(MEME) Coin of the realm
Issue #3
Source: Wikimedia Commons.
BOTTOM LINE UP FRONT
Happy Valentine’s Day!
As of this writing, the latest drama in the Eric Adams case is top of the news cycle. Given Adams’s enthusiasm for Bitcoin, it’s fitting that we look at the intersection of crypto and corruption in this week’s Feature. Cryptocurrency is a fast-growing sector, and can be an innovative tool for public finance. However, it also poses risks. In particular, meme coins like the ones that President Donald Trump and his wife launched just before his inauguration in January — whose value rocketed by more than 1,000% before entering a steady decline even before the January 20 event — present opportunities for abuse of office. But digital finance is here to stay. With a crypto-friendly congress and administration likely to usher in a looser regulatory environment, we explore what’s at stake — and how responsible industry actors, anti-corruption activists and state-level officials will need to work together to ensure cryptocurrencies are assets, not liabilities, for the rule of law in America and the world for years to come.
Correction: We’d like to flag an error in the latest issue of our sister newsletter, The Dekleptocracy Report. In a story about the fate of the Corporate Transparency Act, due to an editing error, we incorrectly referred to Scott Greytak, as the “head of Transparency International” whereas his correct title is “Director of Advocacy at Transparency International U.S.” He also provided thoughtful and substantive feedback on the current administration’s support of the Corporate Transparency Act that we will include in the next issue of The Dekleptocracy Report. As always, we greatly appreciate your feedback, criticisms and suggestions.
FEATURE
(MEME) COIN OF THE REALM
Cryptocurrency proponents have plenty to celebrate about the incoming administration of President Donald Trump, according to a PBS article in December. Ahead of the election, Trump developed close ties with the crypto industry. Then, immediately prior to his inauguration, he launched the $TRUMP meme coin, which was followed soon after by his wife’s coin, $MELANIA. The tokens’ value skyrocketed in the days leading up to the inauguration, before sharply declining a few days later, making millions for the President and his family while thousands of investors lost out. The timing of their release drew criticism as a naked attempt to profit from the office, including from voices from within the crypto and wider finance industry, with one investment manager claiming it had “totally destroyed” Trump’s credibility. Crypto is here to stay, but the $TRUMP episode illustrates the potential of official abuse – in particular, with so-called “meme coins” – and the need for state officials, responsible industry actors, and concerned citizens to impose sensible regulation on the sector, purge bad actors, and prevent crypto-facilitated corruption.
Cryptocracy
Cryptocurrency emerged in the 2000s with Bitcoin, the original cryptocurrency, whose creator(s) launched it as an attempt to establish a medium of exchange outside the control of any government or central authority, bypassing international banking systems by using blockchain technology, an ingenious distributed settlement system. While originally intended as a non-state currency, most consumers approach crypto as a simple investment and store of value, with 17% of Americans reporting that they hold crypto, according to Pew Research polling last year.
Trump will, by all indications, lead a very crypto-friendly administration. Crypto-culture leans toward an anti-establishment ethos that has more than a little overlap with MAGA-world. With some of his supporters going so far as to openly advocate for him ruling at the head of a full-blown techno-monarchist order, it’s fitting that crypto may become the proverbial coin of the realm. This is a major shift. As a relatively new form of financial instrument, cryptocurrency trading remains something of the Wild West, and regulation of the industry has been a contentious issue. The US has lagged behind several other jurisdictions, according to the Atlantic Council’s tracker of crypto regulation around the world. With the stated aim of balancing growth with investor protection, the previous administration, in the form of former Securities and Exchange Commission (SEC) Chair Gary Gensler, pursued aggressive enforcement against crypto firms under securities laws, turning him into the industry’s bête noire.
Crypto super PACs poured $130 million into political campaigns last year, seeking, among other things, to pass legislation classifying crypto as a commodity rather than a security, which would vastly reduce the compliance requirements of the industry. This led Politico to proclaim that “crypto won the 2024 elections”. Donations went to crypto-friendly politicians in both parties, although the bulk of crypto industry spending went toward Republicans. By far the largest recipient of crypto donations was Republican Senatorial candidate Bernie Moreno, who unseated Democrat Sherrod Brown in Ohio (the latter a crypto-skeptic who has referred to crypto as a “big-tech scheme that makes it easy for hardworking Americans to put their money at risk”) with $40 million of crypto super-PAC spending. Nevertheless, two of the top five recipients of crypto-lobby donations were Democrats (notably, New York Mayor Democrat Eric Adams, whose corruption charges are likely to be dropped following a Trump-friendly turn, also has ties to the crypto industry). By all appearances, this spending across party lines promises the most crypto-friendly Congress ever.
