Bitcoin Bandits, FTX Red Herring & Malfeasant Bureaucrats + Abe Lincoln & Arthur Finkelstein
In the following essay, I ramble about the overall crypto ecosystem and explain why I view the FTX collapse as a red herring (meant to misdirect from other relevant or important queries). I touched on the red herring “hearing” about FTX (which was loaded with doublespeak). Next I discuss Ukraine and Digital Currency Group “commingling” with FTX. I also explain the SEC’s hand in approving Proshares Bitcoin Futures ETFs—which permitted shorting of bitcoin through traditional avenues (there’s a Goldman Sachs connection, too). Some words on the Cato Institute document about “bundling and unbundling banking services”—plus, a little history about the OCC aka Office of Comptroller of Currency (established by Abe Lincoln in 1863). I shall conclude this essay with a few words on Arthur Finkelstein (a man who advised leaders like Bibi Netanyahu, Richard Nixon, and Hungary’s Viktor Orbán)—the Finkelstein motto: if you want success in politics, avoid answering questions about ethics.
I’ve been passively observing the news cycle covering the latest FTX scandal and making mental notes of all the chaos surrounding the story and I figured I would write my thoughts out into a cohesive summary. I’m sure there will be a movie or docu-series about Mr. Sam Bankman-Fried (of course his alleged crime is in his name). FTX was first established in Hong Kong (in 2018)—the firm instantly gained success and flourished in Hong Kong before moving the headquarters to the Bahamas (in 2021). Anyway, I won’t get too far into the details of FTX’s history or even this particular case (about the “who defrauded who” question) because, to be honest, I think this might be one of those “controlled demolition” scenarios masquerading as an organic meltdown (a red herring, perhaps). A red herring is defined as a fallacy that diverts “attention from the real issue by focusing instead on an issue having only a surface relevance to the first.”
The FTX shenanigans are a gift from Allah to the policy architects because they now have the perfect crisis to exploit. Essentially, it’s the ideal cover story that will permit our dear administrators to pass policies and regulations (that have been on deck and ready to go). What I’m saying is this: if it wasn’t FTX, it would have been another company. And even if everything with FTX organically transpired, it’s only because the entire ecosystem (from angel investors and regulators to consumers and day traders) consisted of the perfect conditions to easily and legally defraud millions of people. A few weeks ago, Jeremy and I talked about the FTX scandal, how it relates to Madoff, and the war on discernment (perception wars)—video here.
Doublespeak Galore at the Red Herring “Hearing”
On December 13, 2022, the House Committee on Financial Services held the first hearing investigating the collapse of FTX (available here). Sam Bankman-Fried was supposed to testify at the hearing on December 13, 2022, but he was (auspiciously) arrested by Bahamian authorities after U.S. prosecutors filed criminal charges (the day before he was due to testify). Interesting timing, to say the least. It’s hard to say if that helps or harms Bankman-Fried, but I can see how detaining him (instead of allowing him to testify) may help him avoid further incriminating himself (and others). The hearing resumed with John J. Ray III (an attorney and insolvency professional) who was recently appointed CEO of FTX after the collapse. Ray was also involved in recovering creditor funds from Enron when they filed for bankruptcy in 2001 amid “revelations of widespread accounting fraud and corruption.”
Again, I don’t want to write about every detail of the FTX investigation hearing because I’m trying to make a larger point about the entire crypto ecosystem, but I will share a few things that I found interesting.
According to John J. Ray (during his testimony in front of Congress) the FTX collapse can be attributed to a small group of “grossly inexperienced and unsophisticated individuals” who gave themselves too much unchecked power and control—he referred to it as “unacceptable management practices”—I would just call it straight up fraud, but ok. George Carlin and William Lutz would call this doublespeak: language designed to mislead while pretending to communicate in order to evade responsibility; it is intended to confuse and make the unpleasant appear pleasant. I have a video about doublespeak here (if anyone wants to go back to the basics).
