Crypto Transaction Volume Grows 567% In 2021 But For A Price

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Crypto adoption reached unprecedented levels in 2021. The COVID-19 pandemic and the excess of liquidity in the market onboard new users as Bitcoin and other major cryptocurrencies became stores of values of gateways into new financial services.

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On-chain analytics firm Chainalysis published a report that records a 567% increase, when compared to 2020, in cryptocurrency total transaction volume last year. This metric stood at $15.8 trillion and suggests the adoption of cryptocurrencies is moving “faster than ever before”.

However, the firm noted an increase in cryptocurrency illicit activity which reached an all-time high in 2021 with addresses linked to crime receiving $14 billion across last year. This represents almost a 50% increase when compared to 2020 when the metric stood at $7.8 billion. Chainalysis wrote:

(…) Given that roaring adoption, it’s no surprise that more cybercriminals are using cryptocurrency. But the fact that the increase was just 79% — nearly an order of magnitude lower than overall adoption — might be the biggest surprise of all.

Chainalysis
Source: Chainalysis

In that sense, and with the growth of “legitimate” use cases for cryptocurrencies, the percentage of trading volume related to illicit activity “has never been lower”, claimed Chainalysis. As seen in the chart below, this metric has been in a sharp decline since reaching an all-time high in 2019 with 3.37% until last year when it recorded a 0.15%. The firm added the following:

we have to caveat this figure and say that it is likely to rise as Chainalysis identifies more addresses associated with illicit activity and incorporates their transaction activity into our historical volumes.

Chainalysis crypto
Source: Chainalysis

The firm claimed that the percentage of cryptocurrency total trading volume for illicit activities has changed in the past as they identify addresses with potential links to crime and bad actors. In 2020, the initial percentage for this metric was 0.34% and eventually changed to 0.62%.

More Crypto Adoption, Less Crime Using Cryptocurrencies?

As Chainalysis clarified 2020 was a particular year for cryptocurrency illicit activities as the PlusToken Ponzi scheme was uncovered. This contributed to the increase in that year’s metric. Overall, the firm believes “crime is becoming a smaller and smaller part of the cryptocurrency ecosystem”.

As seen in the chart below, most of the illicit activity was supported in the decentralized finances (DeFi) sector between 2020 and 2021. During this period, DeFi protocols experienced a 1,964% increase in money laundering activities, according to Chainalysis.

Crypto defi chainalysis
Source: Chainalysis

The reduction in this metric could be attributed to the alleged evolution of law enforcement methods to deal with bad actors using cryptocurrencies. However, the firm still considers $14 billion in illicit transactions as a cause for concern.

Still, the report claims much of that value comes from the massive appreciation in the price of most crypto assets over 2021 and not due to a rise in criminal activity. Therefore, Chainalysis said:

We believe it’s important for law enforcement agencies to understand these estimates as they build out their blockchain-based investigative capabilities, and especially as they develop their ability to seize illicit cryptocurrency.

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As of press time, the total cryptocurrency market cap stands at $2.05 trillion after yesterday’s move to the downside.

Crypto total market cap
Crypto total market cap trends to the downside in the 4-hour chart. Source: Tradingview



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