Check out one of the big win­ners from the ongo­ing surge in the val­ue of Bit­coin: neo-Nazis. And espe­cial­ly Andrew “weev” Auern­heimer:

Mic

Neo-Nazi wealth is rapid­ly grow­ing. Why? Bit­coin.

by Jack Smith IV
Pub­lished Dec. 1, 2017

In many ways, white nation­al­ists were the big losers after the Unite the Right ral­ly in Char­lottesville in August. First, they lost web host­ing for neo-Nazi hives like Storm­front. Some far-right atten­dees lost access to Uber or their social media accounts. Oth­ers lost meet­ing venues and were dri­ven out of sub­se­quent pub­lic spaces dur­ing fol­low-up ral­lies. And of course, some atten­dees, such as those who were exposed in pho­tos tak­en at the infa­mous torch-lit march the night before the ral­ly, lost their jobs.

In that time, they were also essen­tial­ly forced to invest in bit­coin, and after the cryptocurrency’s mete­oric rise through­out 2017, that finan­cial move has broad­ened their wealth sig­nif­i­cant­ly.

After the Char­lottesville protests, many white nation­al­ists lost access to mon­ey-trans­fer ser­vices like Apple Pay and Pay­Pal, and there­fore turned to bit­coin, dou­bling down on their invest­ment or cre­at­ing wal­lets to exper­i­ment with the apo­lit­i­cal cryp­tocur­ren­cy.

In the past few months, the price of bit­coin soared to record heights, reach­ing a trad­ing price over $11,000 per coin on Wednes­day. Through­out this boom, white nation­al­ist wealth has grown, with some of the country’s most vir­u­lent celebri­ty racists often rak­ing in thou­sands of dol­lars in a sin­gle day.

Bit­coin can be used anony­mous­ly, but in order to accept dona­tions, white nation­al­ists had to de-anonymize them­selves. So John Bam­benek, a cyber­se­cu­ri­ty researcher and threat ana­lyst, cre­at­ed a Twit­ter bot to fol­low and col­lect this infor­ma­tion. It’s from that bot, @NeoNaziWallets, that Mic has col­lat­ed and graphed this behav­ior. Even so, while any­one can watch the mon­ey move in and out of accounts, it’s uncer­tain where the mon­ey trav­els to, who is con­tribut­ing and how many oth­er dig­i­tal wal­lets are involved in the net­work of white suprema­cist bit­coin users.

...

The cryp­tocur­ren­cy is also pret­ty attrac­tive to those who believe in anti-Semit­ic con­spir­a­cies about greedy, often assumed Jew­ish, over­lords who engi­neer our soci­ety through con­trol of cen­tral banks. In March, Richard Spencer declared bit­coin “the cur­ren­cy of the alt-right” — though that should be tak­en with a grain of salt. The alt-right will lay claim to any­thing from New Bal­ance shoes to Papa John’s piz­za if it suits them.

Bit­coin is the cur­ren­cy of the alt right.— Richard ???? Spencer (@RichardBSpencer) March 18, 2017

Still, since Char­lottesville, white nation­al­ists who ramped up their invest­ment in bit­coin have seen their vir­tu­al wealth grow.

The clear­est case of such growth is with Counter-Cur­rents, a pub­lish­ing house for books like Trevor Lynch’s White Nation­al­ist Guide to the Movies and Toward the White Repub­lic. From late August until Wednes­day — our obser­va­tion peri­od for the data — the wal­let for the far-right pub­lish­er held at about 7.7 bit­coin, includ­ing some tiny con­tri­bu­tions (pos­si­bly dona­tions) along the way. Its wealth more than dou­bled, net­ting them about $41,000 between Sept. 2 and Tues­day. And then by Wednes­day it made $5,859 more.

Bitcoin’s been par­tic­u­lar­ly use­ful for Andrew Anglin, a neo-Nazi leader who’s been in and out of the pub­lic eye since the South­ern Pover­ty Law Cen­ter filed a poten­tial­ly debil­i­tat­ing law­suit against him. Bam­benek has esti­mat­ed that Anglin has tak­en in about $250,000 in bit­coin since 2014.

On Oct. 1, the Dai­ly Stormer with­drew $64,353, reap­ing the ear­ly rewards of the bit­coin boom, short­ly after mak­ing about $2,202 in just one day. Since then, the bal­ance for the Dai­ly Stormer has been fair­ly lev­el, as who­ev­er man­ages the wal­let skims the occa­sion­al few hun­dred dol­lars off the account, with some with­drawals as high as $1,602.

Oth­er white nation­al­ist exper­i­men­ta­tions in bit­coin are fair­ly mea­ger. Spencer — pres­i­dent of the Nation­al Pol­i­cy Insti­tute, a white nation­al­ist think tank — had about $3 in bit­coin sit­ting in an account until Nov. 22, when rough­ly $1,000 in bit­coin was trans­ferred to the wal­let. As of Wednes­day, he had about $1,317. Van­guard Amer­i­ca, a mil­i­tant white nation­al­ist group with a large con­tin­gent in Char­lottesville, grew a small bal­ance from rough­ly $218 on Aug. 27 to about $533 on Wednes­day with no new deposits.

One neo-Nazi stands above the rest in his bit­coin usage: Andrew “weev” Auern­heimer, who’s received over $1 mil­lion in bit­coin, accord­ing to one report. Even though Auern­heimer has with­drawn rough­ly $118,620 from his bit­coin wal­let between late August and Wednes­day, his remain­ing bit­coin store has been replen­ish­ing his wealth through­out the recent bit­coin boom.

While bit­coin is an effec­tive, apo­lit­i­cal escape pod for mov­ing mon­ey away from ser­vices that become inhos­pitable to hate groups, many main­stream wal­let providers can still de-plat­form white suprema­cists. After the Char­lottesville ral­ly, Coin­base alleged­ly kicked users off of its wal­let-pro­vid­ing ser­vice for donat­ing to the Dai­ly Stormer.

In the mean­time, all of the trans­ac­tions mov­ing in and out of the iden­ti­fied wal­lets are still in pub­lic.

“The dis­ad­van­tage [for neo-Nazis] is that I can see their trans­ac­tions, I can see when they’re spend­ing mon­ey, and giv­en effort and invest­ment of time, I could fig­ure out who is donat­ing to them also,” Bam­benek told Mic.

Bam­benek said his next project is to chart the web of trans­ac­tions around the neo-Nazi bit­coin wal­lets to try to deter­mine where the mon­ey is going and, poten­tial­ly, the iden­ti­ty of the donors using cryp­tocur­ren­cy to lend thou­sands of dol­lars to the white nation­al­ist cause.

———-

“Neo-Nazi wealth is rapid­ly grow­ing. Why? Bit­coin.” by Jack Smith IV; Mic; 12/01/2017

“After the Char­lottesville protests, many white nation­al­ists lost access to mon­ey-trans­fer ser­vices like Apple Pay and Pay­Pal, and there­fore turned to bit­coin, dou­bling down on their invest­ment or cre­at­ing wal­lets to exper­i­ment with the apo­lit­i­cal cryp­tocur­ren­cy.”

