February 06, 2025 | Read Online

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"Everybody had their hands out. Everything was for the taking."

— Henry Hill, Goodfellas

Thursday looks-the-other-way mailbag

Q: Are tariffs good for bitcoin?

Bitwise's Jeff Park thinks tariffs won't just be good for bitcoin, they'll be great: A full-blown trade war, he predicts, would send bitcoin "violently higher."

His thesis, if I understand it correctly, is that 1) US tariffs will compel central banks everywhere to print money (to offset slower growth), 2) Trump intends to force a "Plaza Accord 2.0" in which major economies agree to devalue the US dollar (as they did in the original Plaza Accord in 1985), and 3) this will lead to both lower interest rates and higher inflation.

The improbable combination of money printing, lower interest rates and higher inflation would certainly be a dream scenario for bitcoin holders.

But Park's path to get there sounds a little like 5D chess to me — a cascading series of events that seem nigh impossible to predict, let alone orchestrate.

The first event, however, is maybe not so hard to predict: A trade war would presumably be terrible for risk assets, bitcoin included.

Whether Park is right about how things play out from there might be a function of whether Trump can orchestrate some outcomes that would normally be considered mutually exclusive.

He might!

But I wouldn't bet on it.

Q: Is crypto debanking over?

I found it a little disorienting to see the crypto industry celebrated as the good guys in Congressional hearings this week, with even Senator Warren taking the industry's side against the big, bad banks that debanked it.

The testimony of Nathan McCauley, CEO of Anchorage Digital, was particularly impactful: "The irony of having trouble accessing the federal banking system despite the fact that we are ourselves a federally chartered bank cannot be overstated."

Nevertheless, I didn't hear anything that definitively confirms the narrative that the banking system was deliberately weaponized against crypto.

Nor did I find it in the portion of the newly released 780 pages of FDIC communications I managed to get through — most of it seemed to be harmless-looking pause letters.

I also uploaded the full haul of documents into NotebookLM, and here's the AI takeaway: "There is no explicit evidence in these sources to suggest a deliberate attempt to 'unbank' the crypto industry."

That assessment wouldn't stand in a court of law, I guess, but it confirms my bias that while the effect of FDIC policy was that crypto companies like Anchorage Digital were debanked, that wasn't regulators' intent.

It seems more likely to me that bank regulators were genuinely concerned that crypto poses a threat to the banking system they're tasked with protecting.

I can't blame them for that (crypto is new and unpredictable) and I can't blame banks for being overly zealous in responding to those concerns.

As a regulated bank, you have to know who your customers are and even who your customer's customers are.

That's pretty hard to do, especially in crypto where even the most innocuous transaction is probably never more than a few degrees removed from an illicit one.

If regulators instruct banks to ensure they're at least three degrees removed from anything shady, I can't blame banks for concluding that it's safer to just avoid crypto entirely.

This will all sound like a distinction without a difference to Anchorage Digital and others that were denied access to banking services — but I think it's a distinction that matters, too.

If crypto's debanking wasn't ordered from on high, then the Trump administration's new orders to stop debanking crypto might be less effective than we hope.

Q: Is Tether a better business than Goldman Sachs?

Tether recently reported a $13 billion net profit for 2024, which is just short of Goldman's $14.3 billion.

Goldman, however, employs about 45,000 people, while Tether reportedly employs less than 100.

This almost certainly makes Tether the most profitable company in the world on a per-employee basis (probably by a wide margin).

But it should be noted that 1) $5 billion of those 2024 results are marked-to-market profits on the bitcoin Tether holds (bitcoin went up a lot last year) and 2) Tether is an unregulated bank that doesn't pay interest on deposits or KYC its account holders.

This makes Tether less of a "business" and more of a regulatory arbitrage, in my opinion.

Q: Will there be many trillions in stablecoins?

Crypto czar David Sacks thinks so: "Stablecoins have the potential…to increase the usage of the US dollar digitally as the world's reserve currency, and in the process create potentially trillions of dollars of demand for US Treasurys."

I'd be surprised though, because 1) I don't think the Fed wants stablecoin issuers to corner the market for short-term Treasurys and 2) I don't know that the fractionally reserved US banking system would survive losing trillions of deposits to fully-reserved stablecoins.

If the market for digital dollars grows into the trillions, my guess is that a lot of it will be in the form of tokenized bank deposits issued by big banks.

Q: Is crypto crime legal now?

Not exactly, but there are fewer cops on the block: The SEC has downsized its crypto enforcement staff and its top litigator has been demoted to the IT department (which seems like a telling sign of the times).

Commissioner Hester Peirce has been tasked with determining what comes next and her first statement has not disappointed her many crypto fans: She's promised the SEC will be liberal with their "no-action letters" (which will let crypto founders sleep easier at night) and will offer "temporary prospective and retroactive relief for coin or token offerings" to any issuers willing to file some minimal information with the SEC (which will have some crypto founders partying all night).

That does not, however, mean that crypto crime is now legal, no.

But for the next little while at least, it seems like the authorities will be looking the other way.

Q: Is Bitcoin cooked?

Ethereum-maxi Justin Drake thinks so, mostly based on his estimate that it would cost just $10 billion to dismantle the Bitcoin blockchain with a 51% attack.

He makes the reasonable point that with bitcoin's market cap at $2 trillion, there's likely enough liquidity for a hedge fund to make a profit by positioning short and then spending the $10 billion to blow up Bitcoin.

But it seems unlikely, if for no other reason than I'm pretty sure it would be illegal (as market manipulation) — and also because it would be impossible to do it anonymously (you'd make a splash buying billions of dollars of ASICs, for one thing).

Maybe North Korea could do it, but it already makes so much money exploiting the crypto ecosystem, I doubt it'd want to cook the golden goose.

But, as Drake warns, if the US government buys up 5% of the bitcoin supply, I can imagine a scenario where a hostile nation-state would sink bitcoin just to mess with us.

Or, if Elizabeth Warren quits the Senate to start a hedge fund, look out.

Q: What cryptos are the Trumps buying?

Whichever ones people pay them to buy, apparently.

Blockworks reported this week that the Trump-family DeFi project, World Liberty Financial, is offering to swap tokens with protocols willing to pay a 10% fee for the privilege of appearing in its onchain portfolio.

That could turn out to be money well spent — having the Trump family own your token seems likely a valuable stamp of approval to have.

Would Trump's SEC ever investigate a project whose token is owned by World Liberty Financial?

You, cynical reader, might think this is just another day in the swap.

But as financial misdirection goes, this one is as transparent as Bianca Censori's dress at the Grammys.

— Byron Gilliam

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