Episode #76: 🧁 Artisanal Counterfeit $100s: The Reginald Fowler Story
BTC rebounds to nearly 2x the Kang Line, FacebookCoin is the ultimate fiat on-ramp, Bitfinextetherpalooza, Crypto Capital’s Reginald Fowler is the biggest crypto scammer of them all and got caught with counterfeit $100s to boot
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CoinTalk is produced in partnership with Medium and hosted by Aaron Lammer and Jay Caspian Kang. Press “Listen to the story” above to play the episode. (You can also subscribe on Apple Podcasts, Google Play, download the MP3, or email us at firstname.lastname@example.org)
- BTC rebounds hard off the Kang Line, reaching close to 2x
- All your base are belong to FacebookCoin
- Bitfinex::Tether as Garth Brooks::Chris Gaines
- Crypto Capital’s Reginald Fowler ripped Bitfinex off for $850mil, was caught with counterfeit $100s, is a flight risk AND used to own the Vikings
Aaron Lammer: Long time, no see. Welcome back to your rightful home.
Jay Kang: Thank you.
Aaron Lammer: I’ve actually been thinking about the Kang line this week.
Jay Kang: Why?
Aaron Lammer: We’re nowhere near it. It seems like a distant memory at this point, but I think we’re reaching what I consider one of the milestones in our retreat from the Kang line, which is we are approaching 2X from the Bitcoin bottom.
Jay Kang: That would be 6,600. That’s still a bit off.
Aaron Lammer: The Bitcoin bottom was actually 3,147, so I calculated that the local high right now from the very bottom is a +89% [crosstalk 00:01:52]
Jay Kang: Okay, fair enough.
Aaron Lammer: So we’ve bounced 89% off the bottom. A big rally will take us to 2X the Kang line here. I didn’t actually think this would happen so quickly. Even though I project boundless optimism on this show, I was actually thinking it was going to take most of this year to get here.
Jay Kang: Yeah, I guess having it go 2X from the bottom, if you had asked me at the bottom if that was going to happen, not when it was going to happen, but is it going to happen, I think I would have said probably, but certainly not any guarantees, and if you had asked, “Is Bitcoin going to go back to 6,000 or is it going to go to 1,000 first?” I would have heavily bet on 1,000, wouldn’t you have?
Aaron Lammer: I don’t know if heavily I would have bet, but I certainly knew it was a possibility. I think literally someone can go back and listen to our show then … I’m far too lazy to do this, but I think when we were at 3,400, you were like, “Aaron, you’ve already lost so much money. Isn’t it time to sell these coins?” And I was just like, “I know that it very well could go to 1,000, but I think in my lifetime I’m going to see 6,000 again, and for that reason I’ll just hold through the down and then the up.” This is where I was like, “We’re just reaching the point where I would even be comfortable jumping off the ship.”
Jay Kang: Have you thought about it at all?
Aaron Lammer: Not at all. Now I’m looking at 10,000 and I’m feeling like it’s very realistic.
Jay Kang: What price would get you back to even on all of your Bitcoin?
Aaron Lammer: It’s around 10,000. My average buy ends up averaging out to around 10,000, because I bought all the way up and over 10,000.
Jay Kang: Oof, okay. You basically need an 80% bump from here, right?
Aaron Lammer: I need two of these. We’re halfway back up the mountain. I’m halfway back to break even. Which, I know that’s depressing, but now, for me, break even is like shooting the moon. It’s like this amazing accomplishment that I’ll be incredibly excited when my portfolio is just at +$1.
Jay Kang: Yeah, yeah. You know, now that I mostly use Bitcoin, Aaron, I don’t actually speculate on it, I just use it to-
Aaron Lammer: For your groceries, for your household needs.
Jay Kang: Yeah, yeah.
Aaron Lammer: Of course, the preschool tuition payments.
Jay Kang: Exclusively for sports betting.
Aaron Lammer: Yes.
Jay Kang: I will say that I don’t really care about the price at all, and in fact sometimes it’s a little annoying when the price spikes because then I have to recalibrate my general bet size.
Aaron Lammer: But if that happens, aren’t you catching a tail wind with your whole betting portfolio? This is something I’ve never totally understood about bettors.
Jay Kang: I guess so, except that I have absolutely no faith that it’s going to stay up. So yes, if I bet … Let’s say I bet 10 Bitcoin at 3,000, which is way, way, way more than I actually … Let’s say I bet half a Bitcoin at 3,000, which is much more realistic, and the price of Bitcoin doubles. Generally what I’ve been doing is I keep my bet sizes the same so all it really means is that I’m just betting twice as much money on everything. [crosstalk 00:05:20]
Aaron Lammer: This is what happened during the last bull run too, right?
Jay Kang: Sure, sure. But I did adjust that last time, because it went up so quickly. I will say that it does show that maybe some of the ideas of the future of crypto and Bitcoin might be viable, where you can use it as a product now. Obviously, I’m using it for a very specific thing that most people don’t do, although a lot of people do do. But yeah, I don’t really think about the price, I just use it as a form of currency, and it works so that’s I think the most bullish thing I’ve said in months about Bitcoin. It works.
Aaron Lammer: You’re, weirdly, of all the people I know in Bitcoin, you’re the most cynical about Bitcoin but also actually using Bitcoin the most.
