Unveiling the crypto crime paradox: Balancing perception with reality

• Over $20 billion was lost to crypto crime in the past year.
• The daily volume of Bitcoin was over $14 billion, with global money laundering close to $800 billion.

Cryptocurrency has developed a negative reputation due to the significant reported increase in crypto crime. However, when considering these statistics, is the existing rate of cryptocurrency-related crimes sufficient to prompt widespread panic? Also, is it enough to label the entire cryptocurrency sector as a criminal operation?

A breakdown of what was lost to crypto crime

A crypto crime report released earlier this year by Chainalysis detailed what was lost in the previous year. The report highlighted that despite the market’s downturn, the volume of illicit transactions increased for the second consecutive year, reaching a record high of $20.6 billion.

Also, the report revealed that 43% of this illicit transaction volume was linked to activities involving sanctioned entities.

Source: Chainalysis

Regarding specific categories of crypto crime, transaction volumes decreased across all conventional types. However, stolen funds saw a 7% year-over-year increase. The remaining components contributing to the losses included ransomware attacks, money laundering, oracle manipulation attacks, darknet markets, scams, and pump-and-dump schemes. 

While this array of criminal activities might appear concerning, it’s essential to consider these metrics with other benchmarks. When comparing these statistics to other metrics, the crypto crime landscape doesn’t present a negative picture for cryptocurrencies.

Comparing crypto crime proceeds to money laundering proceeds

Despite the apparent prominence of crypto crimes, it pales when contrasted with the global scope of cash-based money laundering. Also, it pales when compared with the daily volume of cryptocurrency transactions. 

As highlighted in a 2016 report by Europol, for instance, a significant 30% of all €500 notes were implicated in money laundering activities. Criminal endeavors utilized over EUR 10.4 million, primarily in the form of EUR 500 notes.

Additionally, as per a UN report, the estimated annual volume of money laundering worldwide amounted to 2–5% of the global GDP. This was equivalent to $800 billion to $2 trillion.

Furthermore, these figures remain relatively low when considering the percentage of illicit transactions in cryptocurrencies. According to the Chainalysis report, such transactions constituted less than 1%, with only 2019 exceeding the 1% mark. 

Source: Chainalysis

As of this writing, the cumulative trading volume in the cryptocurrency market in the last 24 hours was approximately $28 billion, per CoinMarketCap. Furthermore, Bitcoin alone commanded a market capitalization surpassing $14 billion during the same period.

The case of fraud in the UK

The 2023 fraud analysis report from the United Kingdom unveiled staggering financial losses attributed to fraud in the preceding year. According to this report, a substantial sum exceeding £1.2 billion was siphoned through fraudulent activities during 2022.

It’s worth noting that this figure pertains to a single nation. This implied that a global assessment could potentially reveal an even larger scale. 

Is crypto crime exaggerated?

While the existence of cryptocurrency-related crime cannot be denied, the transparent nature of blockchain technology has facilitated the identification of such activities. The primary challenge, it seems, lies in effectively preventing these actions once they are recognized—a challenge not unique to the cryptocurrency space.

From a comparative perspective, when contrasting the losses incurred within conventional financial institutions with those in the cryptocurrency domain, there appears to be a possibility of exaggeration regarding the extent of crypto-related crimes.

However, notwithstanding the comparatively lower monetary losses to crypto crime, it remains evident that the space needs more constructive regulatory measures.