The Coming Crypto Insanity

The Trump administration is going to make it ever so worse. And it was already pretty fucking terrible.

Illustration by Matteo Giuseppe Pani / The Atlantic. Source: Getty.

The first Trump administration was a bit nebulous on their positioning on Crypto in general. For the most part, Trump (rightly in my mind) communicated clearly that it was very scammy and scummy, and that people should be wary.

But, post term, Trump became more than Crypto Curious, releasing his shitty NFT’s that were just ludicrous digital “trading cards”, and he realized that this was a good way to extract more money from his mooks in the MAGA movement.

Then with the rest of the grift, he lent his name to World Liberty Financial, a project that seems wholly designed to bring in shitloads of cash for “tokens” that have no way for people to sell them on.

Molly White¹ does an outstanding job explaining this crypto-ponzi scam (alleged) in her 65th newsletter (little more than halfway down with the title “In elections and political influence”:

What better time to launch a transparently grifty “high-yield” cryptocurrency business than two months before your presidential election? Donald Trump, and especially his sons, have been teasing an upcoming cryptocurrency project that seems to be rapidly shapeshifting. First, they were all teasing something called “The DeFiant Ones” (a play on decentralized finance, or defi), with hashtags #BeDeFiant and tweets warning people to not “get left behind”. Then Eric Trump said something about the project involving “digital real estate”

and

The project hasn’t even launched yet, and it’s off to a bumpy start. First, Donald Trump Jr. had to issue a statement to try to stop people from buying up all the fake tokens purporting to be associated with their murky project [I64]. Then, Twitter accounts for Lara and Tiffany Trump were both compromised and used to send tweets announcing a supposed token launch. “This is a scam!!!” tweeted Eric, himself retweeting the tweet from his wife’s account containing the scam token address. Now, CoinDesk has gotten hold of a white paper for this supposed World Liberty Financial, which they note appears to be a clone of Dough Finance, a crypto lending platform that was hacked for around $2 million just a month and a half ago [W3IGG].

Yeah, like all things the mango-tinged Mussolini touches, it is a fucking shit show.

But I am not penning this to write about a specific project or a coin/NFT/spoogefest crypto scam. No, it is clear that with Trump’s awakening of his third eye focused on Crypto, that his administration is going to be verrrrrrrrrrrrry friendly to the CryptoBros².

No, The Atlantic’s Annie Lowrey has an outstanding look at the coming deregulation, and skid greasing that the coming Trump administration is poised to undertake.

And this should scare the fuck out of you even if you are not invested in the space³.

The Great Crypto Crash

First, the article is here: The Great Crypto Crash (gifted link)

It is worth reading in its entirety.

It starts with some bold statements that I can’t fault:

The incoming Trump administration has promised to pass crypto-friendly regulations, and is likely to loosen strictures on Wall Street institutions as well.

This will bring an unheralded era of American prosperity, it argues, maintaining the country’s position as the head of the global capital markets and the heart of the global investment ecosystem. “My vision is for an America that dominates the future,” Donald Trump told a bitcoin conference in July. “I’m laying out my plan to ensure that the United States will be the crypto capital of the planet and the bitcoin superpower of the world.”

Sure, if conning suckers and using the fucking treasury (and likely to add north of $100B to the national debt) to establish a strategic Bitcoin “reserve⁴”. The truth is, this is just a way for the billionaire boys club to pump up their assets even more and then unload them on the rubes who follow on later.

Lather, rinse, repeat ad nauseum

But what do the smart money men (and women) think?

Financial experts expect something different. First, a boom. A big boom, maybe, with the price of bitcoin, ether, and other cryptocurrencies climbing; financial firms raking in profits; and American investors awash in newfound wealth. Second, a bust. A big bust, maybe, with firms collapsing, the government being called in to steady the markets, and plenty of Americans suffering from foreclosures and bankruptcies.

This has precedent. Just go look at the meteoric rise and subsequent retrenchment of Bitcoin in late 2022. While the bankruptcy of FTX was the headline event, there were dozens of other “solid” businesses in the DeFi world that got wiped out, billions of “investor” dollars were lost, and chaos reigned.

