The DOJ is Launching a Crypto Unit But it Might Be Bullish for Bitcoin

‘Ensuring User Confidence’ in Cryptocurrency and Blockchain

As the announcement of the DoJ’s National Cryptocurrency Enforcement Team (NCET) makes clear, the Department of Justice had already been using cryptocurrencies and blockchain to detect and prosecute criminals for quite some time.

“Today we are launching the National Cryptocurrency Enforcement Team to draw on the Department’s cyber and money laundering expertise to strengthen our capacity to dismantle the financial entities that enable criminal actors to flourish — and quite frankly to profit — from abusing cryptocurrency platforms” said Deputy Attorney General Lisa O. Monaco.

While the NCET has only just been launched, its creation doesn’t mark the DoJ’s first ever foray in combating crypto-related crime. Instead, it finds the department significantly ramping up its capabilities and activities in this area, to ensure that no significant crimes involving cryptocurrencies remain undetected.

“The Criminal Division is already an established leader in investigating and prosecuting the criminal misuse of cryptocurrency,” said Assistant Attorney General Kenneth A. Polite Jr. “The creation of this team will build on this leadership by combining and coordinating expertise across the Division in this continuously evolving field to investigate and prosecute the fraudulent misuse, illegal laundering, and other criminal activities involving cryptocurrencies.”

Likewise, the FBI’s announcement of its own “virtual asset exploitation” unit follows on from years of preexisting crypto-focused activities, with the Bureau notably seizing bitcoin related to the Colonial Pipeline hack last year and to numerous other ransomware exploits.

In other words, these launches find both the Feds and the DoJ expanding in order to keep pace with the growing use of cryptocurrencies, some — but certainly not most — of which does involve criminal activities.

However, it should be highlighted that this move doesn’t represent US federal agencies ‘cracking down’ on cryptocurrency, but rather helping to clean up the sector’s act. In fact, this is the gist of what Deputy Attorney General Monaco states in the DoJ’s press release.

“As the technology advances, so too must the Department evolve with it so that we’re poised to root out abuse on these platforms and ensure user confidence in these systems,” she said.

Share of Illicit Transactions Among All Crypto Transactions Reaches Record Low

To put this differently, US taxpayer money is now being spent on increasing “user confidence” in cryptocurrency. So despite occasionally aggressive rhetoric from various US lawmakers, the US government has essentially admitted that it’s ramping up its efforts to make the cryptocurrency sector a safer space for investors and users alike.

And the thing is, cryptocurrency can quite easily be transformed into a safe space, since its technology is largely unsuited to use by criminals who hope to evade detection. This is attested to by a number of high profile legal actions in the past few months, with the DoJ’s seizure of around 94,000 bitcoins (linked to the 2016 Bitfinex hack) from last month being the most notable.

Because the most valuable cryptocurrencies all make use of public, transparent and — most importantly  — immutable blockchains, the transactions they enable can all be traced. So if any amount of bitcoin, ethereum or whatever else is stolen, its movement from one address to another can be seen quite easily by anyone interested enough to look.

Initially, criminals assumed crypto was a great medium for crime. However, if this was ever true, it was only because law enforcement agencies such as the DoJ and FBI hadn’t yet familiarized with the technology involved, and because crypto-related crime comprised a mostly insignificant fraction of overall (financial) crime. Now, however, regulators and agencies have learned the technology, while the cryptocurrency ecosystem has expanded to the point where it’s worth their while to chase criminals.

But even if the ecosystem has expanded, it needs to be emphasized that crime is not significantly more common in cryptocurrency than it is elsewhere. According to Chainalysis’ Crypto Crime Trends 2022 report, the share of illicit transactions among all cryptocurrency transactions reached an all-time low last year.

Source: Chainalysis

Admittedly, the (absolute) total value of cryptocurrency sent to illicit addresses also reached a record high, of $14 billion. That said, Chainalysis’ report underlined the fact that legitimate cryptocurrency investment and use is outpacing the use of crypto as a tool for money laundering and crime. As its team wrote, “crime is becoming a smaller and smaller part of the cryptocurrency ecosystem.” And if you know anything about cryptocurrency and its underlying technology, this shouldn’t really come as a surprise.

To put cryptocurrency’s (alleged) popularity with criminals into some perspective, it’s worth looking at the crime stats for traditional money. The United Nations Office on Drugs and Crime currently estimates that the amount of money laundered globally each year equals between 2% and 5% of worldwide GDP. This equates to around $800 billion to $2 trillion, making the cryptocurrency sector look almost squeaky clean by comparison.

As far as the FBI, DoJ and other agencies elsewhere are concerned, cryptocurrency is a gift. It provides them with a nigh-on perfect instrument for keeping tabs on where illicit money is being sent and spent, meaning that no matter how many times a criminal moves their stolen funds, any officer or analyst with enough time on their hands can follow them.

This is exactly why the FBI and DoJ have expanded their cryptocurrency operations, because they know that crypto can help them look good. And by effectively ensuring that illicit transactions as a share of overall crypto-based transactions will sink even lower this year, they will make crypto look good by extension.