The unlawful use of cryptocurrencies reached a new high of $20.1 billion last year, as transactions involving companies sanctioned by the United States skyrocketed, as per data from blockchain analytics firm Chainalysis released on Thursday.
In 2022, the cryptocurrency market lost momentum as risk appetite started to wane and various crypto firms went bankrupt. Investors suffered significant losses, and regulators increased calls for greater consumer protection.
Despite a drop in overall crypto transaction volumes, the value of unlawful crypto transactions increased for the second year in a row, according to Chainalysis.
As per Chainalysis, transactions linked with sanctioned entities increased more than 100,000-fold in 2022 and accounted for 44% of illicit activity last year.
Funds received by Garantex, a Russian exchange sanctioned by the US Treasury Department in April, accounted for "much of 2022's illicit volume," according to Chainalysis, adding that the majority of that activity is "likely Russian users using a Russian exchange."
According to a Chainalysis spokesperson, wallets are labelled as "illicit" if they are not part of a sanctioned entity.
Garantex did not respond immediately to an emailed request for comment.
Last year, the US also sanctioned cryptocurrency mixing services Blender and Tornado Cash, alleging that they were being used by hackers, including those from North Korea, to launder billions of dollars in cybercrime proceeds.
The volume of stolen crypto funds increased by 7% last year, but volumes of other illicit crypto transactions, such as those related to scams, ransomware, terrorism financing, and human trafficking, decreased.
"The market downturn may be one reason for this. We've found in the past that crypto scams, for instance, take in less revenue during bear markets," Chainalysis said.
Chainalysis stated that its $20.1 billion estimate only encompasses blockchain activity and excludes "off-chain" crime such as fraudulent accounting by crypto firms.
According to Chainalysis, the figure also excludes instances where cryptocurrencies are the proceeds of non-crypto-related crimes, such as when cryptocurrency is used as a means of payment in drug trafficking.
"We have to stress that this is a lower bound estimate - our measure of illicit transaction volume is sure to grow over time," the report said, noting that the figure for 2021 was revised to $18 billion from $14 billion as more scams were discovered.
