Crypto Markets Entangled With $100B In Illicit Funds Since 2019: Report

Fresh data by on-chain analytics firm Chainalysis found that nine figures worth of illicit funds have found their way into the digital asset space.

What Happened: Nearly $100 billion in illegal funds have circulated through the cryptocurrency market since 2019, according to Bloomberg, citing a Chainalysis study. This includes significant use of stablecoins and centralized exchanges. The former is increasingly used by bad actors and now represent the majority of illicit transaction volumes in the crypto space. Over half of these questionable funds end up on centralized exchanges, the study found.

Global authorities are tightening regulations on stablecoins and digital-asset platforms to combat crimes such as money laundering and terrorism financing. However, criminals continue to find ways to bypass these rules. “The ecosystem is constantly changing,” said Kim Grauer, director of research at Chainalysis.

Stablecoins aim to maintain a stable value of $1, backed by reserves of cash and bonds. Centralized exchanges manage customer assets, while decentralized alternatives allow users to control their tokens. These elements are crucial to the digital-asset market.

Prosecutors have targeted the crypto industry due to these illicit flows. Binance, the largest centralized exchange, is now under U.S. oversight after a $4.3 billion penalty for anti-money laundering and sanctions violations.

Illegal funds from darknet markets, fraud, ransomware, and other sources are primarily concentrated in five centralized exchanges, according to Chainalysis. Criminals also use decentralized financial services, gambling sites, crypto mixers and blockchain bridges to launder money.

The market value of stablecoins has surged to over $160 billion from about $29 billion in early 2021, with Tether Holdings Ltd.'s USDT/USD dominating at 69%, followed by Circle Internet Financial Ltd.'s USDC/USD at 21%, per DeFiLlama data.

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Why It Matters: The revelation of $100 billion in illicit crypto flows highlights the ongoing struggle with bad actors in the digital asset space.

Just last month, the UK’s Financial Conduct Authority (FCA) arrested two individuals involved in an unregistered crypto exchange worth over $1.2 billion. Elsewhere, the infamous case of Ruja Ignatova, the so-called “Crypto Queen” behind the OneCoin scam, shows the deep connections between cryptocurrency fraud and organized crime.

It remains to be seen whether regulation like the pending FIT21 “crypto bill” are equipped to deal with these problems.

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This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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