Jay Kang: Yeah, that’s true. It’s a weird thing.
Aaron Lammer: I think you have done more transactions than almost anyone I know in Bitcoin.
Jay Kang: I guarantee I have more Bitcoin transactions than everyone you know in Bitcoin combined. I don’t even think it’s close. If you count a bet on a sporting event as a transaction, which it is, there’s dozens of them a week that I make. Who else do you know uses Bitcoin dozens of times a week? Nobody.
Aaron Lammer: I’d argue that a winning bet is two transactions, really. It’s paying in and then receiving a payout. Now, to my understanding, you are, therefore, correct me if I’m wrong, not holding your private keys, but leaving your Bitcoin up on sports gambling web sites?
Jay Kang: I withdraw quite a bit, so-
Aaron Lammer: Okay, and you pay fees each time you do that?
Jay Kang: Yeah, but the fees are really small now, and it’s like-
Aaron Lammer: I know, they’ve gotten [crosstalk 00:07:05]
Jay Kang: I’ll tell you, usually if you use an offshore sportsbook, you have to pay with a credit card, and it’s a big pain in the ass because essentially what they’re doing is they’re charging your credit card in a foreign currency. It’s like Chinese yuan or something like that, which obviously triggers every single alert on your credit card, and you get … I don’t know, I have a card with a lot of security features, I’ll just put it that way, and-
Aaron Lammer: You’re probably on a Chinese spy watch list at this point, the amount of yuan transactions you’ve been engaging in.
Jay Kang: Oh, yeah, $200 yuan transactions.
Aaron Lammer: “Okay, so his parents are Korean, he’s constantly depositing and withdrawing yuan from his bank account.”
Jay Kang: The thing they do is they … You know how you usually just get an email or a text message?
Aaron Lammer: Yeah, it’s like, “Is this fake? If not, do nothing.”
Jay Kang: Yeah. This is like that times three. They literally call your phone. Somebody immediately calls you and you have to pick up the phone and be like, “Look, I’m sorry. Can you let this one go through?” So all that is super inconvenient, and it actually costs a lot of money. It’s 8% or 5% or 4%, and for Bitcoin it’s really cheap. It’s pennies every single time.
Jay Kang: It’s gotten a lot faster. It used to be that if you tried to transfer from, let’s say, a Ledger Nano or a Trezor into the different sportsbooks, it would sometimes take up to 40 minutes, and now it takes two minutes. So yeah, I don’t know, it’s working, and because it’s working and I don’t have to think about it that much, I don’t really think about the price that much, which is interesting because betting obviously is an economy. It’s a lot of different transactions.
Jay Kang: I guess recently I’ve been trying to think more along the lines of like, “What happens if there is actual adoption and you can run certain types of small economies on cryptocurrencies? What will it look like and can it actually function?” I think Bitcoin, at least, has reached a point of functionality where maybe some things can actually be built on it. Wasn’t there some stat that came out that they had had the most Bitcoin transactions ever in one month in April?
Aaron Lammer: Yeah, some people were negging that saying that there’s various new forms of use on the chain. I don’t give a shit.
Jay Kang: How much of that was me placing bets?
Aaron Lammer: Yeah, it’s all just replacing formerly yuan transactions. I think that there is more than there ever was. I think that there’s at least growth happening, but getting back to that … What did you say it was, an 8% fee that was what you were previously paying in a sports betting situation?
Jay Kang: Yeah, or a 5, 4%. It just depends on the book, but sometimes you are depositing, let’s say, 500 bucks and you pay $20 in fees. That’s a really, really high percentage.
Aaron Lammer: Okay, so let’s say that that’s … Let’s call that 8%, and that sounds exorbitant to me, especially when we’re talking about thousands of dollars. But merchants are paying, on a Visa transaction, what, 2.9%, I think is the typical credit card processing fee?
Jay Kang: Yeah, and for American Express it’s even higher.
Aaron Lammer: Higher for American Express. Okay, so we’re showing this spectrum of transactions from a high on the shadiest yuan payout on a Kentucky Derby bet version to, I think if you take Discover, maybe, it’s down to 2% or something like that, right? So there’s a lot of money to be made in single-digit transaction improvements there, and it doesn’t … We’ve always dismissed this idea that Bitcoin could work for retail because it’s clumsy, but-
Jay Kang: I haven’t. You did.
Aaron Lammer: No, you-
Jay Kang: I’m much more bullish on that than you are.
Aaron Lammer: I’m sorry. We’ve dismissed the idea because people aren’t doing it yet. People aren’t buying coffees and sandwiches yet and it’s not a superior transaction for the coffee or sandwich yet, and I would argue that’s because merchants are willing to eat the 3%. I think that if that 3% went to the customer as it does in this gambling transaction, people would be a lot more aware of it and I think you’d start to see more innovative products that may get really easy to pay with Bitcoin if you started to see, “Hey, it’s 5% off.” Because it’s really crazy what a credit card transaction is. I have the Amazon credit card … I don’t know, are you an Amazon credit card person?
Jay Kang: No.
