A recent report by Bloomberg unveils that digital wallets suspected of involvement have facilitated the distribution of close to $100 billion in illicit funds throughout the crypto market since 2019, with a notable portion being funneled through specific sectors within the industry.
Rise of Illicit Activities in the Crypto Space
Criminals are increasingly leveraging stablecoins, which now dominate illicit transaction volumes within the crypto realm, with over half of questionable funds finding their way to centralized exchanges (CEXs) like Binance or Coinbase. The report points out the growing sophistication in money laundering techniques utilized by these illicit actors.
Chainalysis, a research firm, emphasizes the evolving strategies employed by criminals to evade detection and effectively launder funds, exploring new tokens, and use cases in the process.
Stablecoins, designed for value stability and commonly pegged to the US dollar, and both centralized and decentralized exchanges have become prime targets for criminals looking to mix illegal proceeds with lawful activities, as per Chainalysis. The report also identifies that a concentration of illicit funds from sources like darknet markets are funneled to five undisclosed centralized exchanges.
Given the alarming surge in illicit flows, global regulators are intensifying their scrutiny of the crypto sector. For instance, Binance, the leading exchange by trading volume, faces increased US oversight post a $4.3 billion penalty due to a plea deal with the Department of Justice (DOJ).
Enhanced Detection Strategies Implemented
Stricter regulations and heightened vigilance by exchanges have contributed to a reduction in suspicious fund inflows to exchanges, dropping the monthly figure to about $780 million from a previous high of nearly $2 billion, according to Bloomberg.
Chainalysis notes an uptick in intermediary digital wallets on KYC-compliant exchanges, obscuring fund origins to evade detection of illicit activities.
To counter the growing complexity of illicit schemes, investigators are adopting detection methods like behavioral analytics as preventive measures.
Chainalysis’ Grauer advocates for the adoption of pattern recognition tools similar to those used in traditional banking practices, underlining the increased integration of cryptocurrencies into the financial landscape.
As of now, the total crypto market capitalization is at $2.07 trillion, down from a peak of $2.7 trillion witnessed during the first-quarter uptrend in major cryptocurrency prices.
Featured image from DALL-E, chart from TradingView.com
