Cryptocurrency crimes are no longer solely focused on Bitcoin, with stablecoins now accounting for 63 per cent of all illicit transaction volumes, a new report has found.
A stablecoin is a type of cryptocurrency that is pegged to a fiat currency and tends to be less volatile than Bitcoin.
Until 2021, Bitcoin was unequivocally the cryptocurrency of choice among cyber criminals, probably due to its high liquidity, blockchain data company Chainalysis’s annual Crypto Crime report says.
The preference towards stablecoins has increased over the years as they are cheaper and easier to transfer on some of the chains, the findings show. Now the digital token accounts for a sizeable percentage of all crypto activity, reflected in total annual global growth of about 77 per cent.
Stablecoins currently account for the largest share of crypto activity in the UAE (51 per cent), significantly higher than Bitcoin (19 per cent) and Ether (9 per cent), which are considered to be the most recognised and popular, the report says.
“From 2021, the denomination of assets that facilitates criminal activities on-chain has changed from Bitcoin, which was highly liquid and the most popular token then,” Arushi Goel, policy lead for the Middle East and Africa at Chainalysis, tells The National.
“As the usage and utility of stablecoins have increased, that trend has now shifted. However, this is not necessarily because stablecoins have any unique characteristic, which lends them to criminal activity. Instead, stablecoins account for almost 60 per cent to 70 per cent of all on-chain crypto activity. So, it's just mirroring that trend.”
The Central Bank of the UAE introduced payment token services regulation in July last year. The new crypto regulation will only allow businesses and vendors in the Emirates to accept cryptocurrencies for goods and services if they are dirham-backed stablecoins.
This means other digital assets such as Bitcoin and Ether and US dollar-backed stablecoins like Tether or Binance USD are not allowed for those types of payments. Financial free zones are excluded from this regulation.
AE Coin, the stablecoin that is the first regulated digital currency in the UAE, has been granted final approval by local authorities and is scheduled to be launched soon.
“It is likely that adoption of stablecoins will increase, not just with the native crypto players but across the board. But as with any adoption trend, once you see legitimate use cases increase, illegitimate use cases, to a certain extent, will follow the same trend,” Ms Goel says.
“But having regulations in place as the adoption grows is helpful for shaping the industry more responsibly.”
During 2024, illicit addresses received $40.9 billion, a figure Chainalysis believes will rise to $51 billion. This places 2024 on track to be the second-most prolific year for crypto crime.
However, crime remains just a small share of the crypto ecosystem, accounting for just 0.14 per cent of the year’s total on-chain transaction value, the report says.
Of the $40.9 billion received by illicit addresses in 2024, $10.8 billion can be attributed to “illicit actor organisations”, which include wallets linked to individuals and services directly involved in cyber crime as well as those offering infrastructure, tools and services to help commit these crimes, the report says.
While some forms of crypto crime, such as ransomware and darknet market sales, remain Bitcoin-dominated, other illicit activity, such as scamming or laundering stolen funds, are spread out across all asset types, according to Chainalysis. Transactions associated with sanctioned entities have shifted – primarily to stablecoins – due to challenges accessing the dollar through traditional means, the research shows.
Arun Leslie John, chief market analyst at Century Financial, says that since stablecoins like USDT and USDC are pegged to fiat currencies, they are more stable than volatile cryptocurrencies like Bitcoin.
“This explains the dominance of stablecoins in illicit transactions in 2024,” he says. “Additionally, stablecoins are used to circumvent restrictions, particularly in regions under economic sanctions.”
Bitcoin transactions can be traced more easily, as law enforcement agencies and FinTech companies have devised sophisticated blockchain analytics tools to detect fraudulent transactions. Bitcoin’s increased transparency could deter criminals as the public ledger records every transaction, Mr Leslie John says.
Stablecoins are easier to convert into other cryptocurrencies or fiat currencies and are widely accessible across various exchanges, decentralised finance platforms and other payment avenues. Stablecoins are faster and cheaper than Bitcoin transactions, making them a preferred choice, particularly during periods of network congestion, he adds.
“Conducting a large volume of transactions in Bitcoin can invite unwanted attention and trigger red flags. By contrast, stablecoins are more stable as they are less susceptible to the ever-evolving market dynamics,” he says.
“Finally, Bitcoin has always been the key area of focus of law enforcement, resulting in excessive scrutiny. However, the emergence of privacy stablecoins has created an opportunity for criminals to avoid detection.”
Navin Gupta, chief executive of blockchain analytics platform Crystal Intelligence, says that crypto criminals are following the liquidity and diversifying from Bitcoin and privacy coins.
Stablecoins offer the highest number of currency pairs across any exchange globally, often with significant liquidity. This decreases the transaction cost for criminals to bridge to another chain for obfuscation, off-ramp into fiat or a physical asset like real estate, luxury goods or precious metals, he says.
“Stablecoins are far more prevalent and convertible, whereas digital assets like Bitcoin are often seen as investments or store-of-value assets,” Mr Gupta adds.
