Bitcoin btc
$ usd

As Bitcoin Crime Drops to Historic Lows, Is It Time Legacy Banks Got Their Act Together?

5 mins
Updated by Geraint Price

In Brief

  • Illicit activity on the Bitcoin network now accounts for under 1% of BTC usage.
  • While Bitcoin is criticized for aiding things like money laundering, legacy banks may be the biggest culprits.
  • Declining Bitcoin scam activity may be the result of regulation, which helped to bring transparency and credibility to the Bitcoin network.
  • promo

Illicit Bitcoin activity dropped sharply over the past decade and now accounts for under 1% of BTC usage. But legacy banks may be the biggest culprits when it comes to crime and money laundering.

Crypto analyst PlanB posted a chart on Twitter showing how crime-related use of Bitcoin fell between 2012 and 2020. “Less than 1% of Bitcoin usage is associated with ‘crime,'” said the pseudonymous Dutch investor, inventor of the stock-to-flow (S2F) model.

The chart from the Chainalysis Crime Report 2022 shows that illicit activity involving Bitcoin peaked at about 7% in 2012. It fell sharply to 1% the following year after the shutdown of Ross Ulbricht’s Silk Road darknet marketplace (DNM).

Bitcoin scams virtually ground to a halt in 2017 and 2018 following the closure of AlphaBay DNM. It picked up somewhat in 2019 to the current levels of under 1%. Thanks to the $2.25 billion PlusToken Ponzi scheme.

Bitcoin Crimes: Regulation Brings Transparency

Early Bitcoin visionaries emphasized freedom, autonomy and democracy. But some new movers have welcomed regulation as a solution to the trust problems that have affected the crypto industry.

Observers say the declining illicit Bitcoin activity may be the result of regulation. It is this regulation which helped to bring transparency and credibility to the Bitcoin network.

“The high adoption of Bitcoin is a double-edged sword. It attracts hackers because they go after [a] higher prize,” said Slava Demchuk, co-founder of crypto anti-money laundering tool AMLBot.

“At the same time, it gets easier to track illicit transactions on the Bitcoin blockchain. Regulations, the growth of AML and KYC policies, and the development of blockchain analysis make it difficult for criminals to hide.”

Demchuk said: “On the other hand, BTC is the most popular crypto and will stay the number one target for hackers. Only 1% of all crypto transactions are related to criminal activity, which means the crypto industry is in the right direction.”

Across the world, government agencies are targeting crypto investors not only with taxes but mandatory registration and full disclosure rules.

This new wave of regulation poses a contradiction in that some of Bitcoin’s strongest traits have been privacy and autonomy. State regulation appears to be the price the crypto community will have to pay for assimilation into the mainstream economy.

Regulators Tighten Grip on Crypto

Crypto regulation is usually themed around money laundering and funding of terrorism. A series of heists has not helped the cause of crypto, with victims clamoring for governments to wade into the chaos in messianic garb.

Regulators tightened their grip on cryptocurrency following the multi-billion-dollar collapse of the Terra blockchain in May. More recently, the spectacular collapse of FTX exchange means regulation has become a major focal area for governments all around the world.

From the beginning, however, existing legislation could not have anticipated the emergence of decentralized currencies such as Bitcoin, which thrive on their freedom from government control.

Regulators hoped for effective legislative control. But they struggled to qualify crypto assets as either commodities or financial instruments. That’s because digital currencies do not fall into readily defined financial categories.

Many remain undecided on how to define them. In the U.S., for example, the Securities and Exchange Commission (SEC) said it considers many cryptocurrencies to be securities. Security laws apply to wallets and exchanges where necessary.

In Europe, most jurisdictions agree that cryptocurrencies should be regulated if they have attached profit or dividend rights. Regulators say this makes crypto similar to traditional financial instruments.

“Regulation is inevitable,” Laura K. Inamedinova, founder and CEO of Web3 outfit LKI Consulting, told BeInCrypto in an interview.

“With the recent crash of TerraUSD and collapse of FTX, new regulations on BTC are likely to protect investors and contribute to better financial stability in the ecosystem,” she said, adding: “What many fail to recognize is that innovation within the Bitcoin network and its attractiveness to big players in the market will only grow once a clear, transparent legal framework is created.”

Banks Are the Biggest Culprits in Money Laundering

Crime-Related Bitcoin Usage Drops to 1% But Banks Remain Biggest Culprits

Bitcoin was conceived as an anti-authority invention where unmediated business is done peer-to-peer. But the lack of internal controls, requiring users to utilize their own discretion, has been exploited by those with criminal motives.

Chainalysis says crypto-based crime hit a new all-time high in 2021. Illicit addresses received $14 billion over the course of the year, up from $7.8 billion in 2020.

But the figure pales in comparison to the amount of money laundered by legacy commercial banks. A previous UN report put the amount of alleged illicit flows that banks facilitate each day at $2.7 billion.

In 2018, Danske Bank CEO Thomas Borgen resigned over a scandal involving $234 billion allegedly laundered via its Estonian branch during the eight years to 2015. British banking group HSBC Holdings paid billions of dollars in fines for money laundering and other financial crimes a few years ago.

In the U.S., HSBC paid $1.92 billion for helping Mexican drug lords launder money. It also paid several millions in Hong Kong for systemic deficiencies.

In the same year, top European banks allegedly helped wealthy clients across the continent steal $63 billion from multiple governments by making tax reclaims to which they were not entitled.

The theft centered around a complex scheme of trading stocks that also involved hedge funds and large international commercial law firms, according to the Cumex Files. This was a journalistic investigation that reviewed 180,000 secret documents.

“Bitcoin is trustless, permissionless, and public, so criminals don’t use it very much,” said one user commenting on PlanB’s tweet.

“Fiat is still the most used for crimes but the media and the governments are busy pushing the narrative that Bitcoin is mainly used for illicit activities. The data speaks for itself,” added the user.

Farewell Fiat Cash!

LKI’s Inamedinova explained that Illicit Bitcoin activity involved a lot of misconceptions. “The Bitcoin network can be used to launder funds. But it is just a pawn in the major criminal web,” she opined. She also pointed to the culpability of fiat currencies.

As fiat currency fails, hyperbitcoinization becomes a dystopian bet. Bitcoiners are waiting for state actors to torch their own world and drive citizens to crypto. They have already nurtured the infrastructure required to disrupt fiat hegemony.

There is a finite amount of Bitcoin that can ever enter circulation. Fiat, however, can be inflated by reserve bank printing presses. Almost safe from capricious state authorities, BTC is emergency money, on standby for any nation whose people need it.

The declining scam activity involving Bitcoin makes the asset’s case as an alternative currency even stronger.

A previous report by Enrique and Eduardo Aldaz-Carrol published on the Brookings Institute website revealed that Bitcoin is key to helping countries fight corruption and illicit transfers.


Following the Trust Project guidelines, this feature article presents opinions and perspectives from industry experts or individuals. BeInCrypto is dedicated to transparent reporting, but the views expressed in this article do not necessarily reflect those of BeInCrypto or its staff. Readers should verify information independently and consult with a professional before making decisions based on this content.