Aaron Lammer: Okay, so the Amazon credit card is 5% cash back. So that means the merchant pays 3% and then you get … It’s not really a merchant, I guess. It’s only on Amazon transactions. Basically, you get 5% back on every transaction of anything on Amazon. There’s a lot of pretty good consumer incentives in the credit card realm right now.
Jay Kang: Yeah, however, I guess I just … The amount that they would have to shave off to make it competitive in terms of those fees, in terms of the charges, is pretty small. I think it’s coming soon, at some … I don’t really care about things like … Like Fidelity announced that they’re carrying Bitcoin, and E-Trade said they’re going to finally … I don’t really care about mainstream adoption in that sort of way.
Jay Kang: I am really curious, though, if there’s going to be a crypto version in some small city somewhere that has a lot of tourists or something like that of the scenario that you and I were talking about with Facebook Coin.
Aaron Lammer: Yes.
Jay Kang: I think that if I was the mayor of a small town in, say, the region of Vietnam in the north where they have all the beautiful clothes … I forgot the fucking name of it. I went there. Did you go there? Have you been there? North, north Vietnam, north of Hanoi, that place with-
Aaron Lammer: The Ha Long Bay area?
Jay Kang: Okay, let’s just take Ha Long Bay. Wow, I literally almost … It was the closest I’ve been to getting into an actual physical fight, was on Ha Long Bay.
Aaron Lammer: On one of those tourist sightseeing boats?
Jay Kang: Yeah, it was fucking rough. The guy kept scamming us, and I finally was like, “Stop. I’m going to give you 20 bucks if you just stop scamming every fucking time.” And then he just kept doing it, and then I said some things I shouldn’t have, and then he came out from behind this table and I was like, “Oh no, I’m on a boat in Ha Long Bay, Vietnam, about to fight somebody.” But we calmed it down.
Aaron Lammer: That story took a turn. My experiences in north Vietnam were more just like, “Mm, I’m going to eat this fried doughnut that someone just fried in this wok, and then another one, and then another one.”
Jay Kang: Yeah, it’s incredible. I will say that at the time I had such little money, I basically had $300 in my checking account, and so getting scammed a few dollars, it was pretty bad. And so I don’t want to give the sense that … I mean, I was a spoiled American out there getting mad, but this guy … And I was okay with getting scammed a lot, but this guy, he just wouldn’t stop, and I was pleading with him. I was like, “Look, can I just pay you a flat fee that’s well above what you would get for you to just not lie to me every single time you talk to me?” And he just wouldn’t stop.
Aaron Lammer: Okay, Jay, no one judges your interactions with this Vietnamese boat pilot.
Jay Kang: Okay, so we got to-
Aaron Lammer: You brought up-
Jay Kang: Wait, wait, hold on.
Aaron Lammer: What?
Jay Kang: Let me just finish here. If I’ve gotten this far, I have to get to the point.
Aaron Lammer: All right. That never came full circle, sorry.
Jay Kang: Yeah, I have to get to my point, which is that a place like Ha Long Bay has many people from all around the world coming in, correct? Right?
Aaron Lammer: Yes.
Jay Kang: On my boat, for example, there were people from Canada, there were people from Austria, there were people from Korea, there was me and my wife, and there was, I think, somebody from South America somewhere, and it is also a very self-contained place. It’s a literal bay with boats and it takes a long time to get there.
Jay Kang: Wouldn’t it make sense for … If I was the mayor of a place like that, or if I was running the local government there, I think I would just add in an option, and maybe they already have, but as a way to try and have some sort of stash of money outside of the government controlling the banks, but also to make it easier on customers. If it was a form of cryptocurrency that was easy to use and that you could use on your phone and you could keep on your phone, I don’t quite get why you wouldn’t try to do that.
Aaron Lammer: Do you read Stratechery, Ben Thompson’s newsletter?
Jay Kang: Yeah.
Aaron Lammer: He had a Facebook Coin one. I think one of our listeners actually sent it in. It may be one of the paywalled ones that you have to be a paying subscriber, I’m not sure. Either way, thanks to whoever sent that to us, because I probably wouldn’t have read it otherwise. Even though I get it, I can’t say I’ve read every issue.
Aaron Lammer: What he wrote about the Facebook Coin was interesting to me, which was this is just a layer in Facebook’s messaging, global domination whatever, but because it would be so incredible for Facebook to know not just where you are and who you’re in contact with, but literally what you’ve spent money on, they can basically make this fee-less. The person who can drive the fees down to the point where they’re negligible, maybe you’re getting paid to do transactions, is Facebook. They’re the ones who are incentivized otherwise, and it’s cheaper to do a centralized currency anyway, because you don’t have to beam it all over the world and have mining and all of this stuff.
Aaron Lammer: I don’t know why I always come back to the bull case for Facebook Coin, but I kind of hear you. What if Facebook Coin was a white label API that people could use to build dollar [crosstalk 00:17:36] financial systems? Disneyland could be like, “From now on, Disney Bucks are on the Facebook system. They’re still called Disney Bucks, but they represent one buck and they can be traded interchangeably with your Facebook account.” This is like PayPal’s business, and it’s a big business, and if you could beat PayPal, that’s a huge piece of terrain to just go grab.
Jay Kang: They’ll beat PayPal. I think PayPal is … If this thing succeeds, PayPal’s the first to go, right? Because-
Aaron Lammer: Where’s the PayPal first currency?