So fol­low­ing the back­lash from the neo-Nazi vio­lence in Char­lottesville, the ‘Alt Right’ neo-Nazis redou­ble their inter­est in Bit­coin, includ­ing for fundrais­ing, allow­ing them to turn those dona­tions into mas­sive prof­its as a result of the recent Bit­coin surge.

But in order to accept those dona­tions, the neo-Nazis had to make their Bit­coin “wal­lets” pub­licly known, allow­ing peo­ple to track at least the pub­licly avail­able Bit­coin neo-Nazi wealth. Which is exact­ly what cyber­se­cu­ri­ty researcher John Bam­benek did:

...
Bit­coin can be used anony­mous­ly, but in order to accept dona­tions, white nation­al­ists had to de-anonymize them­selves. So John Bam­benek, a cyber­se­cu­ri­ty researcher and threat ana­lyst, cre­at­ed a Twit­ter bot to fol­low and col­lect this infor­ma­tion. It’s from that bot, @NeoNaziWallets, that Mic has col­lat­ed and graphed this behav­ior. Even so, while any­one can watch the mon­ey move in and out of accounts, it’s uncer­tain where the mon­ey trav­els to, who is con­tribut­ing and how many oth­er dig­i­tal wal­lets are involved in the net­work of white suprema­cist bit­coin users.
...

And what did Banenek find? Well, found that Storm­front founder Andrew Anglin has tak­en in an esti­mate $250,000 in bit­coins sinc 2014, but that’s dwarfed by Anglin’s asso­ciate, neo-Nazi hack­er Andrew Anglin who as seen over $1 mil­lion in bit­coins flow­ing into his wal­let:

...
Bitcoin’s been par­tic­u­lar­ly use­ful for Andrew Anglin, a neo-Nazi leader who’s been in and out of the pub­lic eye since the South­ern Pover­ty Law Cen­ter filed a poten­tial­ly debil­i­tat­ing law­suit against him. Bam­benek has esti­mat­ed that Anglin has tak­en in about $250,000 in bit­coin since 2014.

On Oct. 1, the Dai­ly Stormer with­drew $64,353, reap­ing the ear­ly rewards of the bit­coin boom, short­ly after mak­ing about $2,202 in just one day. Since then, the bal­ance for the Dai­ly Stormer has been fair­ly lev­el, as who­ev­er man­ages the wal­let skims the occa­sion­al few hun­dred dol­lars off the account, with some with­drawals as high as $1,602.

...

One neo-Nazi stands above the rest in his bit­coin usage: Andrew “weev” Auern­heimer, who’s received over $1 mil­lion in bit­coin, accord­ing to one report. Even though Auern­heimer has with­drawn rough­ly $118,620 from his bit­coin wal­let between late August and Wednes­day, his remain­ing bit­coin store has been replen­ish­ing his wealth through­out the recent bit­coin boom.
...

Based on this per­for­mance, we should prob­a­bly expect neo-Nazis to con­tin­ue favor­ing Bit­coin when it comes to accept­ing dona­tions. But there is one big catch to all this: Bit­coin is only qua­si-anony­mous and it’s often pos­si­ble de-anonymize a Bit­coin wal­let and fig­ure out who is mak­ing all these neo-Nazi dona­tions. And that, of course, is Bam­benek’s next project:

...
In the mean­time, all of the trans­ac­tions mov­ing in and out of the iden­ti­fied wal­lets are still in pub­lic.

“The dis­ad­van­tage [for neo-Nazis] is that I can see their trans­ac­tions, I can see when they’re spend­ing mon­ey, and giv­en effort and invest­ment of time, I could fig­ure out who is donat­ing to them also,” Bam­benek told Mic.

Bam­benek said his next project is to chart the web of trans­ac­tions around the neo-Nazi bit­coin wal­lets to try to deter­mine where the mon­ey is going and, poten­tial­ly, the iden­ti­ty of the donors using cryp­tocur­ren­cy to lend thou­sands of dol­lars to the white nation­al­ist cause.
...

So it’s going to be inter­est­ing to see how many peo­ple end up get­ting iden­ti­fied as a neo-Nazi donor (at which point they will like­ly act very per­se­cut­ed when peo­ple don’t think well of them for donat­ing to/being neo-Nazis and ask for more dona­tions them­selves).

And don’t for­get that this study of neo-Nazi Bit­coin activ­i­ty is based on the wal­lets that have iden­ti­fied as owned by a neo-Nazi. So Bam­benek’s study is real­ly just a sub­set of the total neo-Nazi Bit­coin wealth.

Check out one of the ‘dis­rup­tion’ projects Steve Ban­non is work­ing on: It’s Bit­coin. Sur­prise!

But not just Bit­coin. Ban­non is inter­est­ed in all sorts of cryp­tocur­ren­cies. Includ­ing mak­ing up some of his own (and mak­ing a bunch of mon­ey in the process). And part of his sales pitch is that no polit­i­cal move­ment is tru­ly free unless it con­trols its own cur­ren­cy. He’s even talk­ing about mak­ing a ‘Deplorable Coin’. So that’s appar­ent­ly Ban­non’s next big plan: mak­ing par­ti­san cryp­tocur­ren­cies that he can sell to the right-wingers as ‘free­dom’:

The New York Times

Stephen Ban­non Buys Into Bit­coin

By Jere­my W. Peters and Nathaniel Pop­per
June 14, 2018

WASHINGTON — Stephen K. Ban­non, 10 months removed from the job of chief strate­gist to Pres­i­dent Trump and five months after his ouster from the arch-con­ser­v­a­tive news site Bre­it­bart News, is bet­ting that Bit­coin and oth­er cryp­tocur­ren­cies can dis­rupt bank­ing the way Mr. Trump dis­rupt­ed Amer­i­can pol­i­tics.

Mr. Ban­non won’t reveal very much about his cryp­tocur­ren­cy plans — he wor­ries that the con­tro­ver­sy that comes with his name could have a bad impact on projects just get­ting off the ground.

But he has had pri­vate meet­ings with cryp­tocur­ren­cy investors and hedge funds where he has dis­cussed work­ing on so-called ini­tial coin offer­ings through his invest­ment busi­ness, Ban­non & Com­pa­ny. And in his first inter­view on the top­ic, he said he had a “good stake” in Bit­coin.

In a small gath­er­ing of aca­d­e­mics at Har­vard Uni­ver­si­ty this spring, he even float­ed the pos­si­bil­i­ty of cre­at­ing a new vir­tu­al cur­ren­cy, the “deplorables coin.” The name is a nod to Hillary Clinton’s descrip­tion of Mr. Trump’s sup­port­ers as “a bas­ket of deplorables.”

The work that Mr. Ban­non is doing in the vir­tu­al cur­ren­cy realm is still in its ear­ly stages. But he has expressed an inter­est in help­ing entre­pre­neurs and even coun­tries look­ing to cre­ate their own cryp­tocur­ren­cies — gen­er­al­ly out­side the Unit­ed States.

