Ben Zhou, the CEO of Bybit, indicated that 88% of the cryptocurrency stolen is still traceable. However, the recent hack at Bybit has been associated with an extraordinary money laundering scheme. Is the use of cryptocurrency for laundering on the rise? Let’s analyze the situation.
In 2017, Larry Fink from BlackRock famously referred to cryptocurrency as an “index of money laundering”. Fast forward five years, and Fink had a change of heart regarding Bitcoin; BlackRock ultimately decided to adopt it. Today, their iShares Bitcoin Trust holds more than 570,000 bitcoins, outpacing any other institution. BlackRock’s engagement with Bitcoin began in 2022. Research from Chainanalyis indicates that this year marked the highest valuation for cryptocurrencies associated with criminal activities, especially in terms of money laundering, with figures reaching $54 billion and $31 billion, respectively.
Where Do the Stolen Funds from Bybit Go?
On March 20, Zhou stated on his X account that more than 88% of the funds taken in the February Bybit hack are still traceable, whereas 7.59% of the funds have “gone dark.” The remainder of the funds have been frozen.
In his message, Zhou highlighted the use of crypto mixers for money laundering and called on bounty hunters to assist in deciphering mixer transactions in hopes of retrieving the stolen assets.
Zhou mentioned that the illicit funds were routed through Wasabi, TornadoCash, Railgun, and Crypto Mixer. Some of these transactions were subsequently exchanged on peer-to-peer platforms. Previously, Bybit had accused eXch of enabling criminals to launder the stolen money, a claim that representatives from eXch have denied.
Elliptic labeled the Bybit hack as the largest theft in history, linking it to the Lazarus Group, a hacking faction reportedly backed by North Korea. Allegedly, cryptocurrency pilfered by Lazarus has funded 40% of Pyongyang’s nuclear program.
Zhou marked the decoding of mixer transactions as the “foremost challenge.” The likelihood of eventually unraveling the transaction details remains uncertain. Various techniques exist for unraveling obscured transactions, but it’s too soon to predict their effectiveness in this particular case.
Arkham Analytics, a blockchain data analysis firm, noted that on March 20, 12.9 BTC from the stolen Bybit funds was transferred to an unidentified address.
What is the Annual Volume of Laundered Crypto?
Europol reports that money laundering represents the primary illicit use for cryptocurrencies. Their report outlines that the COVID-19 pandemic was a turning point when the volume of money laundering via crypto began to escalate, in tandem with a rise in cryptocurrency transactions.
Data from Chainalysis shows that the volume of laundered funds nearly doubled in 2021 compared to 2020 and 2019. That year, the volume of laundered cryptocurrency hit $18.3 billion, up from $9.9 billion and $11.1 billion in 2020 and 2019, respectively.
However, in 2022, the amount laundered surged to $31.5 billion, before declining to $22.2 billion in 2023, still significantly higher than pre-2021 levels. Chainalysis pointed out that while total cryptocurrency transaction volume fell by 15% in 2023, the volume laundered decreased by about 30%. Whether this indicates a positive trend is unclear since, according to Chainalysis, the overall illicit use of cryptocurrency has remained relatively stable, hovering around $50 billion annually in 2022, 2023, and 2024. Furthermore, they noted that criminal activities in the crypto realm have become increasingly diversified and professional in recent years.
The 2010s saw a surge in the use of mixers and cross-chain bridges among crypto criminals, but law enforcement initiatives are believed to contribute to the relative decline of mixer usage following its peak in 2022. Conversely, the employment of cross-chain bridges is on the rise, with only five off-ramp services accounted for roughly one-third of all laundered crypto cash-outs between 2019 and 2023.
Do Crypto Mixers and Privacy Coins Bear Responsibility?
For many years, the crypto community has defended developers charged for creating services aimed at masking the origins of stolen cryptocurrency. The teams behind Tornado Cash and Samourai are notable examples. Similarly, the community has rallied for the clemency of individuals like Ross Ulbricht while advocating for Keonne Rodriguez and William Lonergan from Samourai, as well as Roman Storm from Tornado Cash.
Advocates argue that developing open-source tools that can be utilized both legitimately and for illicit purposes is not inherently a crime and should not be viewed as complicity in crimes committed by third parties. Marta Belcher, a leading crypto attorney we spoke with recently, expressed this sentiment:
The fact that technology can be employed for criminal activities does not imply there is something fundamentally wrong with that technology. Criminals also use cash to commit their crimes, yet we don’t advocate for banning cash, nor do we blame Ford if one of its vehicles is used as a getaway car in a bank robbery.
As of 2025, however, prosecutors typically aim to hold developers accountable for creating tools that are beneficial to criminals. For instance, the founders of Samourai, whose platform has been implicated in laundering activities for Silk Road and Hydra marketplaces, face up to 25 years in prison. While the potential pardon of Ross Ulbricht may signal a possible shift in sentiment, it remains too early to determine if any real change is on the horizon.