Jay Kang: It’s a lot easier to contact someone via Facebook than it is to make sure that they have a PayPal account, especially internationally. You know, it does occur to me that all the cases that I would make for another type of cryptocurrency to operate in a place like Ha Long Bay, they would be much, much less efficient and useful for the people doing it in the short term than Facebook Coin, and so, I don’t know. Maybe the depressing answer is that Facebook Coin will probably work, which seems crazy to say, but I don’t know. It just seems like everything that you and I know about crypto points to that outcome, right?
Aaron Lammer: You know how Facebook basically clones stuff, like Instagram cloned Snapchat stories? What I see this Facebook Coin thing is as one of these clones, and generally these clones either are massively popular or completely flame out almost instantly. So I kind of feel like we’re going to be able to get a vibe on Facebook Coin relatively quickly. In the next year, Facebook Coin might have come and gone, and it might be bigger than Ripple.
Jay Kang: Yeah, but there’s also no competition in the same way that there is on every social media device, and so it’s almost less resistance than there is when Instagram puts up stories. Literally no other social network has the possibility of doing this wide-scale currency, because they just don’t have the user base to do it.
Aaron Lammer: Unless they join forces with a Bitcoin or a Ripple or some sort of a stable coin. We’re going to get to Tether, and I think we’re dancing around Tether right now. That is the promise of these stable coins, is that one of them would become the Facebook Coin that is not Facebook Coin. It would become the API plumbing for the dollar-pegged internet.
Jay Kang: Okay, but even then, even if that’s true, they don’t have the easy network of distribution that Facebook has.
Aaron Lammer: It’s true. They still need to install an app or it would be a sidecar on Telegram or something like that.
Jay Kang: Download the chain. Create a node.
Aaron Lammer: But some of that stuff does work in something like iOS, where the apps do talk to each other, so I could see it be something that you install a wallet at the system level of your phone and it powers money in multiple apps.
Jay Kang: But none of it, nothing that you could possibly create has the same brand equity and the same trust that Facebook has for most people in the world. So if you were going to ask somebody, “Hey, can you download the Jack’s Liberty Wallet? And it’s going to …” Or, “You can do this through Facebook, which one do you trust more?” There’s not a single person in the world, including you and me, who are pretty skeptical about Facebook, who would trust that our transaction would not go through and be fair, that Facebook isn’t the better option for that, right?
Aaron Lammer: 100%, and I think, really, the closest parallel would be Apple and their Goldman Sachs phone card, but-
Jay Kang: But even Apple-
Aaron Lammer: -Facebook’s making a massive psychic leap here by saying that this is a cryptocurrency. I don’t know if they use the term cryptocurrency, but it’s certainly being reported as “Facebook’s cryptocurrency.”
Jay Kang: I know people who don’t … I know quite a few people who don’t have Apple phones and don’t use iOS, and I don’t know anyone who doesn’t have a Facebook account. I know people who have deactivated their accounts, but that still means they have an account, it’s just deactivated.
Aaron Lammer: Can I make a unifying theory about everything we’ve just talked about? I think that my theory here is that the important transactions in the world are across borders. They’re the kinds of things that messaging apps are able to do. It’s pretty easy to do transactions within your country, so the battleground here seems to be that Facebook Messenger market, that world that lives either outside of major cities, across major national borders, or in places where there’s no banking system to even make leaps other than a Western Union, hawala kind of situation.
Jay Kang: Yes, but I do think that those types of transactions will only increase in the future.
Aaron Lammer: I agree. Isn’t that what the post-national future that Bitcoin is promising is?
Jay Kang: Yes, and it’s one that … I don’t know. It’s the idea that there’ll be less international transactions in the future, given the way that everything is going, is obviously not going to happen. Right now it is a little bit annoying. You have to basically be wealthy and have a credit card. That’s the best way to do it, or that’s the easiest way to do it. Everything else is done through an economy of things like … I don’t know, even to long-distance minutes and stuff like that in places like Hong Kong or Pakistan, if that was all normalized through the world’s biggest social network, then obviously that would be a powerful thing.
Jay Kang: And yet, I just can’t even talk about this. It’s so depressing. Mark Zuckerberg would literally be the king of the world at that point. He would be by far the most important and powerful person in the world. The President of the United States is arguably less powerful than him right now. At that point, it would be like having one ruler of the entire world economy. It would be so fucked up.
Aaron Lammer: Did you see that Jeff Bezos wants to put more money into the New York Times and BuzzFeed to try to expand their international reach as a way to reach Amazon into international markets?
Jay Kang: No, but here’s the thing. Those places will take that money because they have to.
Aaron Lammer: Let me ask you a question. We’ve zoomed in on Facebook Coin as the solution, but I think what we’re really doing here is describing a problem. And the problem is transactions used to take place in a specific place, geographically, and now a huge amount of the transactions we’re talking about basically happen nowhere. They happen in the matrix of the internet, or they get routed through a bank in Panama over some sort of anonymizing device and are dispersed in Romania by some third-party transactor.