The off­beat world of cryp­tocur­ren­cies has drawn inter­est from all sorts over the last few years, from drug deal­ers and scam artists to the biggest com­pa­nies in Sil­i­con Val­ley and the most staid insti­tu­tions of Wall Street.

It is not a shock­ing place for Mr. Ban­non, 64, to plot his re-emer­gence. Cryp­tocur­ren­cies have many of the char­ac­ter­is­tics that drew him into Tea Par­ty pol­i­tics: They break old rules, they exist on the periph­ery, and they pose a chal­lenge to the pow­er­ful fig­ures and insti­tu­tions that have long called the shots.

“It’s dis­rup­tive pop­ulism,” Mr. Ban­non said in the inter­view, at his Capi­tol Hill town­house in Wash­ing­ton. “It takes con­trol back from cen­tral author­i­ties. It’s rev­o­lu­tion­ary.”

Even though he has no for­mal ties to the busi­ness any­more, Mr. Ban­non still refers to his town­house as the “Bre­it­bart Embassy,” the nick­name giv­en to it because so much of the site’s busi­ness was done there.

While Bre­it­bart edi­tors and writ­ers no longer linger at all hours inside the embassy, rem­nants of the web­site remain in Bre­it­bart memen­tos hang­ing from the wall and cof­fee mugs with the sig­na­ture block B logo strewn about the kitchen. Mr. Ban­non still accepts a steady stream of vis­i­tors who pro­vide him intel­li­gence and gos­sip from the con­ser­v­a­tive cir­cles he once com­mand­ed. But these days he is just as like­ly to be con­ven­ing meet­ings there on his new finan­cial ven­ture.

He won’t talk about a pos­si­ble return to pol­i­tics some­day. His messy rup­ture with the White House over crit­i­cal com­ments he made in Michael Wolff’s book “Fire and Fury” about col­leagues and Don­ald Trump Jr. is still too fresh. But he does see a polit­i­cal com­po­nent to vir­tu­al cur­ren­cy.

“It was pret­ty obvi­ous to me that unless you got some­how con­trol over your cur­ren­cy, all these polit­i­cal move­ments were going to be behold­en to who con­trolled the cur­ren­cy,” Mr. Ban­non said.

His vision for vir­tu­al cur­ren­cy has ele­ments of his unortho­dox ide­ol­o­gy. He sounds like both an avowed lib­er­tar­i­an who wants gov­ern­ment out of his life and a pro­gres­sive who wants Wall Street held to account when he insists that vir­tu­al cur­ren­cies can help cit­i­zens take back pow­er from the cen­tral banks that “debase your cur­ren­cy” and make cit­i­zens “slaves to debt.”

His focus on cre­at­ing new dig­i­tal tokens, which are usu­al­ly offered through ini­tial coin offer­ings, puts him square­ly in the edgi­est, most scam-filled slice of the cryp­tocur­ren­cy busi­ness.

New com­pa­nies have raised bil­lions through these I.C.O.s, which allow them to bypass reg­u­la­tors and oth­er mid­dle­men and go straight to investors. That has also led to plen­ty of scams, and author­i­ties through­out the world are start­ing to crack down.

Mr. Bannon’s involve­ment in cryp­tocur­ren­cies has raised eye­brows among peo­ple try­ing to move the busi­ness toward the main­stream. They fear he will fur­ther cement the technology’s rep­u­ta­tion as a play­thing of fringe ele­ments.

“It almost seems like a nat­ur­al pro­gres­sion for a man who gained promi­nence by shov­el­ing out unfound­ed con­spir­a­cies to now shilling com­plex tech­nol­o­gy and finan­cial instru­ments to an unso­phis­ti­cat­ed invest­ing pub­lic,” said Col­in Platt, a cryp­tocur­ren­cy researcher and advis­er.

Bit­coin are stored and moved around a glob­al net­work of com­put­ers that allows for the sys­tem to work with­out rely­ing on a cen­tral author­i­ty. That lack of over­sight has made Bit­coin a favorite method of pay­ment for online drug mar­kets and ran­som schemes.

Bit­coin has been pop­u­lar with the alt-right and nation­al­ist com­mu­ni­ties because it has pro­vid­ed them with a way to receive online dona­tions and evade restric­tions put on them by banks and pay­ment com­pa­nies. Pay­Pal and Apple Pay, for exam­ple, shut down the accounts of some right-wing groups last year.

Cryp­tocur­ren­cies are also gain­ing main­stream inter­est. Gold­man Sachs, where Mr. Ban­non worked in the 1980s, recent­ly said it was cre­at­ing a Bit­coin trad­ing oper­a­tion. The par­ent com­pa­ny of the New York Stock Exchange has been look­ing at build­ing an exchange for dig­i­tal tokens. And Face­book has put top exec­u­tives on a project explor­ing use of the tech­nol­o­gy.

These big com­pa­nies are gen­er­al­ly try­ing to take the tech­nol­o­gy away from its rad­i­cal polit­i­cal roots. But Mr. Ban­non is hop­ing to embrace those roots. “Con­trol of the cur­ren­cy,” he said, “is con­trol of every­thing.”

Tim­o­thy Lewis, a hedge fund man­ag­er who met with Mr. Ban­non to talk about cryp­tocur­ren­cies last month, said he was impressed with the degree to which Mr. Ban­non had delved into the details of the tech­nol­o­gy and the chal­lenges it faces.

“I didn’t know what to expect going in, but he had clear­ly done his home­work,” said Mr. Lewis, who is a co-founder of the Iki­gai hedge fund, which invests in cryp­tocur­ren­cy projects. He said they had talked about the laws gov­ern­ing new cryp­tocur­ren­cies and a few ini­tial coin offer­ings that had recent­ly raised mon­ey from investors.

Mr. Ban­non is par­tic­u­lar­ly inter­est­ed in the pos­si­bil­i­ty that coun­tries could cre­ate coins tied to nation­al wealth — an Ital­ian coin tied to mar­ble deposits in the coun­try, for instance.

He found his way into the vir­tu­al cur­ren­cy uni­verse through Brock Pierce, a for­mer child actor who appeared in films like “The Mighty Ducks” before start­ing a com­pa­ny in Hong Kong that sold the vir­tu­al gold that play­ers use in the video game World of War­craft.

The com­pa­ny, Inter­net Gam­ing Enter­tain­ment, or IGE, brought on Mr. Ban­non as vice chair­man in 2005 to help Mr. Pierce expand the busi­ness and deal with legal threats.

Mr. Ban­non cred­its the com­pa­ny with intro­duc­ing him to the ranks of dis­af­fect­ed young men who gath­ered online around video games, and who became pil­lars of the alt-right move­ment.

Since leav­ing IGE in 2007, Mr. Pierce has become involved with a wide array of vir­tu­al cur­ren­cy projects, includ­ing an effort to cre­ate a cryp­tocur­ren­cy enclave in Puer­to Rico that takes advan­tage of the island’s low tax­es, and a new vir­tu­al cur­ren­cy known as EOS, which has raised over $3 bil­lion.

