributing factor in these fires towards the end of an article? 

Washington Post Compares Wealthy People Acting In Their Economic Self-Interest To Both Rfk Jr. And Donald Trump’s Conspiracy Theories. 

This week, Washington Post reporter Michael Scherer wrote about how Democrats have an appetite for conspiracy-minded politicians using the campaign of Robert F. Kennedy Jr. as proof. In a classic DC-insider both sider-ism however, Scherer felt the need to cite another, more popular Democrat to sit alongside RFK Jr. as he discussed Donald Trump and Ron DeSantis’ conspiracy theories. What did he latch on to? Bernie Sanders’ claim that the wealthy work in their economic self-interest by influencing politics to further enrich themselves. This so-called “conspiracy” as Scherer calls it would fly in the face of economists’ models of rational behavior, which not only would predict this behavior, but would say it is the only rational behavior for a wealthy person to undertake. 

Farewell To Chuck Todd And Chris Licht. The Media Will Be Better Off Without You.  

In a boon to the American political media, both Meet The Press’ Chuck Todd and CNN’s short-lived CEO Chris Licht announced their departure from their respective companies this week.

Licht made headlines during his brief tenure at CNN for pushing the network to embrace bothsidesism even more than it already had, in a scramble to help CNN appeal to more conservative audiences. It did not. Instead, his most lasting legacy may be a town hall with Donald Trump moderated by CNN host (White House Correspondent for Tucker Carlson’s The Daily Caller) Kaitlan Collins. The town hall served as the apotheosis of Licht’s plan for CNN. Despite being free of moderator pushback and being surrounded by an adoring crowd, Donald Trump still was upset with the moderator, calling Collins “nasty.” Fitting with Licht’s goals for CNN, nobody was happy with the town hall as it also enraged both liberals and journalists (including some at CNN) who were upset by a lack of pushback to the former President’s lies. We hope CNN will learn from Licht’s failures and pivot away from seeking out the mythical moderate Republican viewers. 

Chuck Todd’s departure from Meet The Press may also symbolize a change in Washington’s favorite peculiar news programs: the Sunday shows. Todd embodied both-sides journalism that plagued DC, even lamenting the end of bipartisanship in his most recent show with Joe Manchin. Todd’s stated goal was to “make you mad, make you think, shake your head in disapproval at some point and nod your head in approval at others” which is consistent with the centrist journalism that believes the most valuable thing a journalist can do is to challenge someone’s beliefs. With Todd’s departure, we can only hope to be lucky enough to see his brand of reporting retire with him. 

CryptocurrencyEconomic PolicyMedia Accountability

More articles by Henry Burke

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