Mr. Ray lists FTX’s “unacceptable management practices” (aka fraud and crimes committed) as the following:
- Senior management at FTX had access to customer funds.
- Alameda was borrowing funds from FTX (without any limits). They also used client funds to engage in margin trading. In addition, Alameda was deploying funds to various third party exchanges (some of which were unsafe).
- FTX assets were commingling with Alameda. John Ray used the word “commingling” many times throughout the entire hearing (more doublespeak).
- Loans and payments made to insiders ($1.5 billion).
- FTX group went on a spending binge (spent $5 billion in one year).
- Lack of complete documentation of transactions. Ray repeatedly stresses the “lack of documentation and record keeping”—which is usually on some sort of distributed ledger system, blockchain, or DAG (directed acyclic graphs)—this will probably lead to more strict standards/bureaucracy that will be directed at the majority of people.
Side note: I am not against ALL regulations ALL the time, I’ve just noticed a pattern: when reactionary policies (which are always somehow pre-drafted) follow catastrophic events (manufactured or otherwise)—those policies tend to target the individuals who never caused the problem in the first place. To the people in the crypto game, I hope you realize that all of the “decentralized freedom coins” will eventually have to be in compliance with the Central Bank Digital Currencies (CBDC). I don’t differentiate between the CBDCs and the alt coins because I think many of these fancy tokens (like bitcoin or ethereum) were just covert test trials that gathered information/data to help regulators lay the groundwork for the standardization that was always going to be implemented.
If you’ve read what I’ve written in the past (here, here, or here), it may seem like I’m repeating myself, but I feel it needs to be said again (in this context) because I’ve heard journalists (who are considered thorough researchers) claim that Bitcoin threatens the power of the central banks and “that’s why the establishment wants to destroy bitcoin”—I disagree with this analysis (it’s rather incomplete and lazy). This past summer, I wrote a post about the origins of bitcoin; the essay is titled Extropian & NSA Roots of Bitcoin, Cypherpunks, Wikileaks + UNICEF (link here).
One more thing about the congressional hearing “investigating” FTX
During the hearing, Rep. Tom Emmer questioned John Ray about SEC Chairman, Gary Gensler, and his meeting with Sam Bankman-Fried in March of 2021—where Gensler allegedly helped Bankman-Fried obtain a “regulatory monopoly” (according to Emmer). Coincidently, in March 2021, the same Rep. Emmer led a group of lawmakers (known as the Blockchain Eight) in writing a letter to the SEC, urging the agency against:
“imposing extra-jurisdictional and burdensome reporting requirements on crypto-related firms. Emmer sent the letter after the SEC wrote FTX and other crypto companies asking questions about their business practices.”
This is not a defense of Gary Gensler—I actually criticized him last year in this essay (here) when he permitted Bitcoin futures ETFs. I am just simply pointing out that while Rep. Emmer appears to be asking the “tough questions” he was one of the house representatives who urged the SEC not to investigate FTX and other exchanges because too much regulation stifles innovation. The absolute shit show that is congress is still astounding even when I know that’s what I should expect. It doesn't surprise me, it just makes me laugh (the melancholic chuckle cloaks the deep sadness). I’m being dramatic, as usual, but it really does make me sad to see this level of relentless incompetence and corruption running amok in every pocket of society.
Ukraine, Digital Currency Group & MIT
From what I’ve seen, the FTX scandal also involves the Ukraine crypto fund that was intended for their “war efforts” (whatever that means). In March 2022, the Ukrainian government partnered with FTX to launch a crypto donation website. According to Coindesk, the website “Aid for Ukraine” had the backing “of crypto exchange FTX, staking platform Everstake and Ukraine’s Kuna exchange [which would] route donated crypto to the National Bank of Ukraine.”
Side note: in March 2022, I wrote here about Ukraine’s crypto fund (for war efforts), Russia’s possible CBDC rollout in Crimea, Goldman Sachs, BRICS, and the MIT Digital Currency Initiative.