Aaron Lammer: There’s a huge amount of money moving around for things that don’t really have any geographical basis, and you could say this about Apple offshoring money to Ireland also. There’s money being made and being moved that doesn’t really have a home, and so I think the question there is, does that money belong in a social network like Facebook, or is the decentralization of Bitcoin enough of a differentiating factor that maybe Bitcoin still can become that fake internet money that got us interested in the first place?
Jay Kang: Yes, but that … I think I have two answers to that. The first is yes, for some people it will always be important, but the fact that Bitcoin is becoming more and more centralized is going to be a powerful argument against that. At some point if the other thing is not even that different than the thing that you hate, then you might as well take the thing that you hate if it’s a lot easier.
Jay Kang: But no, I don’t think that for the majority of people who are going to be making these transactions, they give a shit at all about centralization. I think what they care about is … The people who care about that type of stuff, you know, like is it a centralized, secure … Well, they care about secure, but is it a centralized, private transaction, et cetera, et cetera, the people that care about that are people who buy drugs and steal credit cards and stuff like that, right now. Other people may care down the line. But no, the vendor in Ha Long Bay who’s selling you tickets to get on the tour boat, I don’t think that that guy gives a shit about decentralization.
Aaron Lammer: Can I give you my [permabill 00:26:43] hot take?
Jay Kang: Yeah.
Aaron Lammer: I think if Facebook Coin succeeded, it could be good for Bitcoin because it’s kind of the ultimate fiat onramp, and we’ve basically seen over the last week that fiat onramps, which is to say how you turn fiat US dollars or whatever your currency is into cryptocurrency, is the biggest vulnerability in the entire crypto ecosystem. Tether is the biggest one. It’s all tied up in the exchange business, and they’re all up to their knees in stable coins and weird stable coin debt being paid to do obligations. “Hey, where did all my stable coins go?”
Aaron Lammer: If you could buy Bitcoin with Facebook Coin, I think that would be a good way to buy Bitcoin. Now, you could argue that in America, the Cash App makes that irrelevant, but we’re talking about Facebook Coin, which is going to be, as we know, in almost every country in the world. Not China.
Jay Kang: Now, why would you buy Bitcoin with Facebook Coin?
Aaron Lammer: A lot of people have difficulty buying it with their local fiat currency. They have to resort to local bitcoins type situations.
Jay Kang: But do we even know if … Do you think that Facebook is going to be running a Bitcoin exchange on their cryptocurrency network? I don’t know.
Aaron Lammer: Hey, man. It’s dystopian fiction.
Jay Kang: Now that we’ve tried three times to segue into Tether, let’s just do it. You want to talk about Tether?
Aaron Lammer: Okay. How closely have you followed the Bitfinex-Tether saga?
Jay Kang: Relatively closely. I would say that I’ve read a few articles on it and I’ve followed some tweets.
Aaron Lammer: It’s been a lot. It’s a story that’s going off in every direction. I’m going to do my best to summarize it for listeners here and say if you want to understand this, we’ll put a couple notes in the show links. There’s a lot to read about it out there, and I still don’t even feel like there’s anything actually to read that’s definitive or is going to give you the whole story.
Aaron Lammer: The attorney general of New York, Letitia James, takes Tether, the company Tether, to court over an $851 million loan to Bitfinex. Now, we’ve talked many times on this show about how Bitfinex and Tether are the same people, same companies, like Garth Brooks and Chris Gaines.
Jay Kang: Chris Gaines.
Aaron Lammer: Have you ever seen that video where Chris Gaines is just talking about … Oh, no, it’s Garth Brooks who’s talking about Chris Gaines, and he’s like, “Chris Gaines is a sex addict, man. He’s addicted to sex.”
Jay Kang: I have seen that. I have seen that video.
Aaron Lammer: It’s like, you’re talking about yourself.
Jay Kang: I don’t feel like people give the Chris Gaines-Garth Brooks thing enough … It’s not canonical enough in the history of pop culture. Garth Brooks was such a huge star, you know?
Aaron Lammer: It’s also crazy that it’s not a one-minute gag. They made an entire Behind the Music. There’s an hour-long fake documentary about Chris Gaines.
Jay Kang: He really committed to it. He really committed to it.
Aaron Lammer: Which has lots of songs in it, fake music videos in it.
Jay Kang: Do you remember when Nas would rap as Scarlett? He would speed his voice up and he would be like a woman, he would be like a female rapper?
Aaron Lammer: Yeah, it was a Prince thing.
Jay Kang: It was like two songs. That was not what Garth Brooks did with Chris Gaines. It wasn’t just like, “Whoa, what does this sound like at 4X speed?” He literally put out an album and I think he even went on tour as his alter ego. It’s so crazy. Also, I don’t know. Garth Brooks, kind of good, I got to say. I don’t dislike his music, and so I don’t know. I guess it was cool that he was good. How did we get on talking about Garth Brooks and Chris Gaines? Oh, Tether and-
Aaron Lammer: The Tether loan, Bitfinex-
Jay Kang: I won’t let us talk about the Tether thing, apparently. Okay, I’m sorry. Go ahead.
Aaron Lammer: $851 million, which is like me loaning from one pocket to my other pocket $851 million. But this question of where the hell this loan came from revealed that Bitfinex, the exchange, had lost $851 million to a payment processor they had been using called Crypto Capital.
