Taking Notes on Criminal Crypto Conspiracy
I love The Wire. It was a brilliant show that touched on issues near and dear to my heart. Early seasons focus on the wastefulness of the drug war and how it impacts other marginalized communities. Season two looks at who is pulling the strings in trafficking drugs into communities. Middle seasons look at housing policy and corrupt local politicians and governments—we coulda had President Tommy Carcetti in 2016! Later in the show’s run, they turned to issues plaguing under-funded public schools the Fourth Estate, the media.
If you're a longtime follower of my ramblings here and on the podcast, think about how often those topics come up on both. The show is perfect, frozen in amber in my mind from when I watched it. My wife wants to do a re-watch, but I am afraid I’ll prefer my memories of the show to the real thing.
One of my favorite plot lines was when Stringer Bell, played by Idris Elba, tried to formalize the drug trade in Baltimore. He created a hierarchical structure, where rival crews met to hammer out disputes over territory and pool their money to create economies of scale, using Robert’s Rules of Order—the same parliamentary system used in ASB programs in high schools and non-prof boards across the country. As Stringer says, “no beef, no drama, just business.” Of course, this effort fails in the long-run but not before producing this absolute masterpiece of a scene. David Simon, the creator of The Wire is a notable crank online and in real-life but also he gave us art like this.
The lesson from that scene is you shouldn’t take notes while engaging in criminal conspiracy. This lesson makes sense to me but is clearly lost on a lot of folks. In prior newsletters, I described cryptocurrencies (full disclosure: I hold a small amount as a speculative asset) as unregulated securities and crypto exchanges as shadow banks. A shadow bank is an institution that functions as a bank but exists outside of the regulatory framework that governs banking. This framing isn’t original—I picked it up from the podcast This Machine Kills, but it has also appeared in Bloomberg and the Times. But understanding the framing is important to understanding the SEC’s actions. Crypto dudes have promised everything via their shifting rationales and each new place they try to take tokens to is a place occupied by an incumbent institution or product that is regulated:
Crypto is digital money—states regulate their currencies stringently
Crypto is a store of value—that’s why people own precious metals and commodities
Crypto is an inflation hedge—this is what bonds and commodities are typically for
Crypto is for remittances—these are taxed in most states
Crypto lets you be your own bank—banks are heavily regulated
You get the idea.
This week, the Securities and Exchange Commission sued two major US exchanges (shadow banks), Binance US and Coinbase in federal court. Both are accused of “participating in the securities market without proper registration.” This passage from Slate explains the situation well:
After the Securities and Exchange Commission filed its devastating 13-charge lawsuit against Binance and its CEO on Monday, it kicked off Tuesday morning with a suit against Coinbase, the biggest crypto exchange in the United States, accusing it of participating in the securities market without proper registration. As was the case with Binance—the world’s largest crypto exchange by trading volume—the legal issues facing Coinbase had been a long time coming….
In January, New York state’s financial regulators slapped a $100 million fine on the exchange for neglecting anti-money-laundering laws. More recently, the SEC sent Coinbase a Wells notice in March, announcing its intent to sue the firm for flouting long-standing securities regulations. Now, the feds have followed through with five charges: against Coinbase itself, for acting as a securities exchange, as a broker, as a clearing agency, and as an interstate securities trader without federal registration.
That’s a total of eighteen federal charges in a twenty-four hour period. Binance really got caught with their pants down and arguably in flagrant violation of the Stringer Bell rule. They knew they were in violation of at least the spirit, and likely the letter, of US law since at least 2018. Here’s an excerpt from the charging documents:
If your chief compliance officer is bragging that you're in violation of federal law, you don’t get to play the victim. You don’t get to argue the government is trying to destroy your industry. You certainly don’t get to say federal regulations were unclear.
The feds should throw the book at them.
Bits and Recommendations for the Week
First up, in a recent newsletter, I wrote about a Neo-Nazi organization in Centralia, Washington, and some of the unfortunate media coverage the group received in local media. This week on the podcast, I interviewed the reporter from the Chronicle who has been covering the story, Isabel Vander Stoep. She talked about her reporting and how local government officials are responding (with mixed results). That conversation comes out Monday but you can find the audio here.
Speaking of the podcast, we occasionally run a podcast bookclub. We’re currently reading They Knew: How a Culture of Conspiracy Keeps America Complacent. I admit that I struggled with the opening part of the book but it’s really picked up steam for me and now I am in the “Bro, I want more of this. Please don’t end” phase. One part that I was really moved by was her criticism of liberal hero complex and the online meme cults that rose up around Robert Mueller (“Mueller is here to save the republic”; “he’s playing the long-game/3D chess”; “we just have to be patient”) and Anthony Fauci (cooperated with Reagan in ignoring the AIDS crisis in the 80s, only to be resurrected as a liberal savior during Covid).
You can grab the book anywhere and tweet your thoughts about it using #NerdFarmReads or join us on the Channel 253 Member Slack.
Next, I saw a thread on Reddit recently about a school that bans cell phones during the school day. I am reflexively against this kind of Draconian nonsense, but I am starting to come around. For me, it’s not about distraction during the class day. In my room, I start each period by reminding students their phones go in their pockets or bags. Phones are not a problem except for [Redacted]. He thinks he’s slick but I see you, [Redacted]! The thread talks about out of class social behavior. Rather than walking down the hallway with their faces buried in a screen, students talk to each other. We’re in uncharted waters when it comes to social media and adolescent brain development. Social media is like dopamine Everclear. I know I sound like I’m morphing into the Boomers talking to us about MTV in the 90s but there’s no precedent for any of this. Kids being online a little less isn’t a ban and has done wonders for me since I dropped Twitter. More on this later, I think.
Lastly, as a heads up, there likely won’t be a newsletter next week. Next Sunday, Hope and I will be traveling home for a few weeks. Red Hot, Vien Dong, and Dusty’s, your boy is inbound.
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See you next week!
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