Amid record levels of cryptocurrency crime, many emerging markets are looking at ways to strengthen their cryptocurrency-related protections. The incidence of cryptocurrency-linked crime is increasing as the uptake of the payment medium rises rapidly and broadly. An all-time high of $20.6bn in digital currencies was transferred to illegal addresses in 2022, according to blockchain data platform Chainalysis, up from the $18bn transferred in 2021, itself a record year.
Illicit addresses are defined as accounts or wallets tied to criminal activities such as ransomware, Ponzi schemes, scams or other forms of crypto-theft. The share of overall cryptocurrency activity associated with unlawful activity rose for the first time since 2019, from 0.12% in 2021 to 0.24% in 2022. This increase was due to a rise in activity associated with sanctioned entities as well as stolen funds, as transaction values fell across other forms of crypto-related crime.
Bolstering Regulation
In response to the increased risk of crypto-crime, many emerging markets have sought to strengthen protections. In Chainalysis’ 2022 ranking of cryptocurrency adoption rates, Vietnam, the Philippines and Ukraine took the first three spots, with the US being the only mature economy in the top 10. One of the main ways governments are working to strengthen protections is by legislating the use of cryptocurrencies. Although at an early stage, these efforts represent a key step in regulating trading.
In September 2021 El Salvador became the first country in the world to adopt Bitcoin – the world’s most popular cryptocurrency – as legal tender, allowing residents to use it in all transactions. The country’s Bitcoin Law outlines regulations concerning the trade of the cryptocurrency and its conversion rate with the US dollar. At the same time, Chivo, the state-run e-wallet, provides residents with a commission-free platform on which it can be traded.
Elsewhere in Latin America, Brazil stands as a regional trailblazer. In 2021 the Brazilian Stock Exchange debuted three crypto-dedicated exchange-traded funds (ETFs). In mid-February 2022 the country also saw the launch of the world’s first ETF dedicated to decentralised finance networks. Around the same time, the Senate’s Economic Affairs Committee unanimously approved the country’s cryptocurrency bill, which is set to be debated and voted on first in the Senate itself and then in the lower house. Among other functions, the bill will define virtual assets, outline the responsibilities of service providers and determine which body will enforce cryptocurrency regulation.
Global Disruptions
Among the major geopolitical events of recent times, none is more illustrative of the potential opportunities and risks of cryptocurrencies than Russia’s ongoing invasion of Ukraine. Since the invasion began on February 24, 2022, Ukraine has embraced cryptocurrencies as a form of alternative financing amid concerns over traditional currency transfers and delays to conventional payments.
Already a leader in cryptocurrency adoption before the conflict, Ukraine set up official government wallets in March 2022 that accept cryptocurrency payments and implement legal structures designed to bolster the industry. For example, cryptocurrency exchanges are now able to operate in the country, with the National Bank of Ukraine and the National Securities and Stock Market Commission appointed as regulators. Partly as a result of such efforts, Ukraine raised more than $100m in cryptocurrency donations in March 2022, providing access to funds to purchase essentials.
However, there are increasing concerns that cryptocurrencies are being used as a way for the Russian government and other entities on sanctions lists to evade international financial and trade penalties. The widespread popularity of cryptocurrencies has sparked a debate about their future. Despite the increase in criminal activity, with improved regulations in place, cryptocurrencies are likely to become a part of the mainstream financial system.
Read More from OBG
