Criminals prove loyal to crypto markets

While crypto trading has fallen alongside the value of major digital assets, such as Bitcoin, criminal activity in the crypto space has held up better than legitimate trading, according to an analysis by crypto research firm Chainalysis Inc.

The firm’s research indicated that, through the first seven months of the year, legitimate crypto trading volumes were down 36% compared with the same period last year. However, illicit trading is down just 15% over the same period, Chainalysis said.

“Overall, criminal activity appears to be more resilient in the face of price declines,” the firm noted.

That said, it also found that some forms of criminal activity held up better than others to the cooling in crypto markets.

For instance, revenue from crypto scams is down by an estimated 65% this year. “This decline appears linked to declining prices across different currencies,” Chainalysis said.

At the same time, the number of people falling for crypto scams also appears to be on the decline, it said.

“One reason for this could be that with asset prices falling, cryptocurrency scams — which typically present themselves as passive crypto investing opportunities with enormous promised returns — are less enticing to potential victims,” it said.

Additionally, the number of novice crypto investors, who may be the most vulnerable to crypto scams, has dropped alongside prices — reducing the pool of likely victims, it noted.

Conversely, incidents of hacking and crypto theft are up this year, Chainalysis said.

The firm reported that an estimated US$1.9 billion worth of cryptocurrency has been stolen in hacks through the first seven months of the year, compared with just under US$1.2 billion in the same period last year.

“Much of this can be attributed to the stunning rise in funds stolen from DeFi protocols, a trend that began in 2021,” the firm said.

“DeFi protocols are uniquely vulnerable to hacking, as their open source code can be studied ad nauseum by cybercriminals… and it’s possible that protocols’ incentives to reach the market and grow quickly lead to lapses in security best practices,” it noted.

Finally, Chainalysis reported that revenues generated on “darknet” markets are also down by about 43% so far this year.

It attributed the decline primarily to the shuttering of Hydra Marketplace — the leading market for illegal drugs, hacking tools, stolen data, and money laundering — in April.

Until Hydra was shut down by German authorities, revenues in the darknet were tracking higher than the previous year, the firm said.

“Interestingly, while overall darknet market revenue fell following Hydra’s shutdown, the remaining markets saw a significant uptick in the number of individual incoming transfers,” the firm said.

“We suspect that this increase represents Hydra vendors and customers moving their funds to new markets in search of a replacement,” it said. “Nevertheless, the decline in darknet market revenue — and indeed, cryptocurrency value received by all criminal categories — following Hydra’s shutdown shows the tangible impact of law enforcement’s growing ability to fight cryptocurrency-based crime.”