Mr. Ban­non said he would have got­ten involved with Mr. Pierce and cryp­tocur­ren­cies back in 2016 if the Trump cam­paign hadn’t inter­vened.

Mr. Pierce’s big claims for cryp­tocur­ren­cies — and a recent turn toward new age spir­i­tu­al­ism — have made him a tar­get for crit­ics. John Oliv­er, on his HBO com­e­dy show, recent­ly held up Mr. Pierce as an emblem of the bom­bast that floats around the vir­tu­al cur­ren­cy com­mu­ni­ty. After the seg­ment, the com­pa­ny that cre­at­ed EOS said Mr. Pierce had left the com­pa­ny.

...

———-

“Stephen Ban­non Buys Into Bit­coin” by Jere­my W. Peters and Nathaniel Pop­per; The New York Times; 06/14/2018

“Stephen K. Ban­non, 10 months removed from the job of chief strate­gist to Pres­i­dent Trump and five months after his ouster from the arch-con­ser­v­a­tive news site Bre­it­bart News, is bet­ting that Bit­coin and oth­er cryp­tocur­ren­cies can dis­rupt bank­ing the way Mr. Trump dis­rupt­ed Amer­i­can pol­i­tics.”

That’s appar­ent­ly Ban­non’s big bet: Bit­coin can dis­rupt bank­ing the way Don­ald Trump dis­rupt­ed Amer­i­can pol­i­tics. Oh joy.

But the par­tic­u­lar dis­rup­tion Ban­non has in mind does­n’t appear to revolve around Bit­coin. Instead, he’s talk­ing about help­ing oth­ers start their own cryp­tocur­ren­cies and even start­ing his own (like the pro­posed “deplorables coin”) and get­ting in on the poten­tial­ly lucra­tive ‘ini­tial coin offer­ings’, when a siz­able por­tion of the coins in some new cryp­to­coin are giv­en to ear­ly investors:

...
Mr. Ban­non won’t reveal very much about his cryp­tocur­ren­cy plans — he wor­ries that the con­tro­ver­sy that comes with his name could have a bad impact on projects just get­ting off the ground.

But he has had pri­vate meet­ings with cryp­tocur­ren­cy investors and hedge funds where he has dis­cussed work­ing on so-called ini­tial coin offer­ings through his invest­ment busi­ness, Ban­non & Com­pa­ny. And in his first inter­view on the top­ic, he said he had a “good stake” in Bit­coin.

In a small gath­er­ing of aca­d­e­mics at Har­vard Uni­ver­si­ty this spring, he even float­ed the pos­si­bil­i­ty of cre­at­ing a new vir­tu­al cur­ren­cy, the “deplorables coin.” The name is a nod to Hillary Clinton’s descrip­tion of Mr. Trump’s sup­port­ers as “a bas­ket of deplorables.”
...

And note how Ban­non is fram­ing this move to start his own cryp­tocur­ren­cies: It’s all about ‘tak­ing back con­trol from cen­tral author­i­ties’. So Ban­non’s pri­vate cur­ren­cy that he wants to ped­dle to the pub­lic is how one ‘takes back con­trol’:

...
The work that Mr. Ban­non is doing in the vir­tu­al cur­ren­cy realm is still in its ear­ly stages. But he has expressed an inter­est in help­ing entre­pre­neurs and even coun­tries look­ing to cre­ate their own cryp­tocur­ren­cies — gen­er­al­ly out­side the Unit­ed States.

...

“It’s dis­rup­tive pop­ulism,” Mr. Ban­non said in the inter­view, at his Capi­tol Hill town­house in Wash­ing­ton. “It takes con­trol back from cen­tral author­i­ties. It’s rev­o­lu­tion­ary.”

Even though he has no for­mal ties to the busi­ness any­more, Mr. Ban­non still refers to his town­house as the “Bre­it­bart Embassy,” the nick­name giv­en to it because so much of the site’s busi­ness was done there.

...

“It was pret­ty obvi­ous to me that unless you got some­how con­trol over your cur­ren­cy, all these polit­i­cal move­ments were going to be behold­en to who con­trolled the cur­ren­cy,” Mr. Ban­non said.

His vision for vir­tu­al cur­ren­cy has ele­ments of his unortho­dox ide­ol­o­gy. He sounds like both an avowed lib­er­tar­i­an who wants gov­ern­ment out of his life and a pro­gres­sive who wants Wall Street held to account when he insists that vir­tu­al cur­ren­cies can help cit­i­zens take back pow­er from the cen­tral banks that “debase your cur­ren­cy” and make cit­i­zens “slaves to debt.”

...

Cryp­tocur­ren­cies are also gain­ing main­stream inter­est. Gold­man Sachs, where Mr. Ban­non worked in the 1980s, recent­ly said it was cre­at­ing a Bit­coin trad­ing oper­a­tion. The par­ent com­pa­ny of the New York Stock Exchange has been look­ing at build­ing an exchange for dig­i­tal tokens. And Face­book has put top exec­u­tives on a project explor­ing use of the tech­nol­o­gy.

These big com­pa­nies are gen­er­al­ly try­ing to take the tech­nol­o­gy away from its rad­i­cal polit­i­cal roots. But Mr. Ban­non is hop­ing to embrace those roots. “Con­trol of the cur­ren­cy,” he said, “is con­trol of every­thing.”
...

“It was pret­ty obvi­ous to me that unless you got some­how con­trol over your cur­ren­cy, all these polit­i­cal move­ments were going to be behold­en to who con­trolled the currency...Control of the cur­ren­cy is con­trol of every­thing.”

So are all polit­i­cal move­ments in the US are behold­en to the Fed­er­al Reserve and US Trea­sury? Well, that’s the nar­ra­tive Ban­non is adopt­ing. So, pre­sum­ably, when he sells worth­less “deplorable coins” to all the Bre­it­bart rubes he’ll be ped­dling it as ‘tak­ing back con­trol of every­thing’.

Also keep in mind that Bit­coin is about the worst exam­ple one could think of when it comes to ‘the peo­ple’ ‘tak­ing back­ing’ their cur­ren­cy because it’s almost all owned by a tiny num­ber of peo­ple. Accord­ing to a recent study, 87 per­cent of all exist­ing Bit­coins are owned by half a per­cent of the Bit­coin wal­lets. In oth­er words, Bit­coin is already a pri­vate cur­ren­cy with a de fact oli­garchy. And a com­plete­ly anony­mous oli­garchy. So when Ban­non is talk­ing about ‘talk­ing back con­trol of every­thing’ using cryp­tocur­ren­cies he is pre­sum­ably talk­ing to his oli­garch bud­dies.

And while cryp­tocur­ren­cies may not actu­al­ly allow peo­ple to ‘take back con­trol of every­thing’, the lack of reg­u­la­tions in this area does poten­tial­ly allow peo­ple to legal­ly get away with what amounts to a pyra­mid scheme: raise a bunch of mon­ey direct­ly from investors with the ‘ini­tial coin offer­ings’ (I.C.O.s) that bypass reg­u­la­tors:

...
His focus on cre­at­ing new dig­i­tal tokens, which are usu­al­ly offered through ini­tial coin offer­ings, puts him square­ly in the edgi­est, most scam-filled slice of the cryp­tocur­ren­cy busi­ness.

