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.

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.

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…