How Misinformation On Hamas And Crypto Fooled Nearly 20% Of Congress

For all his strengths, Uncle Sam has a track record of making big mistakes based on bad intelligence.

Consider a few missteps: The Gulf of Tonkin Incident was the pretext for escalating US troop presence in Vietnam; Special Forces spent years searching for Osama bin Laden in the wrong country; and disputed reports of Weapons of Mass Destruction were the casus belli for the American invasion of Iraq.

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The fog of war clouds even the clearest minds. So in the wake of Hamas’ attack against Israel, it’s worth asking—could bad information again lead to bad decision-making?

In the curious case of crypto and terrorist financing, the answer appears to be yes.

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The $130 Million Mix-Up

Following Hamas’ attack, a report emerged with estimates that the terrorist organization had raised more than $130 million in cryptocurrency to fund its war against Israel. Senator Elizabeth Warren—the self-appointed generalissima of the “anti-crypto army”—latched onto this eye-popping figure to conscript 104 of her congressional colleagues to sign a letter to the White House urging the administration to take a closer look at crypto’s role in illicit financing. The letter called crypto a “national security threat” to the U.S. and its allies and cited the $130 million figure as key evidence for this assertion.

There’s just one problem: that $130 million figure appears to be false.

In Warren’s letter, she claimed that Hamas and Palestinian Islamic Jihad collectively “raised over $130 million in crypto” between August 2021 and June 2023. She cited data from an article in The Wall Street Journal, which leaned heavily on blockchain analytics firm Elliptic as a source. But last month, Elliptic disputed both Warren’s letter and The Wall Street Journal’s extrapolation of its research.

Why Data Firms Dispute Warren

A statement published by Elliptic took direct aim at the $130 million statistic, stating “There is no evidence to suggest that crypto fundraising has raised anything close to this amount, and data provided by Elliptic and others has been misinterpreted.”

Elliptic went further, claiming “There is no evidence to support the assertion that Hamas has received significant volumes of crypto donations.” The company also underscored the weakness of crypto as a terrorist fundraising tool since the transparency of the blockchain allows law enforcement to track and trace transactions in real time.

Corroborating Elliptic’s assertions was a statement from Chainalysis, another leading blockchain analytics firm. In a blog post, the Chainalysis team said it felt prompted to correct the record on illicit financing after seeing “overstated metrics and flawed analyses of these terrorist groups’ use of cryptocurrency.”

Chainalysis explained that the $130 million figure cited by Senator Warren more likely reflects the total volume of crypto that flowed between entities with links to Hamas—not the actual amount of money raised by the organization. In other words, a significant portion of the $130 million figure likely involved legitimate transactions that had nothing to do with terrorist financing. The company then used a case study to show how conflating volume flow with funds raised can exaggerate fundraising estimates by several orders of magnitude.

Keep in mind that the core business of Chainalysis and Elliptic is to help governments identify illegal activity on the blockchain. These companies have a strong financial incentive to play up the link between crypto and criminal activity. But even they agreed that the use of crypto in illicit financing has been overstated.

To understand how a letter based on false information could find its way from Congress to the White House, I reached out to Nic Carter, the cofounder of Coin Metrics—a crypto intelligence firm.

In an interview, Carter said, “A game of telephone took place, starting with Israeli intelligence and ending in the halls of Congress. At each step the data became less concrete and the claims more extravagant.”

Carter broke down this game of telephone in a step-by-step process: “Blockchain analytics firms took addresses listed by Israeli intelligence and made aggressive inferences from the data, which were then repeated and extended by journalists, which were then reinterpreted again by Senator Warren in her letter to the White House.”

The end result was a bloated number that bore little resemblance to reality—yet it continued to drive policy conversations in Washington.

Crypto ‘A Very Small Part Of The Puzzle’

In addition to blockchain intelligence firms, expert witnesses at a Senate Banking Committee hearing last month also pushed back against Warren’s characterization of crypto’s role in terrorist financing.

When Senator Warren cited the $130 million figure in a question directed to Dr. Matthew Levitt—a counterterrorism scholar at the Washington Institute for Near East Policy—he provided a fact-check in real time: “I do think that number is very likely exaggerated. It’s happening. They are getting money to crypto—there’s no question. But the experts who follow this closely think that number is inflated.”

Dr. Shlomit Wagman—a senior fellow at Harvard University who previously led Israel’s campaign against terrorist financing—also proved to be an inconvenient witness for the anti-crypto faction of the Senate Banking Committee. Among the many laundering tools in Hamas’ arsenal, Senator Warren called crypto “one big one.” But Dr. Wagman challenged this assertion, emphasizing that the major funding for Hamas comes not through crypto but through bank accounts, money exchanges, and cash. In Wagman’s own words: “most of its budget and funds is still going through the traditional channels, and I want to make that clear.”

During the hearing, Wagman also reminded lawmakers that “crypto is currently a very small part of the puzzle. The major funding channels are, were, and remain state funding. Iran and others—those are the major players.”

Dueling Visions: Warren Vs. Lummis

There’s an old maxim in politics: “Never let a good crisis go to waste.” As an exceptional politician, Senator Warren understands this principle.

Well before the Hamas attack, Warren was beating the drum on crypto money laundering. In August, she re-introduced the Digital Asset Anti-Money Laundering Act in an effort to clamp down on illicit activity in the cryptocurrency space. But a bipartisan coalition raised concerns that the proposal could impose undue burdens on software developers by treating them like big banks.

In effect, Warren’s legislation would require crypto miners, validators, and wallet providers to file the same compliance reports as large hedge funds and multinational banks. Since none of these businesses custody assets for customers, this would impose an enormous regulatory burden on industry participants—which is why several Republicans and Democrats refused to support the bill.

Just as support for Warren’s legislation began to cool, Hamas attacked. Then came claims that Hamas had raised over $130 million in crypto—claims that have since been debunked.

But Warren saw a crisis and capitalized on it. She has since used this statistic multiple times to bring renewed attention to her anti-money laundering legislation.

All this raises a critical question: Will misinformation form the foundation of crypto policymaking? Or will lawmakers heed the facts, even when they defy their previously held viewpoints?

There’s a contingent of legislators who are keen to correct the record—Senator Cynthia Lummis is among them. In a post on X after last month’s hearing, Senator Lummis called attention to the inaccurate fundraising figure and cited estimates from Chainalysis and the American Enterprise Institute which show that crypto accounts for less than 1% of all illicit finance worldwide. Lummis posted: “Make no mistake, crypto assets are not the problem. Bad actors, who exist in every sector, are.”

Both in public and in private, Lummis has sought to educate her Senate colleagues on the merits of Bitcoin—both as a long-term hedge against inflation and as a means of transferring value quickly, cheaply, and securely around the world. In Lummis’ view, Congress must fight Bitcoin money laundering, but it can do so without crippling the industry.

Senator Lummis and Senator Warren have dueling visions for crypto on Capitol Hill. Lummis wants to make the United States a haven for crypto innovation; Warren wants the opposite. Who wins the legislative battle could determine whether digital asset innovation stays in America or moves offshore.

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