Cryptocurrency and money laundering is a topic that sparks intense debate. On one side, critics argue that the anonymity and borderless nature of digital currencies make them ideal tools for criminals. On the other, supporters claim that blockchain technology and stricter regulations are making it harder than ever to launder money using crypto. To understand whether cryptocurrency promotes or reduces money laundering, we need to look at how criminals use crypto, how regulators and exchanges are responding, and what the data actually shows.
## How Criminals Use Cryptocurrency for Money Laundering
Cryptocurrencies like Bitcoin were initially attractive to criminals because they allowed for pseudonymous transactions—people could move money without revealing their real identities. This feature made crypto a favorite on dark web marketplaces, where illegal goods and services are bought and sold. For example, in 2019, about $829 million worth of Bitcoin was spent on the dark web, though this was only 0.5% of all Bitcoin transactions that year[1]. Criminals also use techniques like “tumbling” or “mixing” services, which scramble the origins of crypto funds to make them harder to trace[1].
High-profile cases show how effective—and risky—these methods can be. Jimmy Zhong, for instance, stole 50,000 Bitcoin from the Silk Road dark web marketplace. He hid the funds by splitting and moving them between accounts, living off small withdrawals for years. However, once he tried to move the Bitcoin to an exchange with strict identity checks, investigators were able to trace and seize the funds[3]. This case highlights both the potential for crypto to hide illicit funds and the limits of that anonymity when law enforcement gets involved.
Large-scale criminal networks have also turned to crypto. The Huione Group, for example, laundered at least $4 billion in illicit proceeds between 2021 and 2025, including millions from North Korean cyber heists and Southeast Asian investment scams[4]. These operations often rely on weak or non-existent know-your-customer (KYC) and anti-money laundering (AML) controls at some crypto exchanges.
## The Role of Regulation and Technology in Fighting Crypto Laundering
As crypto has grown, so has regulatory scrutiny. Governments and financial watchdogs have pushed for stricter KYC and AML rules at crypto exchanges. KYC requires users to prove their identity before trading, while AML rules force exchanges to monitor for suspicious activity. The impact of these measures is significant. In 2024, illicit crypto activity accounted for just 0.4% of all crypto transaction volume, down from 0.9% in 2023[2]. This drop suggests that tighter controls are making it harder for criminals to move dirty money through crypto.
Exchanges with strong KYC report a 25% reduction in scams, and nearly half of crypto users say comprehensive KYC policies make them more confident to invest[2]. However, these rules are not universal. A study found that 56% of crypto exchanges worldwide had weak KYC protocols, with Europe, the US, and the UK among the worst offenders[1]. In North America, 90% of exchanges are KYC-compliant as of 2025, but the remaining 10% may attract higher-risk or illicit flows[2].
Countries vary widely in their enforcement. Singapore leads with 91% compliance and strong regulations, while Nigeria lags at 42%, indicating major gaps in enforcement[2]. The US has moderate enforcement, with 61% compliance among virtual asset service providers[2]. When regulators act decisively—like cutting off the Huione Group from the US financial system—they can disrupt massive laundering networks[4].
Blockchain technology itself is a double-edged sword. While it can obscure identities, every transaction is recorded on a public ledger. This means that, with enough effort, law enforcement can often trace the movement of funds. The Zhong case is a perfect example: once he interacted with a regulated exchange, his anonymity was broken[3]. Similarly, sanctions by agencies like OFAC have left over 100,000 Bitcoin and 155,000 Ethereum “stuck” on the blockchain, unable to be moved by their owners[5].
## The Scale of Crypto Money Laundering Compared to Traditional Methods
It is important to put crypto laundering into perspective. Globally, between $800 billion and $2 trillion is laundered each year, with more than 90% going undetected[1]. The exact share of crypto in this total is unknown, but available data suggests it is still a small fraction. In 2019, criminals laundered $2.8 billion through crypto exchanges, up from $1 billion in 2018[1]. By 2024, the total volume of illicit crypto activity was about $45 billion, but this was against a total crypto transaction volume exceeding $10.6 trillion—meaning illicit activity made up less than half a percent of all crypto flows[2].
This suggests that, while crypto is used for money laundering, it is not the primary tool for most criminals. Traditional methods—like shell companies, offshore accounts, and cash smuggling—remain far more significant in the global money laundering ecosystem.
## The Impact of User Behavior and Market Structure
User behavior also plays a role. As KYC becomes stricter, some users abandon platforms that require identity checks, potentially reducing growth for less-compliant exchanges but also pushing illicit activity to the margins[2]. Fiat-to-crypto gateways—where users exchange government-issued money for crypto—increasingly require ID verification, reducing the anonymity that once attracted criminals[2].
At the same time, the sheer size and liquidity of the crypto market mean that even a small percentage of illicit activity can represent billions of dollars. This creates a cat-and-mouse game between criminals and regulators, with each side adapting to the other’s moves.
## Real-World Enforcement and Its Limits
Law enforcement has scored some major victories. The takedown of the QQAAZZ network, which laundered tens of millions of euros for cybercriminals, shows that international cooperation can disrupt crypto laundering schemes[1]. The seizure of $3.36 billion in Bitcoin from Jimmy Zhong is another example of how blockchain analysis and traditional detective work can combine to recover stolen funds[3].
However, enforcement is not always effective. Many laundering networks operate in jurisdictions with weak regulations, and some criminals are skilled at covering their tracks. The fact that most global money laundering goes undetected suggests that, even with crypto, the odds are still in the criminals’ favor[1].
## The Future of Crypto and Money Laundering
Looking ahead, the trend is toward greater transparency and regulation. More exchanges are adopting KYC and AML controls, and governments are coordinating to target crypto laundering networks. Blockchain analytics firms are getting better at tracing illicit flows, and sanctions are making it riskier for criminals to cash out.
At the same time, privacy-focused cryptocurrencies and decentralized exchanges could provide new avenues for money laundering if left unchecked. The balance between privacy and transparency will likely remain a key battleground.
## Key Takeaways
Cryptocurrency does not inherently promote or reduce money laundering—it is a tool whose impact depends on how it is used and regulated. Criminals have used crypto to launder money, especially in the early days when regulation was lax and anonymity was easier to maintain. However, as the industry matures