At the same time, the crypto industry has set its sights on an even bigger prize: the White House. Trump himself was skeptical of crypto in his first term. He has since pivoted, proclaiming the US will be the world leader in crypto technology under his leadership. This about-face may have been driven by substantial crypto contributions to super PACs supporting his reelection campaign. It also fairly reflects the proclivities of the Republican base. In any case, Trump has fully embraced the crypto industry and is personally benefiting from its darkest corner, the meme coin. $TRUMP caught a free ride on other parts of the industry because federal and state regulators — which have the power to regulate meme coins out of existence — have allowed it. Instead of having to defend an instrument driven purely by hype, as its name describes, meme coins hide behind the larger and more nuanced debate about whether to regulate cryptocurrency as a security. The parameters of this debate are becoming clearer, with the pick of prominent crypto backer Paul Atkins as SEC chair and David Sacks – a South African tech billionaire and close Elon Musk associate – as the newly minted “AI and Crypto Czar”. Amid what we hope is a public and open debate about crypto regulation as a whole, we suspect the federal government will not go after meme coins, or the potential for abuse of crypto more broadly, anytime soon. Can states and responsible actors within the industry itself fill the gap?
Pepe, profit and power
In contemplating how this can happen, it’s worthwhile taking a step back and taking a deeper look at the sector as a whole. A healthy skepticism of the crypto industry is warranted – for its clear political power alone – and polling indicates that the majority of Americans share this sentiment. Nonetheless, with crypto fast becoming an integral part of global finance, it’s not going away. Many cryptocurrencies were designed for specific and arguably legitimate usecases (although if you want to go down a black hole, search for “store of value” and “bitcoin”, happy reading). Grappling with the challenges crypto presents is a pressing concern for democracy and the rule of law.
Crypto objectively comes with a host of problems and it can be challenging separating the features from the bugs. Aside from the volatility of many cryptocurrencies, which limits their utility as a hedge against fiat currencies, the still poorly developed and often murky domestic and international regulatory environment for crypto, with its lack of investor protections, is probably the most obvious issue. Exchanges vary in trustworthiness, and the digital nature of the currencies make them vulnerable to hacking and theft targeted at storage systems. In addition to unclear federal regulation, the US currently has a patchwork of state-level regulations for the industry.
Then there is the issue of concentration of wealth and power in crypto, with the attendant political and environmental impacts. This is in part because some currencies, most notably Bitcoin, are obtained through “mining”, the use of distributed networks of computers racing each other to verify transactions and add blocks to the blockchain in exchange for awards of Bitcoin. Mining was originally possible on a personal computer. But as computing requirements to verify transactions and compete for new Bitcoin have increased, it now requires substantial installations of expensive specialized computing equipment. This has resulted in the odd spectacle of massive real-world investments of physical capital for extraction of a resource that doesn’t actually exist outside of code. Like a natural resource, this tends to favor highly centralized, highly capitalized producers, with all the rent-seeking behavior this entails. It is perhaps ironic that Bitcoin, originally intended to subvert hierarchies, has now produced them. Additionally, cryptocurrency mining has significant environmental impacts, with the global energy consumption of bitcoin miners comparable to that of Poland.
In the US, one type of cryptocurrency is particularly problematic: meme coins, which Forbes has dubbed “crypto’s stupidest bubble.” Meme coins – tradeable digital tokens defined by support from an enthusiastic online community, rather than a specific blockchain application – are often presented as different from standard cryptocurrencies, as they are easily produced and have no use except as an item of speculation. While traditional cryptocurrencies like Bitcoin or Ethereum are often sophisticated digital technologies designed for specific purposes, meme coins – which derive their name from association with internet memes – are closer to digital trading cards or Beanie Babies. This makes them even more volatile than other crypto. However, while most meme coins never go anywhere, some can amass significant value in short periods of time, as $TRUMP shows. Indeed, one of the top-ten largest cryptocurrencies – Dogecoin, or DOGE – is a meme coin.
The fact that the DOGE name might sound familiar even to people with no interest in crypto is no accident. Elon Musk’s regular promotion of Dogecoin, promoting it on what used to be Twitter at various points, alludes to two important points about meme coins. First, there is a marked enthusiasm among elements of the online far right wing for the tokens, seen in the success of coins connected to memes like Pepe the Frog. Second, the promotion of such coins by prominent figures in those circles smacks of grift – witness Barstool Sports founder Dave Portnoy’s roughly 24/7 tweeting about meme coins he owns. One alleged pump-and-dump scheme resulted in federal charges being brought in Massachusetts against a crypto firm for fraud and manipulation in the crypto markets last fall .