Aaron Lammer: We’ve talked before about how these exchanges are not banks, which means if you want to send them a wire transfer and get a credit in your account of Tethers to go buy Bitcoin with, you have to do a wire transfer. So these wire transfers go through companies that run Panamanian … This company is registered in Zug, Switzerland. You may remember them from the Tezos saga, that sweet valley in Switzerland that all these companies are registered in. And for even more interest, the owner of Crypto Capital is Reginald Fowler, who was once a partial owner of the Vikings.
Jay Kang: Really? That’s interesting.
Aaron Lammer: Basically, all his funds are frozen. He’s considered an international flight risk, and he’s got $851 million of Bitfinex’s money, which they took a loan from Tether from, which means that all of the money that is supposed to back Tether, which people have always suspected there wasn’t as much money in the bank as there were Tethers out there, that’s actually true. There’s 74% as much. You could say, “If Bitfinex and Tether are the same company and it’s in the Bitfinex account, it’s still available, blah blah blah.” We can discuss that.
Aaron Lammer: A few more details that caught my eye. Reginald Fowler, when he was caught, in his office was $14 million in fake currency. This is not cryptocurrency at all. He just had fake money in his office.
Jay Kang: He had counterfeit bills?
Aaron Lammer: Counterfeit $100 bills.
Jay Kang: Oh, my god, Reginald. Reginald was deep in this, huh?
Aaron Lammer: So the amount of money that Bitfinex lost is 26% of all of the money. So this isn’t a minor loss, this is really, really getting embezzled on.
Jay Kang: And then Bitfinex was, I think, the highest-volume exchange in the world for a long period of time.
Aaron Lammer: So now Bitfinex is doing what’s called an IEO. Jay, it’s not ICO. I don’t even know why you would think that. It’s not an ICO. It’s an IEO to raise $1 billion to cover for this loss and supposedly it’s already over-subscribed, although you can’t buy in if you’re an American. It’s only available to-
Jay Kang: What’s the E stand for?
Aaron Lammer: You got me. You got me. I don’t know.
Jay Kang: It’s not important.
Aaron Lammer: Well, if C was coin, I think this is an initial exchange offering, potentially.
Jay Kang: And are you buying basically securities for the company? Is it like buying a stock?
Aaron Lammer: I was curious about this too, and I was talking on our Telegram. I have a message out there to the listeners. A lot of people have been asking, can they join our Telegram? Because we talk about our crypto Telegram. No, you cannot.
Jay Kang: You don’t want to.
Aaron Lammer: That’s a hard no.
Jay Kang: Yeah.
Aaron Lammer: You’re going to waste your life. None of this is investment advice, and honestly, you should get out while you’re still ahead. That’s the message from the show.
Jay Kang: Yeah, our Telegram channel is mostly-
Aaron Lammer: It’s also super secret.
Jay Kang: We also have lost a lot of … I’ve lost a lot of money, personally, reading tips in our Telegram channel.
Aaron Lammer: If you were in our Telegram, this show would be entirely redundant because it’s just the same conversation except Jay has often forgotten his position and will reverse himself. But basically we’ve already lived this all before.
Jay Kang: That’s definitely true.
Aaron Lammer: So in the Telegram that you can’t join, I was like, “Who the hell is buying Bitfinex’s IEO? Who is buying equity in Bitfinex?” Because that’s basically what you’re doing if you buy this token. The token’s called LEO, L-E-O. And apparently, a lot of people, and apparently a lot of people still think Tether is in decent shape, because Tether dipped to about 90 cents at one point, and it’s crawled its way back. There’s basically been an overall vote of confidence in Bitfinex and Tether, despite this horrific week.
Jay Kang: Okay, I don’t know if the things that you said, as explained on the show, necessarily connote that everything is okay, because it could be a few rich people bought a lot of these IEOs, and they might be so leveraged in Bitfinex that they need to do it, like they don’t have any other options, they have to basically tweet their way through this.
Aaron Lammer: That’s a distinct possibility, and I have a different explanation also, but I’ll let you go first.
Jay Kang: And as for the price of Tether, who fucking knows? Yes, it would make sense for the price of Tether to crater. However, we don’t know how Tethers were used. We don’t know who owns most of the Tethers. It could just be that they’re just chilling in people’s accounts and they don’t even know really how to get rid of them, or that one person owns a shitload of them and they don’t want the price to destabilize. I would just say that we don’t know a lot, so I don’t think we can, in good faith, say everything is okay and they’re out of the woods.
Jay Kang: The other thing that I wanted to point out was, I saw a lot of people arguing, I thought very absurdly, that this was not a big deal and that people are making too big of a deal of it. It’s like, they lost a quarter of the money and they didn’t tell anyone about it and they tried to cover it up. That’s literally what happened. It’s the same fucking thing as Mt. Gox.
Jay Kang: There are many responses. One is “The sky is falling and that everything that ever happened in crypto was a fraud and this proves it and this and Quadriga and all the big exchanges that ended up being …” That they’re all the same, they’re all big exit scams. I think that’s a bit of an overreaction, but I think that to just say, “This is just the big government cracking down on this and nobody did anything wrong,” is just crazy. It’s a crazy position to take.