As I stated previously, several house representatives urged the SEC not to investigate the FTX exchange—that, compounded with Ukraine’s FTX partnership and the “unacceptable management practices” within FTX, has led to a collapse so monumental that it’s also affecting other platforms. One of those companies is Genesis (the Digital Currency Group’s lending platform). Genesis suspended customer redemptions and requested a $1 billion emergency loan from investors. According to Yahoo Finance, “the lending platform [Genesis] has $175m in locked funds on bankrupt exchange FTX and investors are waiting to see if DCG will bail out the struggling subsidiary.”
It seems like Digital Currency Group and its affiliates are currently “experiencing liquidity problems and [have] suspended repayments until further notice…[which] could be the early stage of DCG insolvency…[causing] DCG to go bankrupt.” Digital Currency Group (DCG) was founded by Barry Silbert — I wrote about Silbert (here) last year. As I mention in the essay, much of Silbert’s bitcoin was originally purchased from U.S. Marshals — it was part of the civil forfeiture connected to Ross Ulbricht’s Silk Road (confiscated by the FBI). DCG also owns Grayscale Bitcoin Trust, which holds one of the largest shares of bitcoin.
MIT Digital Currency Initiative is also tied to Digital Currency Group (DCG) because Gavin Andresen joined DCG as a senior advisor while he was with MIT (working on the Digital Currency Initiative). Through this initiative, MIT was also working on CBDC prototypes with the Boston Fed and the Bank of England. Fast forward to the present, Genesis (the Digital Currency Group lending platform) has halted customer withdrawals because of liquidity issues.
It should be noted that Gavin Andresen says he worked “closely with the person (or entity) known as Satoshi Nakamoto on the development of Bitcoin from June 2010 to April 2011”—thus, he is a central player in the mainstream “bitcoin” ecosystem. Andresen joined the Bitcoin Foundation in 2013 (an organization modeled after the Linux Foundation). In 2014, the Bitcoin Foundation hired Jim Harper (from the Cato Institute).
Shorting Bitcoin: ProShares & SEC + Goldman Sachs
In addition to Silbert (in the essay here), I also wrote about ProShares, the only company the SEC permitted to trade Bitcoin futures ETFs (through the New York Stock Exchange). ETFs let investors short sell the price of Bitcoin through traditional channels (if they can predict the price will go down) — which is not permitted in regular crypto market. I want to note that in 2007, ProShares was (again) the only firm permitted “short ETFs” approved by the SEC. According to a 2007 Forbes article,
ProShares’ bullish ETFs are for the most part nothing special — its broad-market fund is outsold by cheaper offerings from Vanguard and Barclays. But the bearish ETFs, accounting for 80% of ProShares’ assets, have no competition (ProShares has the only short ETFs approved by the SEC).
The Forbes article also highlights that in one year, ProShares launched 29 ETFs that short the broad market (like the S&P 500). These ETFs were the brainchild of Michael Sapir who told Forbes that there was a patent pending on part of the process — which would inhibit competitors from moving into the business. In 2014, ProShares named Morgan Gold as managing director — prior to that, Gold was with TIAA-CREF (which handles retirement and pension funds). Teachers Insurance and Annuity Association (TIAA) was originally created by Andrew Carnegie in 1918 — it survived the 1929 stock market crash and the Great Depression.
In June 2022, ProShares permitted investors to profit off Bitcoin price decline (short bitcoin-linked ETF). According to CNBC, a bright spot amidst the current crypto chaos is the futures market; specifically, the ProShares “Short Bitcoin-linked ETF” — basically, betting against Bitcoin spiked by 366% (which is higher than any day since its launch). Naturally, Goldman Sachs is the largest holder of ProShares Bitcoin Futures ETF — hmm…I wonder why Goldman Sachs increased their position in ProShares by 20% (in September 2022) as the price of Bitcoin went down.