Order from chaos
As the discovery of an illegal Bitcoin mining operation on a Libyan farm in 2023 attests, cryptocurrency can enable illicit actors, like criminals, armed groups, authoritarian regimes, and corrupt officials. While cryptocurrencies are largely treated as investments by Americans, they were originally intended as a form of payment intended to prioritize privacy and bypass the traditional banking system entirely. This, combined with the pseudonymous (or, in some cases, anonymous) nature of most cryptocurrencies, gives crypto utility for illicit transactions like money laundering, bribery, and sanctions evasion. A 2023 Transparency International (TI) / U4 report notes that countries with higher cryptocurrency use are associated with higher levels of corruption, although a causal relationship is not asserted. It states: “The increasing use of cryptocurrencies in bribery and kickback payments appears to be a growing trend… 8% of fraud cases worldwide in 2021 involved the use of cryptocurrencies… 48% [of which] related to the payment of bribes and kickbacks.”
Such abuse is already an American problem and one with international implications. Major cases involving fraud, money laundering, and sanctions violations by crypto exchanges like FTX and Binance (which has also been implicated in cases abroad) are the most obvious examples. In addition, the TI/U4 report describes a telling case study in which a pair of Chinese intelligence officers allegedly attempted to bribe a witness in a US federal investigation into a disinformation campaign with cryptocurrency. There are also cases in which crypto industry firms have paid bribes to officials, sometimes in crypto, as alleged in the FTX saga, and sometimes in old-fashioned fiat currency as was alleged in the case of Akron, Ohio based BIT Mining. Much like the crypto lobby’s efforts to influence the 2024 elections and the environmental impacts of Bitcoin mining, this illustrates the danger the concentrated wealth of the crypto industry poses to the rule of law.
So far, there isn’t much evidence of the widespread use of crypto to facilitate bribery and corruption, or crypto firms engaging in old-fashioned bribes in local US politics – yet. The lack of evidence may in part be due to the difficulty of detecting such transactions. Certainly, the potential for abuse is clearly there: crypto provides an attractive medium for bribery and kickbacks, without a “touch” required with the banking system or the face-to-face transaction required of cash. Additionally, the basically extractive nature of crypto mining may incentivize unscrupulous firms to influence officials to facilitate mining projects, creating high corruption risks. As a more crypto-friendly regulatory regime takes root across the US and extends down to the municipal level – a number of cities are incorporating cryptocurrency, with its attendant risks, into their financial operations – politicians and their cronies will become more and more familiar with it and skilled in its use, and ties between local officials and the crypto industry will deepen.
Meme coins present particular opportunities for abuse: partisans of both sides in the 2024 presidential elections released tokens in an attempt to raise funds, giving rise to a phenomenon dubbed “PolitiFi” by researchers, and this practice could spread to a local level. The prospect of crypto-savvy mayors and city councilors holding significant amounts of, let alone pumping, favored tokens should be watched carefully. Official investment in meme coins also creates potential for extortion, including by foreign powers, a risk that has been raised in regard to $TRUMP. To be realistic, Trump is likely somewhat insulated from that kind of leverage. But imagine Chinese agents buying up a huge amount of a meme coin into which a local police chief has dropped a chunk of his life savings – and then coming to him with a kind request to arrest Chinese dissidents in his city. Some in the crypto industry have called such coins the “perfect bribery vehicle”.
So what can be done? First and foremost, state and local governments need to regulate the crypto industry, and the holding and use of crypto – especially meme coins – by public officials. Outright bans on elected officials owning meme coins should be considered, as some pro-crypto politicians have advocated. Regulators should coordinate with stakeholders within the crypto industry itself to ensure buy-in. City councils and statehouses exploring a greater role for crypto in their financial management should do so cautiously. And state and local law enforcement should look at beefing up investigative capabilities to detect and prosecute illicit crypto transactions, picking up some of the expertise developed by the Internal Revenue Service and others in this area over the years. This should also include leveraging knowledge and capacity from investigators in the private sector and open-source intelligence community. Most of all, concerned citizens should keep a close eye on the dealings of officials, businesses, and crypto firms in their communities to watch for the whiff of impropriety. Crypto isn’t going anywhere. The vast majority of crypto users are investors engaged in legitimate, if risky, speculation. Attentive management of the industry and its risks can help prevent it from exacerbating the threat of incipient American kleptocracy and becoming a digital mint for a would-be king.
