A Decrease in Illicit Crypto Transactions
In a recent report, Chainalysis reported a significant decline in cryptocurrency transactions associated with illicit activities in 2023. The report revealed that $22.2 billion was laundered through cryptocurrency, marking a 29.5% decrease from the $31.5 billion reported a year earlier.
The Evolution of Crypto-Money Laundering
Crypto-money laundering incorporates the process of moving funds into cash while obfuscating their origins. This typically involves the use of intermediary services, personal digital wallets, crypto mixers, decentralized finance (DeFi) protocols, and fiat off-ramping services, such as centralized exchanges and crypto ATMs.
Factors Contributing to the Decline
Chainalysis attributed the year-on-year drop in illicit crypto activity to various factors, including a decrease in crypto trading volume and heightened regulatory scrutiny. This regulatory crackdown has been particularly notable in the United States, where services previously exploited by crypto launderers are now under closer scrutiny.
Adaptation by Cybercriminals
Amid increased regulatory pressure, the Lazarus Group, a group of North Korean cybercriminals, has adapted its money laundering tactics. These adaptations involve the utilization of mixers like YoMix and cross-chain bridges to evade detection.
Shift in Money Laundering Strategy
Chainalysis highlighted that the share of illicit funds going to DeFi protocols has increased in the past year. This shift represents a departure from the heavier reliance on centralized exchanges observed in 2022, with DeFi’s inherent transparency making it a less attractive option for money launderers.
Global Implications and Regulatory Responses
As cryptocurrencies gain popularity and integrate into traditional markets, instances of crypto laundering have been observed worldwide. Several countries, including Japan, have introduced new regulations for money transfers to combat the use of crypto exchanges for money laundering.
Market Impact
Bitcoin (BTC-USD) and ether (ETH-USD) are the two largest digital tokens by market cap, constituting approximately 70% of the broader $1.95 trillion crypto market. BTC, in particular, has experienced a surge of over 120% from a year ago, partly driven by regulatory approvals of the first U.S. spot bitcoin exchange-traded funds and speculation around interest-rate cuts.
