Debunking the myths about bitcoin and crime

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CIARAN RYAN: Is bitcoin a technology or a money? That’s an interesting question. There are people who consider it a type of money for rogues and criminals. That’s a silly view, but it has more than a few adherents, particularly among politicians. Or at least that was the view until a few weeks ago. As the Trump administration took over the US White House, a new crypto-friendly regulatory regime seems to be on the cards.

The previous Securities and Exchange Commission [SEC] launched more than 100 court cases against different crypto platforms, including Binance and XRP. Now there’s euphoria in the crypto community that most of these cases will probably disappear under the new SEC regime and that a more sensible approach to regulation will take root and put to bed questions as to whether bitcoin is inherently good or bad.

Read: Crypto bolstered by US SEC’s move to start regulatory task force [Jan 2025]

In other words, regulators are starting to see bitcoin as an infrastructure layer with potentially huge benefits for mankind. While bitcoin hovers around the $100 000 mark, we’ve had a few bizarre weeks where meme coins launched by Donald and Melania Trump – perhaps inspired by Elon Musk’s support for Doge [Department of Government Efficiency] – seem to take fire and then fizzle out again. So there’s a lot going on in the crypto market.

Read: Melania meme coin is down 90% from peak as novelty value wanes

To discuss all of this, we’re joined by Rob Price, CIO – chief investment officer – and founder of Sound Money. Hi Rob, it’s good to talk to you again. You recently wrote an article exploring the persistent belief in some quarters that bitcoin and crypto generally facilitate crime, but the stats don’t really bear that out, do they? Take us through what the stats do tell us and summarise the arguments in your recent article.

ROB PRICE: Thanks, Ciaran. Always good to be here with you. Yeah, I think you’ve summed it up pretty well in your introduction.

I think the changes from a regulatory perspective in the crypto sphere have been absolutely profound over recent months.

A raft of them, I’ll keep it short, but changes at the SEC, the Treasury, the FDIC [Federal Deposit Insurance Corporation], the CFTC [Commodity Futures Trading Commission], the SEC has rescinded SAB [Staff Accounting Bulletin] 121.

That means we’re probably going to see US banks entering into the crypto space over the coming years, maybe this year, we’ll see it still to be confirmed, big changes. A digital asset working group, people focused on bitcoin and crypto within the administration.

I could go on, but at the same time, we have seen these meme-coin launches by the president. I don’t think they’re the most important thing by any stretch of the imagination, but I just thought this was a good opportunity to tackle this question, hit the nail on the head, because I still get a number of questions from sceptics when they, as you said, they’re still kind of proponents of this narrative that crypto is used by criminals. And I think this is a major misconception. And I think it’s just a good opportunity to dive into a few of those details.

And I think the starting point is that bitcoin, crypto, [is] a technology.

The actual users of the technology are somewhat irrelevant, not entirely relevant. It’s obviously of interest. If you compare it to other technologies, they are like something like the internet.

The internet is a neutral protocol, piece of infrastructure that people use on a day-to-day basis. Actually, bitcoin is very much the same.

And it’s quite interesting how in the early days of the internet, there were a number of negative reports about its usage. Even something like in a Time magazine in the early 1990s was publishing articles arguing that the internet was solely used, not solely, but significantly dominated by the pornography industry. There were definitely errors in that research.

Listen/read: The evolution of better, faster, cheaper, and slicker crypto assets

And obviously we’ve seen over time that anything like that is fully faded into the background. People use the internet as this neutral protocol and it’s a very powerful piece of technology and that obviously can be used for good and for bad. We can’t discount the potential for bad to happen on the network. But the reality is it’s a very powerful piece of infrastructure. And I think we’ll see very much the same trend with bitcoin.

Already, I think that we do get less questions about the criminal activity, but as it still surprises me how frequently they do come out, so [it’s a] good time to hit that nail on the head.

CIARAN RYAN: Yeah, think truly you see a problem with this bitcoin equals crime argument, but who is making that argument? I thought that died down several years ago. What evidence have you come across that people still believing that?

ROB PRICE: Well, from my interaction with people, mean, it probably is sceptics. It’s definitely not every single individual. I think most people see a very powerful trend in place here, but there are still certain sceptics. And I mean, this is slightly tangential.

But another thing that does interest me is that it’s important to bear in mind that there are a lot of vested interests still in seeing something like bitcoin not succeed.

You know, there’s all sorts of people who don’t benefit from the adoption of new technologies. People in existing entrenched industries, banking industry, some people in government, and even potentially people in finance and investment.

It can be quite challenging when you see this whole new financial industry arise and that’s not really in your sphere.

