Value of illicit cryptocurrency transactions dropped 48% to $24 billion in 2023

Cyber criminals are increasingly moving away from Bitcoin to stablecoins, Chainalysis says

Some forms of illicit cryptocurrency activity, such as darknet market sales and ransomware extortion, still take place predominantly in Bitcoin, according to Chainalysis. Reuters

The value of illicit cryptocurrency transactions decreased last year, as the digital asset industry showed more signs of maturing, a study has found.

The value received by dubious wallets dropped more than 48 per cent to $24.2 billion in 2023, from the all-time high of $39.6 billion a year earlier, the New York-based blockchain platform said in its 2024 Crypto Crime Trends report.

The share of cryptocurrency transaction volume associated with illicit activity also fell to 0.34 per cent last year from 0.42 per cent in 2022, the report showed.

“With Bitcoin having just crossed the $46,000 mark, on the back of the recent landmark Securities and Exchange Commission decision to approve BTC spot exchange-traded funds, there are strong signs that the crypto winter is thawing,” said Eric Jardine, cyber crime research lead at Chainalysis.

“Coupled with the significant reduction in crypto crime activities last year, it appears a new growth phase might soon be upon us.”

In a major victory for the cryptocurrency sector – the SEC recently approved the US’s first spot Bitcoin ETFs.

Bitcoin surged 157 per cent last year on optimism about the eventual January 11 launch of the first US ETF to directly hold the token.

Digital assets also got a tailwind from bets on looser monetary policy.

Nine new spot Bitcoin ETFs went live last week, including those backed by BlackRock and Fidelity Investments.

But Bitcoin slid to its lowest price since mid-December on Friday as the speculative demand for the token triggered by hype about new ETFs dissipated.

The largest digital asset dropped below $40,000 on Friday and was trading at $41,636 as of 11am on Saturday.

About 61.5 per cent of illicit cryptocurrency volumes in 2023 came from activity associated with sanctioned entities, Chainalysis said.

Sanctioned entities and jurisdictions together accounted for a combined $14.9 billion worth of transaction volume last year, it added.

Crypto crime comprised only 0.34 per cent of total on-chain transaction volume last year, the report showed.

The notable drop in illicit transaction volume is largely attributed to a sharp decline in crypto scamming and stolen funds, for which the total illicit revenue was down 29.2 per cent and 54.3 per cent, respectively, Chainalysis said.

Many crypto scammers have now adopted “romance scam tactics”, targeting individuals and building relationships with them in order to pitch them on fraudulent investing opportunities, rather than advertising them far and wide, which often makes them more difficult to uncover, according to the report.

“The decline in stolen funds was driven largely by a sharp drop-off in decentralised finance hacking,” it said.

“This drop-off could represent the reversal of a disturbing, long-term trend, and could be a signal that DeFi protocols are improving their security practices.”

However, ransomware and darknet markets – two of the most prominent forms of crypto crime – saw revenues increase last year, according to Chainalysis.

“The growth of ransomware revenue is disappointing following the sharp declines we saw last year and suggests that perhaps ransomware attackers have adjusted to organisations’ cybersecurity improvements,” said Mr Jardine.

The report also identified a continuing shift away from Bitcoin as the cryptocurrency of choice among cyber criminals.

This shift away from Bitcoin is an interesting development and again speaks to the maturity of the sector

Eric Jardine,
cybercrime research lead, Chainalysis

Through 2021, Bitcoin reigned supreme as the cryptocurrency of choice among cyber criminals, likely due to its high liquidity.

While some forms of illicit cryptocurrency activity, such as darknet market sales and ransomware extortion, still take place predominantly in Bitcoin, others, like scamming and transactions associated with sanctioned entities, have shifted to stablecoins, Chainalysis said.

Overall, Bitcoin was utilised in just under 25 per cent of all illicit transactions, far behind stablecoins, which now account for the majority of illicit activity, in line with the growth of stablecoins overall, the company added.

“This shift away from Bitcoin is an interesting development and again speaks to the maturity of the sector,” Mr Jardine said.