New com­pa­nies have raised bil­lions through these I.C.O.s, which allow them to bypass reg­u­la­tors and oth­er mid­dle­men and go straight to investors. That has also led to plen­ty of scams, and author­i­ties through­out the world are start­ing to crack down.

Mr. Bannon’s involve­ment in cryp­tocur­ren­cies has raised eye­brows among peo­ple try­ing to move the busi­ness toward the main­stream. They fear he will fur­ther cement the technology’s rep­u­ta­tion as a play­thing of fringe ele­ments.

“It almost seems like a nat­ur­al pro­gres­sion for a man who gained promi­nence by shov­el­ing out unfound­ed con­spir­a­cies to now shilling com­plex tech­nol­o­gy and finan­cial instru­ments to an unso­phis­ti­cat­ed invest­ing pub­lic,” said Col­in Platt, a cryp­tocur­ren­cy researcher and advis­er.
...

But, in fair­ness, there is one idea Ban­non is propos­ing that does sound at least kind of inter­est­ing: coins tied to actu­al nation­al wealth, like an Ital­ian coin tied to Ital­ian mar­ble deposits:

...
Mr. Ban­non is par­tic­u­lar­ly inter­est­ed in the pos­si­bil­i­ty that coun­tries could cre­ate coins tied to nation­al wealth — an Ital­ian coin tied to mar­ble deposits in the coun­try, for instance.
...

Keep in mind that one of sig­nif­i­cant prob­lems with many cryp­tocur­ren­cies, like Bit­coin, is the fact that there’s a cap on the total num­ber of coins ever cre­at­ed (21 mil­lion for Bit­coin). It’s a remark­ably stu­pid fea­ture to have for a nation­al cur­ren­cy. But if you want­ed to some­how rep­re­sent own­er­ship of non-renew­able nation­al resources, like mar­ble, well maybe some­thing like ‘mar­ble­coins’ could be use­ful?

Grant­ed, such a scheme would prob­a­bly be used to make it even eas­i­er to force finan­cial­ly dis­tressed coun­tries to sell off and pri­va­tize all their nation­al wealth and that’s prob­a­bly one of Ban­non’s goals in all this. But at least in the­o­ry there might be some pos­i­tive appli­ca­tions for such a coin. And assum­ing the nation itself is actu­al­ly issu­ing the resource coins at least it’s much less like­ly to be a fly-by-night scam.

And there’s one poten­tial­ly real­ly nice fea­ture of ‘resource coins’ that could pos­i­tive exploit one of the ‘fea­tures’ of Bit­coin that, under nor­mal cir­cum­stances, would be high­ly unde­sir­able for an actu­al cur­ren­cy: if you lose the keys to your coins, they are gone for­ev­er. For Bit­coin, some­where between 17–23% of exist­ing Bit­coins were already lost as of last Novem­ber accord­ing to a study. And that’s a gener­ic prob­lem that applies to any cryp­tocur­ren­cy: if the own los­ing the keys to their coins those coins are lost for­ev­er.

Who knows, maybe Steve Ban­non acci­den­tal­ly came up with a great sys­tem for pre­serv­ing nat­ur­al resources: issue a lim­it­ed num­ber of coins tied to exist­ing non-renew­able resources and then wait for peo­ple to start los­ing them for­ev­er.

So that appears to be one of the many ‘dis­rup­tion’ projects Ban­non is work­ing on these days. Pri­va­tized cur­ren­cies cre­at­ed for the prof­it of Ban­non and his oli­garch bud­dies will set you free.

Fol­low­ing up on the recent string of bank implo­sions, here’s a reminder that we prob­a­bly haven’t seen the end of the sud­den wave of bank implo­sions. For exam­ple, in the case of Sil­i­con Val­ley Bank (SVB), the roots of that implo­sion was a series of bets made on mort­gage backed secu­ri­ties that went awry as inter­est rates rose. How many oth­er banks expe­ri­enced sim­i­lar dev­as­tat­ing loss­es as a result of high­er rates? It’s one of the mas­sive ques­tions loom­ing in the wake of SVB’s col­lapse.

But, of course, SVB was­n’t the only bank to col­lapse last week. Just the high­est pro­file bank to col­lapse. Much less scruti­ny has been giv­en to the col­lapse of Sig­na­ture Bank, which turns out to be the third largest bank col­lapse in US his­to­ry, led only by the 2008 col­lapse of Wash­ing Mutu­al and last week­s’s col­lapse of SVB. This was not a small event.

And as we’re going to see, while Sig­na­ture’s trou­bles were sim­i­lar­ly root­ed in a series of bad finan­cial bets, they weren’t inter­est-rate-relat­ed bad bets. No, they were cryp­to bad bets. Yep, the third largest bank col­lapse in US his­to­ry was trig­gered by bad bets in cryp­to.

Even worse, it turns out that cryp­to was­n’t real­ly even an area of spe­cial­ty of the bank. It was like a side gig on top of Sig­na­ture’s core busi­ness of New York City real estate deals. A side gig that had blown up to rough­ly 20% of the bank’s bal­ance sheets by the time of FTX’s implo­sion late last year. And while Sig­na­ture tried to unwind that cryp­to expo­sure, those efforts ulti­mate­ly failed, result­ing in the bank’s col­lapse and seizure and shut­down by fed­er­al reg­u­la­tors last week.

So we have to ask: how many oth­er cryp­to finan­cial tick­ing time bombs are there sit­ting out there in the US finan­cial sys­tem? How about the glob­al finan­cial sys­tem? It’s a major ques­tion loom­ing over this sto­ry. In part because we’re pre­sum­ably going to get answers to this ques­tion, in future finan­cial implo­sion at a time:

Bloomberg

‘Old-School’ Sig­na­ture Bank Col­lapsed After Its Big Cryp­to Leap

The lender sur­vived blowups with cab­bies, “bad land­lords” and Trump — only to fall after try­ing a side gig.

Max Abel­son
March 14, 2023 at 6:00 AM CDT
Updat­ed on March 14, 2023 at 8:38 PM CDT

Sig­na­ture Bank was fly­ing high when co-founder Scott Shay mused about suc­cess on a pod­cast ear­ly last year.

The best deci­sion he ever made, he told the host, was stick­ing close to the com­pa­ny as it grew ever larg­er. His advice: Always learn from your fail­ures.

“They become part of you,” he said. “And if you go in the wrong direc­tion, you can become inca­pac­i­tat­ed by them.”

Signature’s col­lapse on Sun­day, when New York reg­u­la­tors swooped in after a surge of pan­icked with­drawals, was not what he’d had in mind. It was the third-largest bank fail­ure in the US ever, behind Wash­ing­ton Mutu­al in 2008 and Sil­i­con Val­ley Bank’s cat­a­clysmic drop days ago. But Shay’s lender wasn’t a nation­al giant or a new-fan­gled tech star, it was old school.