In this Forbes article (from 2010) about Marcus Goldman & Samuel Sachs (Goldman Sachs), the author highlights that the bank survived the 2008 market crash because its trading arm was shorting the market (which kept the firm from heavier losses). Now, remember what I just wrote in the previous paragraph: Goldman Sachs is the largest holder of ProShares Bitcoin ETFs (which can short the price of Bitcoin). Furthermore, in June 2022, ProShares allowed investors to profit off Bitcoin price decline—so, this wouldn’t be the first time Goldman Sachs positioned itself to profit off of a crisis because back in the 2008 market crash, Goldman Sachs kept “the firm from heavier losses by shorting the market.” Does it not seem like Goldman Sachs is making exactly the same type of moves in the crypto ecosystem? I think so.
Goldman Sachs went public in 1999 and immediately became one of the largest financial services firms — a market maker. Naturally, Forbes ends their puff piece about the “grassroots Goldman Sachs” (laughable) by explaining that its only crime is its success (cue the world’s smallest violin). And let us not forget that in 2009, Goldman Sachs published a paper that stressed the need to rebrand (or decentralize) the IMF — so it would no longer be perceived as a tool for the U.S. and Western European power. How did they do it? In my opinion, look no further than the crypto economy (that’s how).
Bankman-Fried’s Congress Debut (December 2021) + Brian Brooks & the OCC
In December 2021, Sam Bankman-Fried spoke at the Digital Assets and the Future of Finance hearing (in front of the Financial Services Committee) where Bankman-Fried attempted to explain how the “digital assets industry” was setting the standards for “preventing financial crimes”—the irony is not lost on me (considering he was recently arrested for allegedly committing financial crimes). I want to briefly highlight two other people (along with Bankman-Fried) who were also witnesses at the December 2021 hearing on financial innovation:
- Brian Brooks: became Comptroller of the Currency at the OCC under Donald Trump (nominated but resigned in January 2021). Brooks became CEO of Binance (for three months) after his position at the OCC (Office of the Comptroller of the Currency). And prior to being a regulator at the OCC, Brooks was Chief Legal Officer of Coinbase Global.
- Charles Cascarilla: Co-founder of Paxos (which received a National Trust Charter from the OCC in April 2021).
Brian Brooks argued in favor of granting federal banking charters (by the OCC) in order to give crypto custodians an opportunity to become national trust banks (which don’t have to hold reserve capital mandated by the FDIC)—that way, they could offer custodial services and, in turn, argued Brooks, the largest issuers of stablecoins can legally participate. According to KPMG, the “crypto custodian industry” has tremendous growth potential. KPMG’s words hold quite a bit of weight since they are one of the “Big Four” — the four largest accounting firms/professional services networks in the world. BNY Mellon is the world’s largest custodian bank with $41 trillion in assets — they have been pushing for the government of Ireland to introduce full regulations for crypto-assets (which means those regulations will also be coming to a neighborhood near you).
As it relates to national trust bank status, it allows companies to freely operate in every state without having to file separately each time. Anchorage Digital was the first company to become a “federally chartered bank for crypto” in January 2021—the charter was granted January 13, 2021 (the day before Brooks stepped down). And in July of 2021, the U.S. Marshals chose Anchorage Digital to manage their seized digital assets (confiscated crypto).
A brief history about the OCC:
Abraham Lincoln established the Office of the Comptroller of the Currency (OCC) through the 1863 National Currency Act—which provides the basic governing framework for the current national banking system. It was initially founded to help create a uniform national currency because, in the 1800's, the currencies were different from state to state. The Office of the Comptroller of the Currency does the following:
Charters, regulates, and supervises all national banks and federal savings associations as well as federal branches and agencies of foreign banks. The OCC is an independent bureau of the U.S. Department of the Treasury and is led by the Comptroller of the Currency.