WHAT WE’RE FOLLOWING
DC THROUGHLINE
Two topics two stood out to us this week:
First, there’s the administration’s decision to order federal prosecutors to halt prosecution against New York Mayor Eric Adams in what can only be described as a troubling quid-pro-quo — which, in a developing story as of writing, seems to have triggered something of an implosion at the Justice Department. As we discussed in our previous feature on kleptocracy, this is exactly the sort of behavior such systems exhibit: protection for corrupt underlings (and it is vital here to say that Mayor Adams has not been tried or convicted of any crime) in exchange for loyalties. While Noah Schachtman claimed it “caps a broad effort to functionally legalize bribery” in Rolling Stone, that’s not quite right: it’s a message that you might get away with bribery if you bend the knee.
On the other hand, the administration’s decision to suspend enforcement of the Foreign Corrupt Practices Act could indeed be read as functionally legalizing bribery of foreign officials.
Then there’s Wednesday’s news that, despite DOGE’s ongoing chevauchée through the federal government, public records indicate that the State Department has a contract of at least $100 million for purchase of “armored Tesla (production units)”, presumably Cybertrucks. While, to be fair, this one is a holdover from the Biden administration, one wonders as to whether Elon Musk’s operatives will identify any wastefulness in contracts involving Musk.
NATIONAL ROUNDUP
Washington, DC
Councilmember accused of bribery expelled: In an unprecedented move on February 4th, the DC City Council unanimously voted to expel Ward 8 member Trayon White, a Democrat, who faces federal bribery charges of accepting tens of thousands of dollars in bribes to influence city contracts, after an independent investigation found substantial evidence indicating he’d violated the council’s ethics rules.
Delaware
New governor issues government transparency rules, as Musk leads “DExit” movement: The new Democratic Governor of the famously business-friendly state of Delaware, Matt Meyer, who campaigned on a platform of increased transparency, signed a new executive order at the end of January aimed at just that. The order coincides with an exodus of major Delaware-incorporated companies, led by Elon Musk’s Tesla, after a Delaware judge blocked his $56 billion pay package in response to a shareholder lawsuit – which has prompted Meyer to promise to “win them back”.
North Carolina
Future of investigation into Columbus County Sheriff’s Office in doubt: With the resignation of the top Biden-appointed federal prosecutor in Eastern North Carolina after the Trump transition (a common practice during administration changeovers), the future of a long-running investigation into the Columbus County Sheriff’s Office and its former Sheriff, Republican Jody Greene, is in doubt. The investigation, which has been running since 2022, has focused on questions around the deputies’ use of force, connections to the January 6th riots, and most significantly, potential misuse of public funds (“suspicions of embezzlement involving some of the area’s most prominent business owners”), but has yet to produce any indictments.
Texas
Some of those who work (border) forces: In a case that highlights the potential for corruption and abuse of office at the highly politicized southern border, a CBP officer was arrested this past weekend by the multi-agency federal West Texas Border Corruption Task Force, and is accused of involvement in human trafficking and drug smuggling.
Missouri
A whiff of private enterprise in the St. Louis Building Division? Reporting from local outlets since December has documented potential corruption and abuse of office at the St. Louis Building Division. Cases include an ex-firefighter convicted of stealing cash from the scene of a fatal crash rehired by the Division, a building inspector who resigned after allegations that he funneled millions to companies he was connected with, and another who resigned after allegedly soliciting charity donations for his boss’s wife. The scandal has driven the mayor to call for an FBI investigation.
Illinois
Madigan guilty: Former Illinois House Speaker, Democrat Mike Madigan, along with co-defendant Michael McClain, was convicted Wednesday in a major, months-long trial on federal charges of racketeering, wire fraud, bribery and extortion. The case against Madigan, formerly one of the most powerful figures in Illinois politics, was complicated by the Supreme Court’s ruling in Snyder v. USA in June, which narrowed the definition of bribery.
Minnesota
Guilty plea in $250 million pandemic fraud scheme: On February 3, the US Attorney’s Office in Minnesota announced that a participant in a sprawling fraud scheme that had diverted $250 million from a federal child nutrition program during the pandemic through a number of restaurants and nonprofits had pleaded guilty. This is the latest development in the case, in which 70 people have been charged, which included an alleged attempt to bribe a juror in which the person delivering the bribe on behalf of a defendant allegedly skimmed some off the top for herself.
California
Former Oakland mayor faces federal charges in alleged pay-to-play scheme: The local US Attorney’s Office announced last week it had over 140 gigabytes of data proving indicted former Oakland Mayor, Democrat Sheng Thao, and her romantic partner were involved in a bribery scheme with a pair of local businessmen, which involved extension of city contracts and political advertising in exchange for bribes. Thao, the first Hmong mayor of a major US city, was voted out of office last November in a recall election bankrolled by Silicon Valley, crypto, and hedge fund wealth but also backed by leaders in the local NAACP chapter. The recall was added to the ballot before a June 2024 FBI raid on her house in which much of the data was seized.
