Study Shows Just 0.3% of Crypto Transactions Are Illicit, Cash Leads

A recent investigation has revealed that, contrary to the longstanding assumption that cryptocurrency assets are a primary facilitator of criminal activity, offenders predominantly choose cash for their illegal transactions.

This finding, published by Fortune and utilizing insights from the Crypto Information Sharing and Analysis Center (CryptoISAC), contests the narrative that digital assets are the preferred method for criminal groups like Hamas.

TradFi Systems Estimated To Launder Up To $2 Trillion Annually

The report titled “Blockchain’s Role in Mitigating Illicit Finance” was created in partnership with Robert Whitaker, the director of law enforcement affairs at Merkle Science and a former supervisory special agent at the Department of Homeland Security.

Whitaker stated, “Cash will always be king due to its authentically anonymous nature,” stressing the challenges law enforcement encounters in tracing cash transactions versus those executed on the blockchain.

For years, cryptocurrencies have been painted as a hotbed for illicit activities, especially following notable events such as the collapses of FTX and the Silk Road marketplace. Nevertheless, data from CryptoISAC and blockchain analytics firm Chainalysis implies that this perception may be misleading.

The analysis reveals that merely 0.34% of total on-chain crypto transaction volumes were flagged as potentially illicit in 2023, down from 0.42% in 2022. In contrast, it is estimated that traditional financial systems (TradFi) launder between 2% and 5% of global GDP each year, which equates to between $800 billion and $2 trillion.

Whitaker noted that US crypto exchanges must comply with stringent regulations, including know-your-customer (KYC) and anti-money laundering (AML) laws.

These regulations make tracing blockchain transactions considerably simpler, potentially serving as a deterrent for criminals. “It’s law enforcement friendly in the sense that it has an immutable ledger behind it that is public,” he clarified.

Whitaker Urges Tailored Regulations For Crypto

The report further underscores that even stablecoins, which are frequently assumed to be popular among crypto criminals due to their stability, are seldom linked to illicit transactions. From July 2021 to June 2024, only 0.61% of transactions with Tether’s USDT and 0.22% of Circle’s USDC were identified as potentially illicit.

The US Department of Treasury corroborates these observations, stating in its 2024 money laundering risk assessment that “the use of virtual assets for money laundering is significantly lower than that of fiat currency.”

The report also highlights the necessity for international collaboration to tackle national security threats, especially since a considerable amount of illegal digital asset activity transpires on offshore exchanges outside of US regulations.

Whitaker advocates for tailored legislative measures that address the distinctive characteristics of cryptocurrencies, proclaiming, “Stop trying to fit crypto, a round peg in a square hole labeled fiat-currency regulation.” He calls on policymakers to take decisive actions for effective regulation of this space.

With growing concerns regarding national security matters such as funding for terrorist organizations and evasion of sanctions, Whitaker stresses the need for urgent attention to these issues. “The longer we take to confront this problem, the more we allow illicit parties to exploit this domain,” he warns.