It seems, Lincoln’s main objective for creating the OCC was to generate cash to finance the Civil War. To do this, Lincoln and and his Treasury Secretary Salmon P. Chase borrowed “from foreign governments and American citizens, instituted the country’s first general income tax, and printed paper money — so-called Greenbacks.” As this article written in 2003 by Robert D. Hormat (a former vice chairman of Goldman Sachs and current vice chairman at Kissinger Associates) and published in Harvard Business Review highlights, “the Civil War presented an unusual opportunity for Lincoln and congressional Republicans to make sweeping changes in America’s economic institutions.” Which boils down to: don’t let a crisis go to waste (a notion as old as time). That’s pretty much how I see the FTX collapse (or controlled demolition):
As an opportunity for the “big business” community to meet with administrators and make sweeping changes to, not only the DeFi and crypto ecosystem, but to all of the economic institutions (as a whole). To put it simply, in the words of Joseph Biden, “nothing will fundamentally change.”
Cato Institute + Bundling and Unbundling Banking Services
The Cato Institute, co-founded by Charles Koch, is another “think tank cog” in the wheel that cultivates mainstream and alternative “thought leaders” to guide the herd of Austrian economics and “free-market” enthusiasts.
In 2021, the Cato Institute published a document (that was also on the OCC website here) about the the future of FinTech and discusses the new competitors (which are structured differently from traditional banks) — and are slowly replacing legacy institutions. According to the document, the new FinTech providers demonstrate “a new model of financial intermediation unbundling.” Bundling vs. unbundling is similar to other manufactured dialectics such as centralized vs. decentralized or republican vs. democrat — creating the parameters for the paradigm in which one is expected to operate.
The Cato Institute paper highlights that in the 1980’s and 90’s, the U.S. transitioned to a system of nationwide universal banks (from a system of banks that were fragmented by location). Meaning—large institutions (like Goldman Sachs and other behemoths) offered a variety of exotic financial services under one corporate umbrella. This is the bundled banking system—through mergers and acquisitions, the big guys swallow up Main Street businesses and then offer those services as their own. According to the Cato Institute, the remedy to the problem of centralized power is implementing:
New methods for providing loans and payment services by shadow banks, especially by FinTech banks…accelerating the long-term trend of financial disintermediation from chartered banking by providing more attractive alternatives to customers.
This sounds similar to the “Neobanks” that go after financially squeezed middle-class consumers—Varo Bank is one example (it was the first digital banking startup to receive a national bank charter from the OCC under Brian Brooks in July 2020). And lastly, let me highlight something from the article I mentioned earlier—published in Harvard Business Review and written by Robert D. Hormat (of Goldman Sachs and Kissinger Associates)—where he argues that current developing nations are similar to the individual states (of the United States in the 1800’s) that needed to build “a robust and cohesive national economy with a strong federal role…[and] integrate into a larger economy — in this case a global one.” Does that make the United States a “globalist” project? Hmm. I’m being silly, but it’s interesting to think about how “nations” were and are created (it all sounds like a string of business deals to me). In my opinion, the Harvard Business Review article (from 2003) and the Cato Institute document (from 2021) argue in favor of the same superficial solutions.
To finish my thoughts on the FTX fiasco, I’ve also been hearing and reading quite a bit about Bankman’s donations to the Democratic Party — “only George Soros has donated more money to the dEmOnKKKrAtS” (they said). Again, not a defense of “democrats” and I’m obviously being a tad sarcastic, but that is something I keep hearing over and over again. I’m not saying George Soros doesn’t play a role in funding candidates who push his agenda, but when I hear his name used as a talking point in the “truth” or “alternative” space, I begin to wonder why it’s being pushed in the algorithm — what purpose does that narrative serve?
To be honest, I find it interesting that the “George Soros boogeyman” narrative was popularized by Arthur Finkelstein and George Eli Birnbaum back in 2008 when they were working on Viktor Orbán’s campaign in Hungary. Big thanks to The Antedote Podcast and Expose the Enemy for introducing me to this piece of the puzzle (the Finkelstein-Lauder network).