Your economic worldview doesn’t align with that one. It doesn’t allow you with the framework to understand it properly. You see lots of people making money quite quickly and that can irk a number of people. So anyway, they are vested interests and still those people might be the ones that are espousing these erroneous arguments.

CIARAN RYAN: There has been some research done by Chainalysis on the crime stats involving bitcoin and crypto. Maybe just take us through what the evidence is in terms of bitcoin and crime specifically.

ROB PRICE: Yeah, so Chainalysis is a, you know, I think a very credible institution.

I think also important to note that, well, obviously they work in the crypto industry, so they are proponents of their technology, but also, their biggest client is government. So they, for instance, the point I’m making is they’re not your type of crypto bros that are just saying everything positive about crypto just for the sake of it. They’re doing, you know, extensive data analysis, and as I said, often providing that information to government, and they do.

This data analysis suggests that 0.14% of total on-chain transaction volume in crypto is related to illicit activity.

And that encompasses a range of unlawful actions from darknet market transactions, ransomware payments, sanctions evasions, and even including frauds and scams. And that’s an incredibly low figure.

And I think maybe in addition to that, it’s useful to note that as I mentioned, governments often use the data from Chainalysis to investigate crimes in, well, maybe not even crimes in crypto, but crimes that have used crypto as a payment rail. A very well-known example is Silk Road [which] was a dark net market for trading and illicit substances on the internet, and people used bitcoin in the very early days. And I think there was a misconception in those very early days that bitcoin was anonymous and therefore would be a good technology to use. But actually the reality is not that’s not the case.

Bitcoin is a pseudonymous technology. And so it actually makes it very, very easy for law enforcement to track.

So on the bitcoin blockchain, just getting into a little bit of detail here, you can’t see people’s names on that blockchain, but what you can see is all the transactions and all the addresses.

So, all it takes is for an individual to use bitcoin and then have used another centralised service as a rail on the other end, using a centralised exchange as an example, and they’ve given their information over to that exchange. That allows law enforcement, through often the use of providers like Chainalysis, to then be able to identify, and that’s exactly what happened with Silk Road, where you saw government actually use the tool of bitcoin to be able to track down people who had committed crimes.

Read: Crypto fraud increased 45% last year to $5.6bn: FBI [Sept 2024]

CIARAN RYAN: Yeah, you mentioned Silk Road and quite interesting that the founder of Silk Road was Ross Ulbricht. He was just pardoned by Donald Trump. I think one of the first acts or one of the first pardons that he issued when he came into power.

Now the focus on crypto as a facilitator of crime, I guess an equally persuasive argument can and should be made that traditional finance is a far greater tool for criminals. The stats you just gave from Chainalysis, a tiny percentage of bitcoin transactions involved in crime. What about traditional finance? How does that feature in the whole picture?

ROB PRICE: For sure. Exactly. It’s a great point to make.

The US dollar, for example, before even going into the banking industry, the US dollar is far more prevalently used in crime than bitcoin.

And that doesn’t [mean] that the US dollar itself is necessarily evil. That’s just saying that people find it as a useful technology to execute with.

You know, it’s very globally known. It is this global medium of exchange and therefore it’s more likely to be used. But as you’ve mentioned also, you know, it’s fascinating that this negative narrative can still exist in the bitcoin crypto industry. Potentially it comes back to the points I’ve mentioned earlier about vested interest.

But yeah, if you look at the existing financial players, global banking, there’s been numerous frauds over the years, numerous scams, and those often come right from the inside of those, from those organisations.

That’s not them unknowingly knowing about it. That’s actually them participating.

You know, examples like fraudulent mortgage practices in 2008. Wells Fargo, there was a fake account scandal in 2010.

Deutsche Bank served a known sex offender, Jeffrey Epstein, after knowing that he was a sex offender.

HSBC has allowed Mexican cartels to launder billions of dollars.

And of course, there was the Libor manipulation scandal that came to a head in 2015.

So numerous scandals in the existing industry.

And as I said, those are actually, you know, some of them were actually perpetrated from within inside those organisations.

Yet, of course, they have the marketing budget to be able to kind of overcome that and the public doesn’t perhaps realise the sinister elements that can sometimes take place within the existing banking industry.

Read: Banking fraud happens

CIARAN RYAN: Right. Are you excited by the new SEC, the Securities and Exchange Commission regime? Trump has pretty much swept the boards, I think, and he’s cleaned out a lot of the old people. The SEC was very hostile towards crypto. I mentioned in the beginning that they launched 100 cases against various different crypto platforms. What kind of regulatory shifts do you expect from this new regime?