For­mer exec­u­tives and investors describe an out­er-bor­ough, scrap­py, blue-col­lar group of New York bankers. It was a place with ambi­tion but not pres­tige, where brand­ing was an after­thought and the CEO thought art on the walls was a sign of com­pla­cen­cy. The firm had over­come set­backs includ­ing ques­tions over deal­ings with Don­ald Trump’s inner cir­cle, ram­pant lend­ing to cab own­ers and even accu­sa­tions of fund­ing slum­lords. It could even point to a US bank­ing reformer on its board: Bar­ney Frank, co-author of the Dodd-Frank Act and one of the archi­tects of the rad­i­cal over­haul of the finan­cial sys­tem after the 2008 cri­sis.

Then a big piv­ot to cryp­to changed the lender’s focus — and its fate.

On Tues­day, state reg­u­la­tors said they inter­vened after los­ing faith in the firm’s man­age­ment, as the bank failed to pro­vide reli­able and con­sis­tent data as the indus­try came under pres­sure.

Sig­na­ture was the third bank in the coun­try to top­ple in a week, as depos­i­tors fled lenders teth­ered too close­ly to the dig­i­tal world’s slump. But Sig­na­ture was some­thing dif­fer­ent, treat­ing cryp­to as a side gig to its long­time role in New York’s over­looked neigh­bor­hoods and busi­ness­es. For most of its life, it had got­ten on just fine as a bank — qui­et­ly well-con­nect­ed, some­times con­tro­ver­sial and most­ly tra­di­tion­al.

“They did busi­ness the old-fash­ioned way,” said John Cat­si­ma­tidis, the Repub­li­can donor, oil investor and super­mar­ket own­er. He had been an admir­er, buy­ing shares after its ini­tial pub­lic offer­ing in 2004, but thought the bank made mis­takes by loan­ing against taxi medal­lions just before the mar­ket for them col­lapsed and then get­ting into cryp­to. “They tried to ride the heights.”

...

Trump’s Accounts

Signature’s head­quar­ters are a short stroll down Fifth Avenue from Trump’s cor­po­rate head­quar­ters. The bank has con­nec­tions to the for­mer president’s inner cir­cle, doing busi­ness with his fam­i­ly, includ­ing son-in-law Jared Kush­n­er, and Michael Cohen, his one-time per­son­al lawyer and fix­er.

In 2018, New York’s bank­ing reg­u­la­tor asked Sig­na­ture and two oth­ers to give infor­ma­tion about their rela­tion­ships with Kush­n­er, his fam­i­ly and the Kush­n­er Cos., a per­son said at the time. The broad request cov­ered rela­tion­ships with Kush­n­er and his busi­ness prop­er­ties, and doc­u­ments about cer­tain appli­ca­tions. Three years lat­er, in the wake of the Capi­tol attack, Sig­na­ture announced it was clos­ing Trump accounts with about $5.3 mil­lion.

“To lose Sig­na­ture would cause a rip­ple effect far greater than what the gen­er­al pub­lic is aware of,” said Cohen, who plead­ed guilty in 2018 to cam­paign-finance vio­la­tions and oth­er charges. He said it has a “vital role” across mul­ti­ple indus­tries.

Trump wasn’t Signature’s only source of ten­sion in those years. In 2017, when New York City Pub­lic Advo­cate Leti­tia James put out the City’s Worst Land­lord Watch­list, the bank was at the top of her ros­ter of lenders back­ing them. “Banks must use their eco­nom­ic lever­age to get bad land­lords to take respon­si­bil­i­ty for main­tain­ing basic liv­ing con­di­tions in their build­ings,” James, now the state’s attor­ney gen­er­al, said at the time.

By then, Sig­na­ture had also become a major lender to cab own­ers. It was just before online ride-shar­ing ser­vices erod­ed the val­ue of medal­lions, even­tu­al­ly spark­ing bil­lions of dol­lars of write-offs. Bhairavi Desai, the pres­i­dent of the Nation­al Taxi Work­ers Alliance Board and Offi­cers, said the bank was more will­ing than oth­ers to strike deals with medal­lion own­ers.

“If I had ques­tions, I was able to get the pres­i­dent on the phone,” she said. “I remem­ber one time he was out of the coun­try, and the next thing I knew the gen­er­al coun­sel called me.” Sig­na­ture end­ed up sell­ing loans rep­re­sent­ing hun­dreds of medal­lions to a mon­ey man­ag­er.
Sig­na­ture Seized By Reg­u­la­tors As Pain Spreads From SVB’s Fall

Cryp­to Deposits

It was also get­ting into cryp­to. On Wall Street, views on vir­tu­al rich­es vac­il­late between scorn, sus­pi­cion and envy. Inside Sig­na­ture, it was seen as an oppor­tu­ni­ty.

“Banks essen­tial­ly gave the back of the hand to the cryp­tocur­ren­cy world. And they were all think­ing alike: ‘This is just a lit­tle fad, it’s some teenagers in a base­ment,’” Shay told an exec­u­tive coach on the pod­cast. “Not to men­tion names, but some famous bank­ing CEOs real­ly said the whole thing was a joke.”

His col­leagues felt oth­er­wise. In Octo­ber 2015, Cameron and Tyler Winklevoss’s Gem­i­ni Trust won one of New York’s first state licens­es to oper­ate a vir­tu­al cur­ren­cy exchange, which they promised would be run with more pro­fes­sion­al­ism than most of the chaot­ic cryp­to world. Under­scor­ing the point, they announced they had found a bank to take their cash deposits: Sig­na­ture.

In a loose way, it made sense for a bank that had a rep­u­ta­tion for work­ing in nich­es large­ly over­looked by Wall Street. By 2018, ana­lysts noticed the firm was hir­ing cryp­to vet­er­ans and won­dered how far Sig­na­ture planned to go. That year, DePao­lo was com­fort­able enough to test out brava­do.

“The oppor­tu­ni­ty is sig­nif­i­cant, if you’re deal­ing with the right clients,” he said on a con­fer­ence call. The bank was beef­ing up its com­pli­ance depart­ment to mon­i­tor risks from cryp­to and would be care­ful in man­ag­ing its bal­ance sheet. He said the real dan­ger would be fail­ing to embrace cryp­to. “Blockchain tech­nol­o­gy is the future,” he said. “You don’t want to be caught short, because in five years a num­ber of banks will not be around because of blockchain tech­nol­o­gy.”

Coin­base Glob­al Inc., the giant US cryp­to exchange, and Cir­cle Inter­net Finan­cial Ltd., the issuer of the USDC sta­ble­coin, became clients. Sig­na­ture soaked up tens of bil­lions of dol­lars in cash deposits from the indus­try.

