More than $8.6 billion in cryptocurrencies were laundered by cybercriminals in 2021 - up by 30% from 2020, a report by Chainalysys said.
According to the report, which was released on January 26, more than $33 billion worth of crypto were laundered since 2017. Due to rising crypto prices, most of the total laundered money was moved to centralized exchanges over time.
The sharp rise in money laundering activity in 2021 is not surprising, given the significant growth of both legal and illegal crypto activity last year, Chainalysis said.
Furthermore, rising stock prices could have led to speculative traders using the crypto market crypto to convert their gains into cash or vice versa.
During money laundering, cash that was acquired from illegal activities is being legalized and transferred to accounts of legal institutions, and its true origin is concealed.
According to Chainalysis, only 17% of the laundered $8.6 billion went to decentralized finance applications (DeFi, DAO, etc.), referring to the sector which facilitates crypto-denominated financial transactions outside traditional banks. This was up from 2% in 2020
In theory, the rising amount of DeFi transactions should have led to an increased inflow of illegally-acquired cash. However, a sizeable portion of the laundered money was likely moved to more popular market sectors.
Mining pools, high-risk exchanges, and mixers also saw substantial increases in value received from illicit addresses, the report said. Mixers typically combine potentially identifiable or tainted cryptocurrency funds with others, in order to conceal the trail to the fund's original source.
Wallet addresses associated with theft sent just under half of their stolen funds, or more than $750 million worth of crypto in total, to decentralized finance platforms. Legalizing laundered funds via DeFi could probably be easier compared to other means. Furthermore, it could also serve as a profitable yet risky investment, with yield higher than those offered by bonds or deposits in regular banks.
Chainalysis also clarified that the $8.6 billion laundered last year represents funds derived from crypto-native crime such as darknet market sales or ransomware attacks in which profits are in crypto instead of fiat currencies.
"It's more difficult to measure how much fiat currency derived from off-line crime — traditional drug trafficking, for example — is converted into cryptocurrency to be laundered. However, we know anecdotally this is happening," Chainalysis said.
Crypto tokens could be used for both legitimate and illegal purposes. However, increased government regulation could be necessary to minimize the crypto's misuse by cybercriminals. Otherwise, the resulting scrutiny and accusations could severely undermine the crypto industry.