ROB PRICE: Yeah, I mean, as I said at the top, it’s absolutely profound. It cannot actually be overstated how significant for crypto this change in administration has been. Changes at the SEC, changes at the Treasury, changes at the FDIC, changes at the CFTC. These are all the major arms of government that are touching on finance [and] monetary policy.

In terms of what we should expect, well, I mean, I think the first point to notice [is] just how negative those [organisations], [and] the administration was previously.

The [Joe] Biden administration was negative to the point of being discriminatory. And in fact, I think that the courts have proved that out; the US courts, I mean.

The SEC was taken to court and their hand was forced to approve the bitcoin ETFs [exchange-traded funds] earlier last year.

And that just kind of shows that when things actually come before the courts, they disagreed with the policy that was being implemented by the Biden administration at the top of these organisations. So, to see a change is absolutely significant.

In terms of what we’re expecting, I think that things like actually clear regulation of crypto from the SEC, things like what is a security, what is not a security and to have a clear policy about [that] and then who is regulating what. If something is a security, then of course the SEC will be overseeing it. If it’s not a security, then it’s going to be overseen by the CFTC.

We should expect more clarity on market structure. Market structure implies what are the rules and regulations for all of the institutions that are custodying crypto assets.

And I’m also expecting some sort of stablecoin regulation over the coming years. I think that’s an absolute no brainer for the US.

It doesn’t make sense, in my opinion, for them to go down the CBDC route, the central bank digital currency route. It makes more sense for them to leverage off the private stablecoin industry that already is powerful, that already is innovative. It already is dominated by the US dollar. We know that the US dollar dominates global currency flows, but actually in the stablecoin space, the US dollar is far, far, far more dominant. And so that implies from the US government perspective, it is another tool which advances the global reserve currency status of the dollar.

Listen: USD stablecoins are displacing bitcoin as SA’s preferred crypto

And also these fully preserved backed stablecoins are another buyer of US government debt. So all around it makes a lot of sense for them to support stablecoins.

And therefore, we’re probably going to see US banks moving into the crypto industry over the coming quarters.

So a lot of changes afoot. And obviously one that catches the headlines probably the most is this strategic bitcoin reserve, which of course is a possibility. It’s definitely something that’s being spoken about.

I’m actually a little bit more sceptical that we’re going to see that executed over the short term. But yeah, maybe that’s a topic for another conversation.

CIARAN RYAN: Hmm, maybe just explain what is a strategic bitcoin reserve.

ROB PRICE: Yeah. So the idea being that, I mean, you know, governments, and, treasury departments, do hold assets in reserve – predominantly the assets that are held in reserve are government debt, bonds and the US treasury bonds – will be held, you know, for instance, by the South African government, as a reserve. And they also might hold assets like gold.

So the idea being that, you know, bitcoin as an alternative money, a counterparty-free asset, potentially a reserve asset of the world, I do think it fits that framework.

And I do think that we will move into a world in the future where governments are holding bitcoin as a reserve asset.

And so the idea has been floated by some in the Trump administration and in others in government that the US government should be considering moving in that direction over the short term. The reason why I kind of hold a bit more of a nuanced opinion here is because, as just to repeat, I do think we will move in that direction. And I think for many countries, that is a viable road to walk down.

But I’m sceptical whether the US, as the global reserve currency, whether it makes sense for them to execute it in the short term because I wonder what the market reaction will be like, as I said, given they have the status as the global reserve currency.

What will the market think? Will the market think that the US government is now kind of actually shifting from treasuries to bitcoin? I think that is potentially a risk that they won’t want to bring to the surface.

Perhaps, yes, they implemented policy where they say, we already hold a lot of bitcoin, the US government does hold a lot of bitcoin. A significant portion of that is because of the Silk Road confiscations that we kind of referred to earlier in the conversation. And over time, they have been selling down on that exposure.

So maybe they do pass legislation to put a moratorium on sales, and they hold the existing holdings, but I’m sceptical whether they’re going to actually use, you know, treasury financing to purchase more crypto assets over the short term. As I said, because of potentially the market response.

And also I do think from a narrative perspective – I wouldn’t be surprised if the media machine will not take that type of policy lightly because from their perspective, what they’re going to argue that they’re seeing is a of a wealth transfer from US taxpayers towards wealthy bitcoin holders.

Now, that’s not exactly the way that I actually would see it, but I think that that narrative will catch like wildfire in the media, and I don’t think it will be seen very favourably.

So anyway, I’m sceptical whether that reserve will actually be executed in the short term, particularly in the United States.

CIARAN RYAN: Let’s talk about meme coins. What do you make of the recent meme coin issues made by Donald Trump and his wife Melania? Maybe just explain what is a meme coin?

