For all his advantages, Uncle Sam has a long history of making terrible mistakes based on a lack of intelligence.
Let's look at some false steps. The Gulf of Tonkin incident was a pretext to increase the presence of US troops in Vietnam. Special forces have been searching for Osama bin Laden in the wrong country for years. and controversial reports about weapons of mass destruction were the main reasons for the US invasion of Iraq.
The fog of war clouds even the simplest thoughts. After Hamas' attacks on Israel, it is worth asking: Can misinformation lead to bad decisions again?
In the case of cryptocurrencies and terrorist financing, the answer appears to be yes.
A $130 million disaster
Following the Hamas attack, reports emerged that the terrorist organization had raised more than $130 million in cryptocurrencies to finance its war against Israel. Senator Elizabeth Warren, the self-proclaimed generalissima of the “anti-cryptocurrency army,” relied on this staggering number to get 104 of her congressional colleagues to sign a letter to the White House urging the administration to take more cautious steps. Cryptocurrency. Role in illegal financing. The letter calls cryptocurrencies a “national security threat” to the United States and its allies and cites an amount of $130 million as primary evidence for these claims.
There's just one problem: the $130 million figure appears to be wrong.
In Warren's letter, she claims that Hamas and Palestinian Islamic Jihad together "collected more than $130 million in cryptocurrencies" between August 2021 and June 2023. Spring. But last month, Elliptic questioned Warren's letter and the Wall Street Journal 's extrapolations from her research.
Why are data companies at odds with Warren?
A statement released by Elliptic directly addressed the $130 million statistic: “There is no evidence that cryptocurrency fundraisers have raised this amount and the data provided by Elliptic and others has been misrepresented.”
Elliptic went further, stating that “there is no evidence to support the claim that Hamas has received large amounts of cryptocurrency donations.” The company also highlighted the weakness of cryptocurrencies as a means of fundraising for terrorists, given the transparency of blockchain Allows law enforcement to track transactions in real time.
Elliptic’s claims support a statement from Chainalysis, another major blockchain analytics firm. In a blog post, the Chainalysis team said it felt pressured to correct illicit funding data after seeing “excessive metrics and incorrect analysis of cryptocurrency usage by this terrorist group.”
Chainalysis explains that the $130 million cited by Senator Warren likely reflects the total amount of cryptocurrency circulating between Hamas-affiliated organizations, rather than the actual amount the organization has raised. In other words, the bulk of the $130 million was likely legitimate transactions that had nothing to do with terrorist financing. The company then used case studies to show how matching volume flows with funds raised can increase fundraising forecasts by several orders of magnitude.
Please note that Chainalysis and Elliptic's core business is to help governments detect illegal activities on the blockchain. These companies have strong financial incentives to exploit the connection between cryptocurrencies and criminal activity. But they also agree that the use of cryptocurrencies for illegal financing is exaggerated.
To understand how a letter based on false information could be sent from Congress to the White House, I contacted Nic Carter, co-founder of Coin Metrics, a crypto intelligence company.
In one of the interviews, Carter said: “There was a game of telephone that started with Israeli intelligence and ended in the halls of Congress. With each step, the data becomes less concrete and the claims more exaggerated.”
Carter completed this game of telephone with a step-by-step process. "Blockchain analytics firms take addresses listed by Israeli intelligence and draw aggressive conclusions from the data, which are then repeated and amplified by journalists and then reinterpreted by senators". Warren in her letter to the White House.
The end result is an exaggerated number that has nothing to do with reality, but still drives the political discussion in Washington.
Cryptocurrencies “a small piece of the puzzle”
In addition to blockchain intelligence firms, experts at a Senate Banking Committee hearing last month also questioned Warren's characterization of the role of cryptocurrencies in terrorist financing.
When Senator Warren gave the $130 million figure, Dr. Matthew Levitt, a counterterrorism expert at the Washington Institute for Near East Policy, did a real-time fact check. “I think the numbers are probably exaggerated. . Go. They convert money into cryptocurrencies. There is no doubt about it. But experts who are closely monitoring the situation believe that this number is increasing.
Shlomit Wagman, a senior researcher at Harvard University who previously led Israel's campaign against terrorist financing, also proved an unpleasant witness for the anti-crypto faction of the Senate Banking Committee. Among the many money laundering tools in Hamas’ arsenal, Senator Warren called cryptocurrencies “one of the biggest.” Dr. However, Wagman dismissed these claims, stating that Hamas's main funding comes not from cryptocurrencies, but from bank accounts, bureaux de change, and cash. As Wagman said, “The majority of budgeting and funding still occurs through traditional channels, and I want to make that clear.”
During the hearing, Wagman also reminded lawmakers that “cryptocurrency is currently only a small piece of the puzzle.” The main funding channel is government funding. Iran and other countries. They are the main players.”
Visions of grief. Warren vs. Lumis
There's an old saying in politics. “Never let a good crisis go to waste.” As an exceptional politician, Senator Warren understands this principle.
Long before the Hamas attack, Warren began laundering cryptocurrencies. In August, they reintroduced digital asset anti-money laundering laws to combat illegal activity in the cryptocurrency space. But a bipartisan coalition has raised concerns that the proposal could place an undue burden on software developers by treating them like big banks.
In fact, Warren's bill would require cryptocurrency miners, validators and wallet providers to file the same compliance reports as large hedge funds and multinational banks. Since none of these companies have assets for customers, this would place a heavy regulatory burden on operators in the industry, which is why some Republicans and Democrats have refused to support the bill.
As support for Warren's legislation began to wane, Hamas attacked. Then claims emerged that Hamas had raised more than $130 million in cryptocurrencies, but these were denied.
But Warren saw a crisis and took advantage of it. This statistic has now been used several times to draw attention to laws to combat money laundering.
All of this raises a fundamental question. Will disinformation become the cornerstone of crypto policy? Or will lawmakers keep an eye on the facts even when their preconceptions are challenged?
There are several lawmakers who want to improve the situation. among them is Senator Cynthia Lummis. Approximately the percentage of illegal financing worldwide in the position. Lummis wrote: “Make no mistake, crypto assets are not the problem. “Bad actors that exist in every industry do it.”
Both publicly and privately, Lummis has sought to educate his Senate colleagues about the benefits of Bitcoin, both as a long-term hedge against inflation and as a way to transfer value around the world quickly, cheaply and securely. According to Lummis, Congress needs to crack down on Bitcoin money laundering, but it can do so without weakening the industry.
Senator Lummis and Senator Warren have visions of a showdown on Capitol Hill over cryptocurrencies. Lummis wants to make the United States a haven for crypto innovation. Warren wants the opposite. Whoever wins the legislative battle could decide whether digital asset innovation stays in the United States or moves abroad.