If you hold cryptocurrency as I do (about 28 of them at last count), you were shocked to see a deep dive in the growth curve this Sunday morning after an amazing period of constant growth. For me to find that the downward movement of an entire market was based on nothing more than a single tweet sent me into investigative action. After all, a 14 percent drop in the entire cryptocurrency market, reflected in a sea of red-ink rate-of-growth declines, is nothing to ignore.
According to FXStreet,
“Bitcoin price is experiencing a massive sell-off, resulting in a breakout of a technical formation that contained it for more than three months. On the 12-hour chart, Bitcoin price has shed nearly $9,000, bringing it down to $51,541. Although unconfirmed, this crash seems to coincide with tweets stating that the U.S. treasuries will be cracking down on financial institutions for money laundering using cryptocurrencies.”
U.S. TREASURY TO CHARGE SEVERAL FINANCIAL INSTITUTIONS FOR MONEY LAUNDERING USING CRYPTOCURRENCIES -SOURCES
— FXHedge (@Fxhedgers) April 18, 2021
But a simple check of The U.S. Treasury website, Internet accounts, and emails from The White House to Zennie62Media, did not indicate that Treasury Secretary Janet Yellen had such a move in mind, yet. And if she did, why are investors running scared over what should be seen as an action that helps, not hurts, the market? And while it is true that Secretary Yellen has raised concerns about use of bitcoin for illegal actions, she and others who hold such concerns saw their view aggressively countered by former CIA director Michael J Morell. Mr Morell wrote a report called “An Analysis of Bitcoin in Illicit Finance” which is presented in full, here, and below, and has this notable statement:
I began this work expecting that I would find a set of facts supporting the conventional wisdom on this issue. Afer all, I believed that Bitcoin and other cryptocurrencies are a largely anonymous way to transfer funds anywhere in the world nearly instantaneously. And I assumed that those officials who have raised concerns about the use of Bitcoin in illicit activity—with the objective o ensuring regulatory vigilance—must be among the best-informed experts on this issue.However, based on our research and discussions with industry experts, I have confidence in two conclusions:
• The broad generalizations about the use of Bitcoin in illicit finance are significantly overstated.
• The blockchain ledger on which Bitcoin transactions are recorded is an underutilized Forensic tool that can be used more widely by law enforcement and the intelligence community to identify and disrupt illicit activities.
Put simply, blockchain analysis is a highly effective crime fighting and intelligence gathering tool. It is true that cryptocurrency, like other new technologies and innovations, has attracted the attention of illicit actors. And not surprisingly, just as Bitcoin is the most commonly held cryptocurrency, it is also the coin most often found in DNM wallets by a wide margin. The fact that Bitcoin is being used by illicit actors is likely the basis of recent and widely reported comments by government and regulatory officials.
But digging deeper, their statements center on two assertions: First, that Bitcoin is used “frequently” or “primarily” for illicit financial transactions, and second, that the use of Bitcoin in such transactions is growing. Notwithstanding such statements, a senior executive at a major cryptocurrency analytics firm told us that the common belief that Bitcoin is both primarily and increasingly used for purposes of illicit finance is “un-informed and not based on data” and that “there are no numbers and no methodologies” supporting it. According to a recent study by blockchain analytics firm CipherTrace, illicit activity among all cryptocurrencies as a percent of total cryptocurrency activity from 2017 to 2020 was less than 1 percent. For Bitcoin specifically, blockchain analytics firm Chainanalysis estimates that illicit activity makes up less than 0.5 percent of total transaction volume.
Image: Rickard B. Levine/Zuma Press
Bitcoin Tweet Implying Action Has Never Been Taken Against Illegal Use Of Bitcoin Before Ignores Recent History
The other major problem with the FXHedge tweet, other than the fact that it’s purely speculative and suspiciously timed to be seen just a day or so after Coinbase went public last week, is that the same U.S. Treasury did take action against two Chinese nationals last year. According to its March 2, 2020 press release…
The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) today sanctioned two Chinese nationals involved in laundering stolen cryptocurrency from a 2018 cyber intrusion against a cryptocurrency exchange. This cyber intrusion is linked to Lazarus Group, a U.S.-designated North Korean state-sponsored malicious cyber group. Specifically, OFAC is designating 田寅寅, Tian Yinyin (Tian), and 李家东, Li Jiadong (Li), for having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, a malicious cyber-enabled activity. Tian and Li are also being designated for having materially assisted, sponsored or provided financial, material, or technological support for, or goods or services to or in support of, Lazarus Group.
“The North Korean regime has continued its widespread campaign of extensive cyber-attacks on financial institutions to steal funds,” said Secretary Steven T. Mnuchin. “The United States will continue to protect the global financial system by holding accountable those who help North Korea engage in cyber-crime.”
The cryptocurrency market was largely unfazed by that action. The market selloff that occurred on February 27th was said to reflect a selloff in traditional markets. Moreover, one would think that Secretary Steven T. Mnuchin stating “The United States will continue to protect the global financial system by holding accountable those who help North Korea engage in cyber-crime” would be welcome news. Policing illegal activity should be seen as helping and not hurting the overall cryptocurrency market.
Secretary Yellen Victim Of Media Cherry Picking Over Her Comments Without Consideration For Date Or Time
The idea that Secretary Yellen plans some kind of “crackdown” on financial institutions regarding cryptocurrency has been presented as if it were made last week, or recently. But her remarks came during her confirmation period and in this written response to the Senate Finance Committee, which reads, in part:
“I think we need to look closely at how to encourage their use for legitimate activities while curtailing their use for malign and illegal activities. I intend to work closely with the Federal Reserve Board and the other federal banking and securities regulators on how to implement an effective regulatory framework for these and other fintech innovations.”
But that was then, and now it’s clear Secretary Yellen is in a kind of learning curve on the rapidly growing cryptocurrency market. For example, on February 21st, at the New York Times Dealbook Conference, Yellen told CNBC’s Andrew Ross Sorkin that bitcoin…
“To the extent it is used I fear it’s often for illicit finance. It’s an extremely inefficient way of conducting transactions, and the amount of energy that’s consumed in processing those transactions is staggering.”
And for Yellen to write that “we need to look closely at how to encourage their use for legitimate activities while curtailing their use for malign and illegal activities” is a bit curious, because all money is used for “legitimate activities” and “illegal activities”.
Given the push-back she’s getting of late, I think Secretary Yellen will eventually walk back what is a statement of illogical prejudice – or admit that she has one, then dump it.
Stay tuned.
The full Michael J Morell report embeded here: