Bitcoin: Not Suitable For Money Laundering

Bitcoin is increasingly trusted among large corporations, yet some American regulators still have a way of stating how crypto is used to launder money and engage in criminal behaviour. It’s very interesting because there’s ample data suggesting that, actually, the U.S. dollar is more preferred as a vehicle for illegal activities. So why do authorities push such an opinion to the masses? 

Let’s discuss the possible reasons and see if there’s evidence demonstrating that public perception may be somewhat skewed. 

What exactly will regulate the Anti-Money Laundering Act?

Not so long ago, in February 2021, Janet Yellen, newly-appointed Treasury Secretary, announced that she is worried about crypto being a tool to finance terrorism. During a financial sector innovation roundtable, she explained that the flow of dark money can be prevented by the passage of the Anti-Money Laundering Act regulating the market widely and vastly.

The update couldn’t have come at a better time,” Yellen told the policy makers. “We’re living amidst an explosion of risk related to fraud, money laundering, terrorist financing and data privacy.” 

The old framework hasn’t been changed since the 1970s, according to the Secretary, and will soon be reworked and implemented for combating illicit finance – in other words, crypto.

Is that a matter of law or money?

Yellen’s right in some way. The only problem is that crypto is not the only vehicle for scams and other illicit activity. According to The Chainalysis 2020 Crypto Crime Report, a total of $11.5 billion USD worth of cryptocurrency transactions last year were associated with fraud, representing just 1.1% of total activity, whereas the estimated amount of money laundered globally in one year is 2 – 5% of global GDP, or $800 billion – $2 trillion in current US dollars.

The authorities have a lot on their plate to take care of aside from crypto, really, and what looked like a legit accusation back in 2010 when Silk Road was yielding profit in Bitcoin, in 2021, might now strike as their attempt to regain control in an increasingly diffuse (or decentralized) situation. 

Fight for billions

In the beginning of February 2021, the SEC and Ripple announced that there’s little chance of a settlement ahead of the expected trial over the alleged fraudulent activities. 

It’s difficult to know exactly what this means and some might be worried that other crypto projects could follow suit.

As a reminder: The SEC filed an action against the company and two of its executives, alleging that they raised over $1.3 billion through an unregistered, ongoing digital asset securities offering.

If the SEC wins, this will broaden the definition of the Howey test, setting a legal precedent that could result in other similar cryptocurrencies also being classified as securities – and that means more billion-dollar lawsuits.

Bitcoin: the power of decentralization

This all leads us to a simple conclusion: the urban legend around Bitcoin being a vehicle for money laundering might very well be just a legend benefiting a specific set of interests. (On Crypto Twitter these are sometimes referred to as the Fiat Lords).  

The statistics and actual numbers speak for themselves. Quoting The Chainalysis 2020 Crypto Crime Report, “in 2019, scams were by far the biggest type of crime (in crypto) with a whopping $8.6 billion worth of transactions. Scammers took roughly $4.3 billion worth of cryptocurrency from millions of victims, and sent roughly the same amount to other entities, presumably to convert their stolen funds into cash. The vast majority of that $4.3 billion went to just two large-scale Ponzi schemes, without which crime overall would account for just 0.46% of all cryptocurrency activity.” 

The fact that the adoption of crypto is increasing on a yearly basis is self-explanatory. Over the years, Bitcoin’s reputation has been improving. Polling shows that in 2019, 18% of all Americans and 35% of American millennials have purchased cryptocurrency, and these numbers only grew after the pandemic crashed traditional markets.

With all that in mind, Satoshi was right from the very beginning. Remember one of the main objectives of his whitepaper: to provide a way to initially distribute coins independently of central banks minting them? 

We are now in the Decade of Adoption, but while Bitcoin and other cryptocurrencies will continue to find traction, we can also expect friction.

As we say, with everything: don’t trust – verify.

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