A Bloomberg report has unveiled that nearly $100 billion in illicit funds have been moved through the crypto market since 2019, significantly impacting stablecoins and centralized exchanges (CEXs).
Criminals are increasingly using stablecoins, which now represent the majority of illicit transactions in the crypto space. Additionally, over half of these illicit funds end up on centralized exchanges like Binance and Coinbase. Kim Grauer from Chainalysis noted the growing sophistication of money laundering techniques. Criminals continually adapt, using new tokens and methods to avoid detection.
Stablecoins, typically pegged to the US dollar, and centralized exchanges, which hold customer assets, are appealing to criminals. These platforms are used to blend illicit funds with legitimate activities. Chainalysis found that funds from darknet markets, fraud, ransomware, and malware are concentrated in five centralized exchanges, though they didn't name these exchanges.
The rise in illicit flows has caught regulators' attention worldwide. For example, Binance, the largest exchange by trading volume, is now under US oversight following a $4.3 billion penalty from the Department of Justice (DOJ). Tighter regulations have led to a decline in suspicious funds arriving at exchanges, from nearly $2 billion to about $780 million monthly.
Despite increased scrutiny, more intermediary digital wallets are appearing on exchanges that follow know-your-customer (KYC) rules. These wallets hide the origin of funds. To fight these advanced schemes, investigators use techniques like behavioral analytics. Chainalysis’ Grauer emphasized the use of pattern recognition tools, similar to those in traditional banking, as cryptocurrencies integrate more into the financial ecosystem.
Currently, the total crypto market capitalization is $2.07 trillion, down from $2.7 trillion earlier this year. This volatility highlights the dynamic nature of the crypto market and the ongoing challenges in regulating illicit activities. As the industry evolves, regulatory strategies must adapt to ensure a secure and transparent financial system.