According to Finkelstein, since there was a long history of criticizing George Soros (and Soros was born in Hungary), he was the perfect “liberal elite” to use as a symbol of the enemy—nationally (in Hungary) and internationally. The “anti-Soros” campaign that started in Hungary (around 2008) seems to function as the present template for “political” campaigns rooted in the most reactionary and unprincipled forms of nationalism and religious fundamentalism.
By the way, if someone has a principled stance against Soros and Open Society and wants to expose that network every day, be my guest. However, it does look dishonest when the people who criticize George Soros and the liberals turn around and downplay the Donald Trump, Steve Bannon, and Arthur Finklestein ecosystem (which is just as nefarious). There is a lack of behavioral consistency and an abundance of cognitive dissonance (and it’s highly irritating). The people who engage in this type of dishonesty come off as intellectual bandits — especially the ones who are skilled researchers (just saying).
This video (here) is one of the few remaining Arthur Finkelstein speeches available on audio. Finkelstein was a political strategist reported to have advised Richard Nixon, Ronald Reagan, Benjamin Netanyahu, Hungary’s Viktor Orbán, and many other politicians. Finkelstein’s speech (from 2011) was given at a gathering in Czech Republic—there, Finkelstein spoke about issue campaigns, personality voting, negative campaigning, Cass Sunstein, and much more. According to Finkelstein, the best thing to do is pick a very narrow issue that is emotional rather than rational (like culture war issues) and hammer away at it. According to Finkelstein, someone who has a “seven-point plan” to fix the pension system is not going to get as much attention as someone who uses inflammatory rhetoric that focuses on antagonizing a specific group.
In the speech, Finkelstein stressed that politics is about “understanding that it [politics] is not an intellectual discourse.” He also predicted an uptick in stronger governments, personalities, and leaders because young men all over the world were mobilizing as a result of the different economic crises. In his speech, Finkelstein seemed to suggest that the real point of politics was to utilize the energy source created around movements that stem out of economic collapse (which is a pretty creepy thing to say, if you think about it). As it relates to “xenophobic campaigns,” Finkelstein claimed that (ethnically charged) “anti-muslim” parties in Sweden, Denmark, and Finland have become important in “developing coalitions for their governments.” The “anti-Roma” message in Hungary (that won a party the election) was brought up as an example of xenophobic campaigns that “work” (whatever that means).
Finkelstein asserts that, moving forward, only those who understand fragmentation and those who understand the speed in which a message must be delivered (and take advantage of it) — will be successful in politics. At one point, he says “we have to be faster on our feet, faster in our thinking. We can be less thoughtful in how we make decisions which makes time even more important.” Terrible advice. Basically, Finkelstein says the most important thing to remember is this: no one knows anything about anything and your job (in the political realm) is to tell people to “know what they don’t need to know, want to know, or care about knowing. And you’ve got to make it interesting — so, use humor.”
Moreover, Finkelstein says Barack Obama is from a new era of politics which he calls from-nowhere-candidates—they don’t need the traditional military service decorations and war stories to build their reputation with the public sphere (that can happen overnight with the right viral message). It’s funny because I hear some people say that Trump changed politics, but that’s factually incorrect because the “Trump-style” of politics was the trajectory regardless of Donald Trump. Finkelstein pointed out that Obama utilized social media to connect with a segment of the population that was “twittered in” or “blogged in” and raised hundreds of millions of dollars. Interestingly, Ron Paul was second to Obama in regard to success on the internet (according to Finkelstein).
Hopefully the string of thoughts I attempted to thread together into a cohesive explanation (of why I think the FTX collapse is a red herring) makes sense. I view the story as a red herring because the problem is more complex than just a few “grossly inexperienced and unsophisticated individuals” who gave themselves “too much unchecked power and control”—as it was inadequately described by Mr. John Ray during his testimony in front of the house. Even if it’s being viewed through a strictly material lens, I imagine that most clever journalists can look beyond just the details of the fraud within this particular case—and hopefully dig deeper into the entire ecosystem where the fraud was able to take place.
Peace and blessing.