At some point, the Jus­tice Depart­ment grew con­cerned about all the mon­ey flood­ing in from ven­tures across the cryp­to land­scape. Fed­er­al inves­ti­ga­tors qui­et­ly start­ed exam­in­ing the firm’s efforts to detect any mon­ey laun­der­ing — such as its scruti­ny of account hold­ers and the trans­ac­tions they made, peo­ple with knowl­edge of the sit­u­a­tion said, ask­ing not to be named describ­ing con­fi­den­tial inquiries. The bank and its staff haven’t been accused of wrong­do­ing, and the inves­ti­ga­tion could end with­out fur­ther action.

Things unrav­eled as cryp­to prices slumped last year and Sam Bankman-Fried’s FTX blew up. The bank’s dig­i­tal-asset clients rep­re­sent­ed more than a fifth of its deposit base, and Signature’s exec­u­tives said in Decem­ber it would work to shrink that with­out leav­ing the space entire­ly. Ear­li­er this month, the com­pa­ny report­ed it had pushed out $1.5 bil­lion in funds from cryp­to plat­forms in the year’s first two months, while tak­ing in $682 mil­lion in reg­u­lar deposits. By then it was tout­ing all the ways it wasn’t han­dling cryp­to in a pre­sen­ta­tion.

“Their down­fall came when they got into this cryp­to busi­ness,” said Al D’Amato, the for­mer sen­a­tor for New York, who was a direc­tor from 2005 to 2021. “They took their eyes off of that small entre­pre­neur.”

Ear­li­er, he said, the bank had spe­cial­ized in work­ing with “hard­work­ing peo­ple who had come up the hard way, with tough busi­ness­es.”

Jump to JPMor­gan

That’s the rub for New York City. Across the US, depos­i­tors have been pulling away from banks that cozied up too close­ly with ambi­tious and unproven tech plat­forms, top­pling cryp­to-cen­tric Sil­ver­gate Cap­i­tal Corp. and SVB Finan­cial Group’s Sil­i­con Val­ley Bank. But in Signature’s case, its down­fall sent the own­ers of more staid busi­ness­es scram­bling.

Ran Eliasaf was one of them. He’s the man­ag­ing part­ner of North­wind Group, a New York com­mer­cial real estate pri­vate equi­ty firm that pro­vides short-term and con­struc­tion financ­ing for mul­ti­fam­i­ly, con­dos, senior hous­ing and nurs­ing homes.

On Fri­day morn­ing, at about 10:30 a.m., he was watch­ing the fall­out from SVB’s col­lapse when he sent a mes­sage to his team: “It’s bet­ter to be safe than sor­ry.” He told them to pull “tens of mil­lions of dol­lars” of deposits out of Sig­na­ture, mov­ing mon­ey to JPMor­gan Chase & Co., Bank of Amer­i­ca Corp., and a few small­er banks.

Sig­na­ture, which end­ed 2022 with a $33 bil­lion book of com­mer­cial real estate loans, most­ly to apart­ment land­lords, had been the sec­ond-biggest lender to that group in New York, accord­ing to MSCI’s Real Cap­i­tal Ana­lyt­ics. It had rough­ly $4 bil­lion extend­ed to office own­ers, exec­u­tives said on a recent earn­ings call.

Mean­while, Sil­ver­gate was run­ning into trou­ble. In a reg­u­la­to­ry fil­ing this month, the Cal­i­for­nia bank said it ques­tioned its future via­bil­i­ty after weak­ened cryp­to ven­tures with­drew cash en masse in Decem­ber, set­ting in motion a $1 bil­lion loss at the end of last year and fur­ther loss­es in Jan­u­ary and Feb­ru­ary. Sil­ver­gate tried shut­ting down its cryp­to pay­ments net­work. Last week, the bank announced it was wind­ing down entire­ly — prompt­ing cus­tomers to with­draw mon­ey from firms with sim­i­lar expo­sures.

Still, the deci­sion by state reg­u­la­tors to close Sig­na­ture and sweep it into receiver­ship over the week­end sur­prised its man­agers.

The bank faced a tor­rent of out­flows on Fri­day that totaled about 20% of the company’s deposits, accord­ing to a per­son famil­iar with the mat­ter. Frank said it was his under­stand­ing that the out­flows had sta­bi­lized as of Sun­day morn­ing. But a spokesper­son for the state’s Depart­ment of Finan­cial Ser­vices described “sig­nif­i­cant with­draw­al requests still pend­ing and mount­ing” through the week­end.

In Shay’s inter­view with the pod­cast, the Sig­na­ture vet­er­an described an ear­li­er career mishap. The prob­lem with a long-ago invest­ment at anoth­er com­pa­ny, he explained, came down to hubris.

“I pray,” he said, “it remains my biggest finan­cial mis­take.” He smiled.

———–

“‘Old-School’ Sig­na­ture Bank Col­lapsed After Its Big Cryp­to Leap” by Max Abel­son; Bloomberg; 03/14/2023

“Signature’s col­lapse on Sun­day, when New York reg­u­la­tors swooped in after a surge of pan­icked with­drawals, was not what he’d had in mind. It was the third-largest bank fail­ure in the US ever, behind Wash­ing­ton Mutu­al in 2008 and Sil­i­con Val­ley Bank’s cat­a­clysmic drop days ago. But Shay’s lender wasn’t a nation­al giant or a new-fan­gled tech star, it was old school.”

The third largest bank fail­ure in US his­to­ry, only behind the 2008 WaMu col­lapse and SVB’s melt­down days ear­li­er. This was­n’t just same ran­dom small bank. For starters, as a bank that spe­cial­ized in New York City real estate deals, Sig­na­ture had a his­to­ry with clients like Don­ald Trump and Jared Kush­n­er, both noto­ri­ous for their rather ‘unortho­dox’ rela­tion­ships with banks. It was only after the Jan­u­ary 6 Capi­tol insur­rec­tion that Sig­na­ture closed Trump’s account:

...
Trump’s Accounts

Signature’s head­quar­ters are a short stroll down Fifth Avenue from Trump’s cor­po­rate head­quar­ters. The bank has con­nec­tions to the for­mer president’s inner cir­cle, doing busi­ness with his fam­i­ly, includ­ing son-in-law Jared Kush­n­er, and Michael Cohen, his one-time per­son­al lawyer and fix­er.

In 2018, New York’s bank­ing reg­u­la­tor asked Sig­na­ture and two oth­ers to give infor­ma­tion about their rela­tion­ships with Kush­n­er, his fam­i­ly and the Kush­n­er Cos., a per­son said at the time. The broad request cov­ered rela­tion­ships with Kush­n­er and his busi­ness prop­er­ties, and doc­u­ments about cer­tain appli­ca­tions. Three years lat­er, in the wake of the Capi­tol attack, Sig­na­ture announced it was clos­ing Trump accounts with about $5.3 mil­lion.
...

