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April 19, 2021

The DFi Labs Wrap


Bitcoin tumbled more than 15% on Sunday, just days after hitting a new high. This is the biggest drop in the last two months. The world’s largest and most popular cryptocurrency fell from over $60,000 to under $52,000, while Ether, the second-largest cryptocurrency, fell 10% to the $2,200 mark. Many unconfirmed online sources attributed the drop to rumours that the US Treasury would soon indict several financial firms for money laundering. The famous Twitter account FXHedge was the first to report the possible move by the agency, alerting its 153,932 followers. The tweet, citing unnamed sources, quickly went viral. It should be noted that FXHedge has made false claims in the past.

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has in the past accused individuals of using crypto assets to launder money. In March 2020, the agency sanctioned two Chinese nationals, accusing them of laundering stolen cryptocurrency on behalf of Lazarus – a group the FBI has described as a North Korean state-sponsored hacking organisation.

The fact that Bitcoin is being used by illicit actors is likely the basis for recent and widespread comments by government and regulatory officials. Earlier this year, US Treasury Secretary Janet Yellen warned in her confirmation hearing that Bitcoin and other cryptocurrencies are mainly used for illegal activities and that the government needs to curb their use.

The obfuscating properties of cryptocurrency, such as its relative anonymity and mixed services, make it ideal for illegal activity. Because of its novelty, many new money laundering techniques and methods have emerged. All this adds to the complexity and range of uses. But as with fiat currencies, the ultimate goal is the same: to legitimise the currency so that the criminal can use it without attracting unwanted attention.

According to a new report by blockchain analytics firm Chainalysis, illicit activity across all cryptocurrencies accounted for less than 1% of total cryptocurrency activity from 2017 to 2020. For Bitcoin specifically, blockchain analytics firm CipherTrace estimates that illicit activity accounted for less than 0.5% of total transaction volume. Criminal activity related to cryptocurrencies has fallen to 0.34 per cent of global transaction volume, or around US$10 billion. In 2019, criminal activity accounted for 2.1 per cent of total transaction volume, or about $21.4 billion. Figures that also need to be compared with the recent “FinCEN” scandal of tolerated money laundering by several banking institutions. Thus, five major banks (JP Morgan, Deutsche Bank, Standard Chartered, Bank of New York and HSBC) would have validated more than $2 trillion in suspicious transactions between 1999 and 2017.

Overall economy-wide estimates of illicit activity, largely carried out by conventional financial intermediaries and using traditional fiat currencies, range from 2% to 4% of global GDP. Owing to the disparity in overall volume, identified cases of cryptocurrency laundering remain relatively small compared to the amounts of money laundered through conventional methods.


Transactions on the Bitcoin network are transparent, which makes the blockchain an unsuitable option for money laundering. When you use Bitcoin, you use an open ledger. Once you have made a few transactions, you can trace the funds back to where the coins were mined. As a result, the blockchain provides a very open database that everyone can analyse. If you piece together a few data points and do cluster analysis, it’s not that hard for an algorithm to analyse the provenance. Private coins are harder to track, but their market capitalisation is not as high, which makes larger transactions harder. Therefore, it is much easier to make illegal transactions with fiat than with crypto.

Technological advances are producing new tools that criminals can use. Ever-changing techniques and strategies present an ever-evolving challenge for law enforcement. Cryptocurrency is just one example of new and complex monetary tools that financial regulators need to understand and prevent abuse.


BTC fell to $51,392, its lowest since 23 March, as it topped $63,000 last week. It is down more than 16% from its all-time high. Its market capitalisation has crashed to more than $1.03 trillion. Ethereum price fell during the weekend mainly because of the sharp decline in Bitcoin. In most cases, ETH and other currencies fall when BTC falls.

The market-wide plunge wiped out nearly $10 billion worth of long positions (long positions) – one of the largest liquidations to date.

Although Bitcoin is neither a currency per se nor a truly quantifiable asset in the traditional sense, its price reacts strongly to factors of technical analysis, as can be the case with stocks, currencies or interest rates.

Strictly speaking, there is also a technical factor. Several major power outages in China have shut
down a large number of large server farms where Bitcoin is “mined” – produced. Logically, this
should have created a scarcity effect and driven up the price. But cryptocurrencies sometimes
defy all logic.

And then there are much more fundamental considerations with this sense of increasing
surveillance. Turkey’s central bank is now banning its use for payments on Turkish territory
because it considers cryptocurrencies far too opaque. India is in the process of passing a law that
will criminalise not only the use of cryptocurrencies, but also their simple possession.

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