While Annie is a bit more mainstream (and likely wider reach in audience) than Molly White, she does and has done great reporting:

Having written about bitcoin for more than a decade—and having covered the last financial crisis and its long hangover—I have some sense of what might cause that boom and bust. Crypto assets tend to be exceedingly volatile, much more so than real estate, commodities, stocks, and bonds. Egged on by Washington, more Americans will invest in crypto. Prices will go up as cash floods in. Individuals and institutions will get wiped out when prices drop, as they inevitably will.

Gee, that sounds fucking bad to me. But the next ‘graph is terrifying. These Broligarchs and their minions in the coming Administration are likely to be tossing liquid oxygen on a smoldering hibachi.

The experts I spoke with did not counter that narrative. But if that’s all that happens, they told me, the United States and the world should count themselves lucky. The danger is not just that crypto-friendly regulation will expose millions of Americans to scams and volatility. The danger is that it will lead to an increase in leverage across the whole of the financial system. It will foster opacity, making it harder for investors to determine the riskiness of and assign prices to financial products. And it will do so at the same time as the Trump administration cuts regulations and regulators.

Yep, that seems 100% in line with what I would expect from these ass-clowns.

But the real hazard is that with the coming backsliding on regulation (however light it is today, it will become almost non-existent in the next 4 years) there will be an intertwining of the global finance system with crypto shitcoins and so many fucking bad actors that it will all go haywire.

Trump is not wrong that crypto exists in its own parallel financial universe. Many crypto companies cannot or choose not to comply with American financial regulations, making it hard for kitchen-table investors to use their services. (The world’s biggest crypto exchange, Binance, declines even to name which jurisdiction it is based in; it directs American customers to a smallish U.S. offshoot.) Companies such as Morgan Stanley and Wells Fargo tend to offer few, if any, crypto products, and tend to make minimal, if any, investments in crypto and crypto-related businesses. It’s not so much that banks haven’t wanted to get in on the fun. It’s that regulations have prevented them from doing so, and regulators have warned them not to.

This situation has throttled the amount of money flowing into crypto. But the approach has been a wise one: It has prevented firm failures and crazy price swings from destabilizing the traditional financial system. Crypto lost $2 trillion of its $3 trillion in market capitalization in 2022, Kelleher noted. “If you had that big of a financial crash with any other asset, there would have been contagion. But there wasn’t, because you had parallel systems with almost no interconnection.”

Chances are good that you probably know someone who was impacted by the unraveling in late 2022. Look for that to get much worse.

How can I avoid the worst?

Well, you can first steel yourself against all the pitches. You will be inundated with friends, colleagues and acquaintances who will be bombarding you with come-ons to join the party.

There is a long acronym that I memorized as a teenager reading Heinlein novels: TANSTAAFL. There ain’t no such thing as a free lunch. Especially in Crypto, there are players, and there are marks. You entering the game makes you a mark.

Don’t be the mark.

Alas, that isn’t enough. In early 2022, I got a notification from my 401k and IRA program, Fidelity, that they were adding Crypto to their portfolio to allow the younger investors to “funnel their retirement assets into this exciting asset class”

Gag me with a spoon.

Do subscribe to Molly White.

Do be skeptical. Most individual investors (aka non-institutional investors) are at a serious disadvantage in the asymmetry of the data and the news. Just remember that there are no “secret” strategies that the big boys aren’t telling you. Their secret is literally hoovering up your money before you realize that it’s gone.

Just don’t fall for it.

1. If you are at all interested in the world of Crypto, you should be reading Molly White. She kicks major league ass, runs Citation Needed, as well as Web 3 is going great where she tracks all the scams, rug-pulls, hacks, and tallies the net lost assets. Cliff’s Note: it is a fuckton of losses

2. Many of these CryptoBros are the Silicon Valley Broligarchs. Marc Andreesen is up to his testes in shitty crypto investments as well as David (ball-)Sacks and others.

3. Note: I hold no crypto, never have, and have no intention of ever holding any of this intrinsically value-less asset

4. It is the most fucking insane thing ever to have a “bitcoin reserve”. It is not at all like the Strategic Petroleum Reserve, where stored crude oil can be used to smooth over supply shocks.

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