But it’s not the rela­tion­ship with crim­i­nal fig­ures like Trump and Kush­n­er in the New York City real estate mar­kets that makes the sud­den col­lapse of Sig­na­ture an omi­nous event. It’s the fact that Sig­na­ture was appar­ent­ly brought down thanks to its side gig in cryp­to that makes this the kind of sto­ry should serve as a broad­er warn­ing. A side gig that had blown up to rough­ly one fifth of the bank’s assets by the time of the FTX implo­sion late last year. The bank tried to deal with the after­math of that implo­sion by shrink­ing its expo­sure to the cryp­to space. But those efforts obvi­ous­ly weren’t enough. It was like a finan­cial after­shock to the FTX implo­sion. A large enough after­shock to trig­ger the third largest bank col­lapse in US his­to­ry:

...
For­mer exec­u­tives and investors describe an out­er-bor­ough, scrap­py, blue-col­lar group of New York bankers. It was a place with ambi­tion but not pres­tige, where brand­ing was an after­thought and the CEO thought art on the walls was a sign of com­pla­cen­cy. The firm had over­come set­backs includ­ing ques­tions over deal­ings with Don­ald Trump’s inner cir­cle, ram­pant lend­ing to cab own­ers and even accu­sa­tions of fund­ing slum­lords. It could even point to a US bank­ing reformer on its board: Bar­ney Frank, co-author of the Dodd-Frank Act and one of the archi­tects of the rad­i­cal over­haul of the finan­cial sys­tem after the 2008 cri­sis.

Then a big piv­ot to cryp­to changed the lender’s focus — and its fate.

On Tues­day, state reg­u­la­tors said they inter­vened after los­ing faith in the firm’s man­age­ment, as the bank failed to pro­vide reli­able and con­sis­tent data as the indus­try came under pres­sure.

Sig­na­ture was the third bank in the coun­try to top­ple in a week, as depos­i­tors fled lenders teth­ered too close­ly to the dig­i­tal world’s slump. But Sig­na­ture was some­thing dif­fer­ent, treat­ing cryp­to as a side gig to its long­time role in New York’s over­looked neigh­bor­hoods and busi­ness­es. For most of its life, it had got­ten on just fine as a bank — qui­et­ly well-con­nect­ed, some­times con­tro­ver­sial and most­ly tra­di­tion­al.

“They did busi­ness the old-fash­ioned way,” said John Cat­si­ma­tidis, the Repub­li­can donor, oil investor and super­mar­ket own­er. He had been an admir­er, buy­ing shares after its ini­tial pub­lic offer­ing in 2004, but thought the bank made mis­takes by loan­ing against taxi medal­lions just before the mar­ket for them col­lapsed and then get­ting into cryp­to. “They tried to ride the heights.”

...

Cryp­to Deposits

It was also get­ting into cryp­to. On Wall Street, views on vir­tu­al rich­es vac­il­late between scorn, sus­pi­cion and envy. Inside Sig­na­ture, it was seen as an oppor­tu­ni­ty.

“Banks essen­tial­ly gave the back of the hand to the cryp­tocur­ren­cy world. And they were all think­ing alike: ‘This is just a lit­tle fad, it’s some teenagers in a base­ment,’” Shay told an exec­u­tive coach on the pod­cast. “Not to men­tion names, but some famous bank­ing CEOs real­ly said the whole thing was a joke.”

His col­leagues felt oth­er­wise. In Octo­ber 2015, Cameron and Tyler Winklevoss’s Gem­i­ni Trust won one of New York’s first state licens­es to oper­ate a vir­tu­al cur­ren­cy exchange, which they promised would be run with more pro­fes­sion­al­ism than most of the chaot­ic cryp­to world. Under­scor­ing the point, they announced they had found a bank to take their cash deposits: Sig­na­ture.

In a loose way, it made sense for a bank that had a rep­u­ta­tion for work­ing in nich­es large­ly over­looked by Wall Street. By 2018, ana­lysts noticed the firm was hir­ing cryp­to vet­er­ans and won­dered how far Sig­na­ture planned to go. That year, DePao­lo was com­fort­able enough to test out brava­do.

“The oppor­tu­ni­ty is sig­nif­i­cant, if you’re deal­ing with the right clients,” he said on a con­fer­ence call. The bank was beef­ing up its com­pli­ance depart­ment to mon­i­tor risks from cryp­to and would be care­ful in man­ag­ing its bal­ance sheet. He said the real dan­ger would be fail­ing to embrace cryp­to. “Blockchain tech­nol­o­gy is the future,” he said. “You don’t want to be caught short, because in five years a num­ber of banks will not be around because of blockchain tech­nol­o­gy.”

Coin­base Glob­al Inc., the giant US cryp­to exchange, and Cir­cle Inter­net Finan­cial Ltd., the issuer of the USDC sta­ble­coin, became clients. Sig­na­ture soaked up tens of bil­lions of dol­lars in cash deposits from the indus­try.

At some point, the Jus­tice Depart­ment grew con­cerned about all the mon­ey flood­ing in from ven­tures across the cryp­to land­scape. Fed­er­al inves­ti­ga­tors qui­et­ly start­ed exam­in­ing the firm’s efforts to detect any mon­ey laun­der­ing — such as its scruti­ny of account hold­ers and the trans­ac­tions they made, peo­ple with knowl­edge of the sit­u­a­tion said, ask­ing not to be named describ­ing con­fi­den­tial inquiries. The bank and its staff haven’t been accused of wrong­do­ing, and the inves­ti­ga­tion could end with­out fur­ther action.

Things unrav­eled as cryp­to prices slumped last year and Sam Bankman-Fried’s FTX blew up. The bank’s dig­i­tal-asset clients rep­re­sent­ed more than a fifth of its deposit base, and Signature’s exec­u­tives said in Decem­ber it would work to shrink that with­out leav­ing the space entire­ly. Ear­li­er this month, the com­pa­ny report­ed it had pushed out $1.5 bil­lion in funds from cryp­to plat­forms in the year’s first two months, while tak­ing in $682 mil­lion in reg­u­lar deposits. By then it was tout­ing all the ways it wasn’t han­dling cryp­to in a pre­sen­ta­tion.
...

So how many oth­er banks are sit­ting out there silent­ly suf­fer­ing from the fall­out of their cryp­to ‘side gigs’ wait­ing to explode? Sure­ly it can’t just be Sig­na­ture.

It’s also worth keep­ing in mind that, while Sig­na­ture was­n’t a vic­tim of the kind of rumor-mon­ger­ing bank run dynam­ics that SVB expe­ri­enced, Sig­na­ture just exposed the explo­sive pow­er of cryp­to loss­es to the world. Loss­es that are sure­ly impact­ing plen­ty of oth­er finan­cial enti­ties out there. Finan­cial­ly unhealthy enti­ties that are poten­tial­ly coun­ter­par­ties with oth­er finan­cial enti­ties now hyper-wor­ried about coun­ter­par­ty risk. In oth­er words, exact­ly the kind of sce­nario that can trig­ger bank runs.

The cryp­to com­mu­ni­ty has long dreamed of replac­ing the tra­di­tion­al finan­cial sys­tem. And while that ‘cryp­to über alles’ dream does­n’t appear to be any­where close to hap­pen­ing, implod­ing the finan­cial sys­tem is turn­ing out to be far more fea­si­ble.