Crypto Safer than Traditional Banking? Not According to the Data

One of the crypto industry’s most prominent leaders, Changpeng Zhao, the former chief executive officer of Binance, has claimed that crypto is safer than fiat currency. He made a powerful comparison: a mere 0.15 per cent of crypto volume involves illicit activity, which is 30 times less than the 5 per cent rate found in the traditional banking system. The reality is quite different, and underscores the need for stricter regulation of crypto assets.

Based on Mr. Zhao’s claim, he argued that law enforcement authorities around the world should encourage people to use more crypto “because it’s more transparent and easier to track.” He is not alone; others in the crypto industry continue to repeat the comparison. They have even labelled government actions against crypto-illicit finance as being aggressive and misdirected.

The question of whether crypto transactions are safer than their traditional counterparts is important. It has significant implications for Southeast Asia, a region marked by high crypto enthusiasm and home to three of the top ten crypto-adopting nations. Policy makers must navigate between two seemingly competing goals: positioning their countries in the digital economy and protecting against risks from crypto. Last month, for example, Vietnam outlined a five-year crypto pilot programme aimed at aligning with the principles of caution, safety, efficiency, and protection of participants’ interests; yet it was perceived as “strict.” If crypto heavyweights like Mr. Zhao — who advises regulators in many countries and regions — are to be believed, Vietnam should allow for fewer restrictions since crypto adoption leads to safer outcomes.

Closer evaluation finds that the percentages used to contrast illicit activity in crypto versus traditional finance rely on different metrics, thus resulting in a faulty comparison. While Mr. Zhao’s cited rate of crypto illicit usage uses total crypto flows as the denominator, the rate of illicit fiat activity of 2-5 per cent uses global GDP as the denominator, not total global payments. For reference, global GDP is slightly over US$100 trillion, whereas global payments totalled US$1.8 quadrillion in 2023 according to McKinsey. Using the much larger denominator of global payments would yield an illicit activity rate in fiat currency of 0.04 per cent to 0.11 per cent — 18 to 125 times lower than the 2-5 per cent referenced by Mr. Zhao (the upper end of the range is just below the 0.15 per cent reported illicit activity rate for crypto transactions in 2021).

Using an apples-to-apples comparison based on the latest available data, it is apparent that crypto is five times more likely to be involved in illicit usage. Nasdaq’s 2024 Global Financial Crimes Report calculated a total of US$3.1 trillion in illicit funds and money laundering through the traditional banking system in 2023. Dividing this number by McKinsey’s 2023 value for global payments yields a rate of illicit activity of 0.17 per cent for fiat transactions. This rate is much lower than the 2023 rates for illicit activity in crypto of 0.86 per cent and 0.61 per cent. The two figures are calculated respectively by TRM Labs and Chainalysis, two blockchain analytics firms that issue annual reports on crypto crime.

Singapore’s example shows how even perceived aggressive government actions and the closing of regulatory loopholes in crypto are not misdirected but are, in fact, essential if the industry is to grow responsibly.

There are several caveats to this comparison. For example, this only looks at one year of data, as Nasdaq has not released a prior or subsequent report on global financial crimes. Also, the actual rate of illicit activity in crypto is likely much higher, since both TRM and Chainalysis acknowledge that their calculations are at the lower bounds and do not include all illicit activity. In any case, this simple analysis shows that it is not possible for crypto to be 30 times safer when the data points in the opposite direction.

Indeed, it makes intuitive sense that crypto is more attractive for illicit activity. In the traditional financial system, each account that sends funds to another generally must go through Know-Your-Customer (KYC) identity verification. On the blockchain, participants can send limitless funds between as many accounts as they wish without KYC. They only need to go through KYC verification if they withdraw their crypto through registered crypto platforms. While blockchain analytics firms can provide a useful service in tracing crypto, there are no-KYC crypto platforms and mixers that can be used to hide the source or destinations of funds. It is for these reasons that crypto has been the payment mechanism of choice for cyber-enabled crime in East and Southeast Asia, estimated by the UNODC at between US$18 billion and US$37 billion in 2023.

As crypto edges towards mainstream adoption, cautious and even strict regulations are warranted since it is far too often used as a backdoor for illicit activity. The recent action by Singapore — a jurisdiction generally perceived as being fintech-friendly — shows that promoting digital asset adoption is not mutually exclusive with proactively regulating illicit finance. In June this year, Singapore banned offshore-focused unregistered crypto exchanges with the stated intention of curtailing money laundering. Singapore’s example shows how even perceived aggressive government actions and the closing of regulatory loopholes in crypto are not misdirected but are, in fact, essential if the industry is to grow responsibly.

2025/324