Jay Kang: I would not be arguing against it if I just didn’t see it a lot. I think a lot of the people, like the OG, hardcore crypto people, they’re just going to go down with the ship. Look, I’ve done this before and so I get it, and look, nobody is more stubborn about their takes than I am. Sometimes you are wrong on the take, and then as time goes on you just realize that you might be wrong. And then more time goes on and you’re like, “I’m wrong,” and you just won’t admit that you’re wrong, and so you just strap yourself into the take and you lose all perspective on how crazy you sound. I think a lot of crypto people are like that. I think if you ask them in private right now, they would be like, “Yeah, it’s not great,” but they’ve just strapped themselves onto the rocket and they can’t change their position.
Aaron Lammer: I think usually I am in the “It’s not a big deal” camp. This is the weird one that got through to me, simply because if you look at Crypto Capital, it’s not just Bitfinex. It’s also Quadriga, it’s also … And I don’t understand, because as I understood it, Binance doesn’t have fiat onramps, but they have banking ties to Crypto Capital.
Aaron Lammer: So you see this massive systemic risk that’s posed by a single payment processor, and you start to wonder if this whole thing has all been a Wizard of Oz situation to reveal the real winner, which is the people at the very top who are siphoning money out and doing exit scams on these payment processors where they can just happen to have $850 million as the ship goes down. I think that’s what the going down with the ship thing is. It doesn’t matter if you go down with the ship if you’re holding a bunch of money as the whole thing falls apart.
Jay Kang: If you have $850 million, why do you print $14 million of counterfeit bills?
Aaron Lammer: That is a fantastic question, and I would like to send to our editor James … Can you pull that clip and say, in two months, remind us this question? Why was he counterfeiting money? That is wild. That’s like if you found out if Lloyd Blankfein had also been selling penny stocks on the side, because he’s just so good at it. He’s just like, “I don’t know, it’s actually kind of a hobby for me. Professionally, I’m in the embezzling millions of dollars through payment processing, but as a hobby I do also print my own artisanal counterfeit bills.”
Jay Kang: That is basically what I was thinking. He’s like, “I’m a completist and once I got involved in one part of financial fraud I was just like, ‘You know what, I’ve always been curious about counterfeiting bills, too.’”
Aaron Lammer: I guess these guys who are basically at a very high level through Panama facilitating massive money laundering, there usually is a weird cash component where cash is getting mailed around and stuff, maybe when you’re moving enough cash, eventually you’re like, “This is such a pain in the ass. Let’s cut out the middleman and just print this money ourselves.”
Jay Kang: Yeah, you might as well.
Aaron Lammer: Okay, so I have a couple more takeaways from this, and I have two bullish hot takes here. This is actually really bad but strangely bullish hot takes. Here’s number one. When everyone talked about Tether before and you said, “What’s going to happen when the Tether fraud is eventually revealed?” it was that Tether was being used as a printer. Everyone thought Tether was a money printer, and they would print new Tethers to prop up the price of Bitcoin, and it went up.
Aaron Lammer: That is not what is listed in the attorney general’s query about this Bitfinex loan, so weirdly, this is a vote in confidence that they at one point did have all the money before they lost a bunch of the money.
Jay Kang: Yeah, yeah. I did read that in the report, that it did seem like at some point it was more or less backed, like what they were saying was true.
Aaron Lammer: Yeah, until fairly recently.
Jay Kang: Well, that’s good.
Aaron Lammer: Okay, a couple other takeaways. One of the banks involved in this is the Noble Bank of Puerto Rico. That is the greatest money-laundering bank name of all time.
Jay Kang: Yeah.
Aaron Lammer: One more hot take is, I think the reason, and this is what was said in the Telegram, and I believe it, I think it’s a good take, that people are so willing to buy the Bitfinex IEO, is how well the Binance Coin has done. If you look at-
Jay Kang: But they’re different things.
Aaron Lammer: No, but that’s how-
Jay Kang: The Binance Coin is a utility-
Aaron Lammer: That is basically how LEO works. They burn a certain percentage based on the profits of Bitfinex, and if you hold them you can do discounted trades and use them against your fees. So the people who are buying this IEO are people who are trying to do mega whale transactions on Bitfinex and also profiteer from Bitfinex fees.
Jay Kang: Oh, I get it. Okay.
Aaron Lammer: It’s a good getting high on your own supply kind of situation. And somebody already ran this as a test and people bought the shit out of it with Binance Coin and the price went up a lot, so I would believe these are whales who are trying to just hoard a bunch of LEO and will do well when LEO inevitably goes up. Though I’m not interested in owning any LEO myself, nor would I know how to buy it.
Jay Kang: Yeah, I have no interest in LEO at all. In fact, if you gave it to me for free, I think I would just give it to you.
Aaron Lammer: I’m going to end our Tether segment here by saying the same thing we say at the end of every single time we talk about Tether, which is somehow, Tether caused a scandal, shook people’s core confidence in Bitcoin, and yet it didn’t go away and probably there’ll be another one.
Jay Kang: Oh yeah, for sure. You know, this is a good conversation to end on, because I’m actually very curious about your take about this. It’s something I’ve thought about quite a bit. I think that we can say now that there was a generation, or maybe a few generations, of crypto where the whole space was flooded with scammers, right? And that those people were either completely unequipped to deal with the interest in cryptocurrencies and the amount of money that came in, and then they resorted to scamming, or they were just flat-out scammers from the beginning, and that that has done a lot of damage to the cryptocurrency space, but not fatal damage. Do you think that that’s just something that is intrinsic to the space, or do you think that it’s something that it’ll outgrow at some point?