ROB PRICE: Well, maybe even starting before a meme coin, a meme is a narrative, an idea, and it’s a narrative that kind of catches interest and a lot of people talking about that meme and maybe it turns into a phrase that we just kind of use and that phrase kind of articulates that idea or that narrative.

And a meme coin is a coin that has been created basically just with that meme as its central component.

And so, for example, you launch a coin, it’s called Trump coin, but the coin is not trying to really do anything. It’s just issuing tokens and putting them onto exchange so that people can trade them. Now, of course, I’ll try and give it the balanced argument that there can be some reason for a meme coin. Maybe the narrative has cultural significance.

So for example, a very famous meme coin is Dogecoin. Dogecoin was one of the early meme coins that was created. Listen, I’m still sceptical about this argument that there’s a cultural value, but I guess I can see some reason for that.

But in reality, most of these meme coins are cash grabs.

It’s people who are issuing the token. They, of course, hold a significant portion of the supply because it’s been centralised, issued. Like I could go and launch a meme coin, Rob Coin, and I hold the supply. Then I use some capital to market it, to try and create a narrative, to encourage people to buy it. The price goes up.

I of course sell some of my early holdings so that I get capital in my back pocket.

And then often what ends up happening is that all these unsuspecting retail participants are holding an asset, which then falls significantly. And that’s what happens with 99% of meme coins.

So I guess that’s the background.

Speaking specifically about Trump, This highlights to me the balance that we just need to be aware of. So clearly I’m very positive about the regulatory changes that have been implemented by the Trump administration, particularly when we’re talking about crypto specifically.

But we also have to be aware that this administration is certainly not perfect.

Trump is a divisive character. He does like to make some money for himself whenever possible.

And then he’s shown that by launching these meme coins, these are not adding any clear fundamental value to the market. This is a cash grab.

Read:
The $Trump meme coin is reaping billions
Trump’s volatile new meme coin sucks flows, saps wider crypto market

And in terms of what that means for policy, we should just be aware that while, once again, I think it’s very positive net policy – but we should expect all sorts of potentially less valuable, less constructive and potentially even problematic projects to kind of just flood through the gates of the administration because they just might not be paying attention to and they might not be being as prudent as we would like them to be.

CIARAN RYAN: All right, final question, Rob. Talk about the issue of bitcoin as a technology. Is it money? Is it technology? Is it both? How do you position it?

ROB PRICE: Yeah, I mean, it’s a good question, and it is a difficult question.

Bitcoin is a form of money. It facilitates trade, it facilitates payments, it allows people to save, it allows people to send capital to anyone and receive capital from anyone, at any place in the world at any time of day.

So that is a form of money. It has its weaknesses and we won’t get into those now, but of course it does. But yes, it also is a technology. It’s a different lens through which to use it.

And it is a technology to be able to do the things that I’ve mentioned.

I said, coming back to what we said at the start of the conversation, viewing it relative to other technologies like the internet is a very, very useful lens.

And in terms of the adoption cycle, bitcoin [and] crypto fits that of the internet incredibly fast adoption because these are very powerful technologies severely misunderstood in their early days. Negative narratives have been created about both of them.

But I think over time, what we’ll see is that bitcoin, like the internet, is a tool for freedom, used by millions of people around the world – millions at the moment soon to be billions.

And used for freedom for ways that truly add value to their lives, empower them and obviously we don’t have the time to go into all those details. But if you’ve got any questions let me know because there are many examples of people using the technology for really socially good outcomes.

And what’s so frustrating about these criminal narratives, the meme coin narratives, is that [they] blind people from the real positive impact that’s taking place below the surface.

CIARAN RYAN: Yeah, I see what you’re saying. I think in South Africa there are a lot of pretty good examples of bitcoin doing exactly what you say. For example, there are these bitcoin circular economies that have started to sprout all around the country, particularly around the coast down in Knysna and places like that. Is this what you are seeing yourself?

ROB PRICE: 100% exactly.

I went to go and visit Bitcoin Ekasi in Mossel Bay late last year and I couldn’t recommend it highly enough.

If you’re in Mossel Bay, if you’re in the area, if you’re in George, if you’re driving past, I would recommend going and spending some time there with that community. They’re doing really powerful things, uplifting children, but not even just children.

It’s really heartwarming. It gives me goosebumps to think about it.

And there are many of those types of examples around the world where people are using the technology to learn about finance, to learn about saving. And that’s a really powerful and wonderful thing.

CIARAN RYAN: Okay. We’re going to leave it there. That was Rob Price, chief investment officer of Sound Money. Thanks very much for joining us, Rob, on the Moneyweb Crypto Podcast.

ROB PRICE: Thank you, Ciaran.

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