Back to the Future with Misinformation About Crypto

On October 10th, the Wall Street Journal ran a story with the headline, “Hamas Militants Behind Israel Attack Raised Millions in Crypto. Digital currency transactions highlight how U.S. and Israel have struggled to sever the access of Hamas, Palestinian Islamic Jihad and Hezbollah to foreign funding.” The story stated: “Digital-currency wallets that Israeli authorities linked to the PIJ received as much as $93 million in crypto between August 2021 and June this year, analysis by leading crypto researcher Elliptic showed.” It also cited research by crypto analytics firm BitOK suggesting that Hamas received $41 million.

Ten days later the paper followed up with “Why Hamas Uses Crypto to Raise Money”, essentially a rehash citing the same two sources plus such unilluminating sentences as, “Much of the world’s illicit finance activity happens through the traditional banking system, as well as cash. But crypto has become an important means of funding sanctioned entities and laundering money because crypto users can instantaneously move value around the world by using what are known as digital wallets.”

But by then 105 U.S. lawmakers had signed a letter to President Biden and the Under Secretary for Terrorism and Financial Intelligence about cryptocurrencies allegedly undermining national security, citing the Journal’s story and combining the two figures: “between August 2021 and this past June, the two groups raised over $130 million in crypto”.

And on October 18th Senators Elizabeth Warren, a Massachusetts Democrat, and Kansas Republican Roger Marshall took to the Journal’s op-ed page with “Cryptocurrency Feeds Hamas’s Terrorism”, citing the $130 million figure, adding without evidence, “the publicly reported numbers are likely a small percentage of the actual total” and concluding with the charge that, “In short, the crypto industry is profiting from financing terrorism and rogue nations.”

Aside from the error of taking two estimates and adding them together without regard to how much of it was duplicative, the idea of the crypto industry profiting from terrorism would be laughable did it not have such severe ramifications for public policy. The senators are co-sponsors of the Digital Asset Anti-Money Laundering Act and asserted that the legislation is required for “cutting off Hamas and other terrorist groups from vital financing”, which former senior counsel at the House Financial Services Committee J.W. Verret called in a letter to the Journal, “a Trojan Horse promising stronger national security that would in fact be a gift to adversarial foreign governments”.

Naturally, the skeptics and blockchain sleuths on Crypto Twitter were all over this slander, pointing out flaws and asking the researchers cited for clarification. Sure enough, Elliptic posted a lengthy blog post on October 25th to set the record straight, stating up front in bullets:

There is no evidence to support the assertion that Hamas has received significant volumes of crypto donations.

A full understanding of blockchain analysis and the context of any analysis is needed when using these insights to draw conclusions.

Elliptic has engaged with the Wall Street Journal to correct misinterpretations of the level of crypto fundraising by Hamas.

In addition, we have been in discussions with the office of Senator Warren to ensure that the relevant parties have a proper appreciation of the complexities and nuances of analyzing these wallets.

Elliptic added that Hamas began soliciting Bitcoin donations in 2019 and saw a peak in May 2021 before suspending its public-facing crypto fundraising in April 2023 citing “concern about the safety of donors and to spare them any harm.” The company explained how the Journal had misinterpreted their analysis of wallets seized by Israel’s National Bureau for Counter Terror Financing: “As we made clear in our research, in no way does this mean that PIJ had ‘raised’ all of these funds or that they even all belonged to PIJ. It is not known what proportion of the funds received by those wallets are directly attributable to PIJ or other terrorist groups.”

Nic Carter, a general partner at Castle Island Ventures, has been particularly dogged in not only pulling apart the Journal’s claims and calling for them to correct the record, but even going as far as to issue bounties of $500 in bitcoin for the “21 best open source analyses of the facts surrounding the WSJ/Warren letter”, 14 of which he’s already selected and shared (other people have subsequently donated, raising the bounty payouts). In contrast to the newspaper and many in Congress, he emphasizes the use of blockchain analysis tools and reporting techniques: “Focus on knowable ground truths. Your reporting can focus on debunking a specific detail of the story, creating an independent, more fact-based account of the events, creating a data visualization, or simply creating a meme or graphic depicting the events or the WSJs reporting.”

Nic’s also shared efforts by some in Congress to focus on the facts, such as Senator Bill Hagerty, Republican from Tennessee saying in a Senate Banking Committee hearing on October 26th, “When it comes to regulating crypto, we need a scalpel, not a sledgehammer.” 

Crypto compliance and investigation software firm Chainalysis also posted a Twitter thread addressing misconceptions and “overstated metrics and flawed analyses of terrorist groups’ use of cryptocurrency”.

So has this avalanche of rebuttals, corrections and education motivated the Wall Street Journal to note their errors and correct the record? Dream on. The reporters have left the discredited $93 million and $41 million figures, sensationalist headline and lack of context, tossing in at the bottom a word salad rivaling the maddening cirumlocutions we’ve heard from Sam Bankman-Fried on the stand the last few days.