Aaron Lammer: I think it will outgrow. I think we’re seeing the scammers who are … There’s a hierarchy of scammers, and so there was low-level literal crypto scammers, like, “I’m holding your web site hostage for a Bitcoin” scammers, and then there were exchanges that exit scammed, and then you see these payment processors which were actually stealing money from many, many exchanges, you see the Gox hack. These are some of the biggest thefts. These are the biggest fish there. And then-
Jay Kang: But that is literally the backbone of the cryptocurrency economy, yeah.
Aaron Lammer: Yeah, so I guess what I’m saying is I think we may have seen … We may be seeing the final days of the wild west here. When it gets to be even bigger money, I think that the bigger, more regulated, monopolistic players will come in and will actually provide the same stability you have with Fidelity or whatever, and I think it will crowd out the old ways, eventually.
Jay Kang: Yeah, let’s hope.
Aaron Lammer: It might be boring. You’re probably not going to like it. You’re probably going to be like, “I liked it when it was full of scammers.”
Jay Kang: For sure. For sure.
Aaron Lammer: We’re going to be like, “We’re never going to have another figure like Reginald Fowler. He embezzled money from Bitfinex. I shouldn’t say embezzled. He allegedly had funds from Bitfinex that were frozen and he is allegedly a flight risk, according to reports, and he had money that he had taken out of Crypto Capital that was being used for an alternative NFL spinoff league called the Alliance of American Football or something.”
Jay Kang: AAFL.
Aaron Lammer: Yeah, and when all of these accounts got frozen, the AAFL went bankrupt because they were so dependent on his investment. We’re not going to have guys like this.
Jay Kang: I think we will.
Aaron Lammer: These guys are going to be the really one-of-a-kind character.
Jay Kang: We still have guys like that on Wall Street.
Aaron Lammer: Yeah, it’s true. It’s true. It’s just going to become Wall Street, which is just as shady as this. I just don’t follow it as closely.
Jay Kang: Yeah. I think you’re right. I think I’ll find it boring, but maybe it’ll be safer for me to put my money into. Okay, cool. Anything else?
Aaron Lammer: I just wanted to send a final shout-out to all of our friends at BREAKERMAG. We’ve been huge fans of the writing there. They are ceasing publication this May, which is a shame. Go back and listen to our episodes with Mark Yarm, with David Z. Morris. They’re both great writers over there. I hope all the people there … Wish them all the best.
Jay Kang: Yeah, that was really sad to hear. I think once BREAKER came on the scene, our podcast probably got 20% smarter, would you say?
Aaron Lammer: I know, it’s a genuine fear. If there’s not people reporting on all this stuff, we don’t have anything to uninformedly pontificate about.
Jay Kang: Yeah, exactly.
Aaron Lammer: I would say we talked the most about BREAKER’s stories on this show.
Jay Kang: I don’t even think it was close.
Aaron Lammer: Not even close.
Jay Kang: Once they started publishing, it was really the thing that we read the most because we could trust the intelligence and the integrity of the people who were doing it. Yeah, it sucks. It’s tough times in journalism right now.
Aaron Lammer: Yeah. Shout-outs to all of them, and I hope they land other places and send us their new writing as it comes out. We’d love to have any of you on the show.
Speaker 2: This episode of Coin Talk was taped Tuesday, May 7th at 1 PM Eastern Standard Time. The Bitcoin Price Index was $5,893.
Aaron Lammer: Thanks to you, the listeners, for listening to the show. This has been Coin Talk. I’m Aaron Lammer. My co-host is Jay Kang. We’re produced in partnership with Medium. Find all of our episodes at Medium.com/CoinTalk. You can send us a tip, tippin, T-I-P-P-I-N, .me/@cointalkshow. If you send us a tip, you can get us to read any sentence, Jay, any sentence, on the show.
Jay Kang: Is that true?
Aaron Lammer: Yeah, you want me to pull up … I’ll pull it up right now. Here, I’m going to do it right now.
Jay Kang: Yeah, but nothing-
Aaron Lammer: Just going to check it right now. Here, right down there.
Jay Kang: No bigoted things, please.
Aaron Lammer: Okay. As Jay says, with a very small asterisk, because Jay has an expansive view of speech, you can get us to say almost anything on the show. Unfortunately, I have heard if you use BlueWallet, which actually seems to unfortunately be the Lightning wallet that most people use, they don’t have the notes field in that, so if you send us money with BlueWallet you’ll have to just email it and tell us how many Satoshis you sent.
Aaron Lammer: We got a tip this week. “Great show, guys, thanks for the content.” And another one. “This is my favorite podcast.” Thanks to all those people. We are stacking Satoshis, Jay. We have 2.5 million Satoshis stacked.
Jay Kang: How much money? How much-
Aaron Lammer: That’s 150 bucks in Satoshis.
Jay Kang: All right, that’s good.
The official podcast of Bitcoin crashes. Hosted by @aaronlammer and @jaycaspiankang. Mailbag/contact: email@example.com
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