Illicit Crypto Flows Reach $100 Billion Since 2019, Impacting These Key Sectors

A recent report by Bloomberg has revealed that suspected digital wallets have been responsible for distributing nearly $100 billion in illicit funds across the crypto market since 2019, with a significant portion flowing through two key sectors of the industry. 

Crypto Criminals Exploit Stablecoins And CEXs

The report highlighted that criminals are increasingly using stablecoins, which now account for the majority of illicit transaction volume in the crypto space, and that over half of questionable funds end up on centralized exchanges (CEXs) such as Binance or Coinbase. 

Kim Grauer, Director of Research at Chainalysis, highlighted the “increasing sophistication” of the money laundering techniques employed by these illicit actors, noting that criminals are exploring new tokens and use cases and are constantly adapting to evade detection and effectively launder their funds.

Chainalysis also revealed that stablecoins, which are designed to maintain a steady value and are typically pegged to the US dollar, and centralized exchanges, which hold customer assets, as well as decentralized alternatives, have made them attractive targets for criminals seeking to mix illicit funds with legitimate activities.

Moreover, Chainalysis found that illegal funds from sources such as darknet markets, fraud, ransomware, and malware are concentrated in five centralized exchanges, although the specific exchanges were not disclosed. 

This continuous rise in illicit flows has caught the attention of regulators worldwide, leading to increased scrutiny of the crypto industry, as in the case of Binance, the largest exchange by trading volume, which is now under US oversight following a $4.3 billion penalty imposed in a plea agreement with the Department of Justice (DOJ). 

Pattern Recognition Tools Deployed 

According to Bloomberg, tighter regulations and increased scrutiny by exchanges have led to a decline in the volume of suspicious funds arriving at exchanges. The monthly figure has dropped to about $780 million from a previous high of nearly $2 billion. 

However, Chainalysis has observed an increase in the number of intermediary digital wallets on exchanges that comply with know-your-customer (KYC) rules, which aim to obscure the origin of funds and avoid detection of illicit activity.

To combat increasingly sophisticated illicit schemes, Bloomberg notes that investigators are using detection techniques such as behavioral analytics to prevent the rise of these activities. 

Chainalysis’ Grauer concluded by highlighting the adoption of pattern recognition tools similar to those used by traditional banks as the research director believes that cryptocurrencies have become more integrated into the financial ecosystem.

At the time of writing, the total crypto market capitalization stands at $2.07 trillion, down from a high of $2.7 trillion reached during the uptrend in the price of the largest cryptocurrencies in the first quarter of the year. 

Featured image from DALL-E, chart from TradingView.com