The dark role of cryptocurrencies in the US opioid epidemic

Hello. Welcome to this week’s issue of The FT’s Crypto Finance Newsletter. This week we will be looking at another “Cryptocurrency use case”. . . Buy fentanyl.

Following last year’s historic market crash and the subsequent bankruptcy of many high-profile companies, the crypto industry is desperate to convince skeptics that cryptocurrencies that require mainstream adoption have useful functions. It’s becoming

Critics of the use of cryptocurrencies have no shortage of material, pointing to their massive carbon footprint, lack of basic consumer protections, corporate ransomware, and funding of North Korea’s nuclear weapons program. .

A new target appeared this week. Blockchain analytics firm Elliptic has published a study linking cryptocurrencies to the epidemic of fentanyl, a potent synthetic opioid that is the leading cause of death among people aged 18 to 45 in the United States.

According to Elliptic, most of the fentanyl trafficked into the US is manufactured using chemical ingredients imported from Chinese suppliers, and 90% of these suppliers accept payment in cryptocurrencies.

Elliptic’s research team received an offer to supply large quantities of a specific chemical ingredient that is not used in the manufacture of other products and is a controlled substance in most countries. The chemical “menu” provided to the Elliptic team also included methamphetamine and amphetamine ingredients.

“It’s hard to say how important cryptocurrency is to this kind of activity, but the fact that so many of these suppliers are accepting cryptocurrency is a testament to the cryptocurrency against these kinds of chemicals. It suggests that there is a huge demand to pay in currency,” Elliptic’s Tom Robinson said. The principal investigator and co-founder told me over the phone:

The fentanyl epidemic plaguing the United States cannot be overstated. This illicit drug has replaced legally prescribed pain relievers as the leading cause of overdoses in this country, with a death rate equivalent to one American overdose every five minutes.

Covid-19 and the fentanyl epidemic have reduced life expectancy in the United States to 76.4 years, the lowest in 25 years.

According to Elliptic, the cryptocurrency wallets used by these companies have received a total of more than $27 million, enough to purchase materials that could produce fentanyl pills with a circulation value of about $54 billion.

“The problem here is that a relatively small amount of cryptocurrency can buy enough chemicals to produce large amounts of fentanyl, and I know that fentanyl is killing millions of people. We know … so the potential impact that cryptocurrencies have here is huge,” he added.

In addition, the number of payments sent to Chinese suppliers of raw materials used to make fentanyl has skyrocketed. According to Elliptic, in January 2021, only one payment was made using cryptocurrency for these goods, and by last month he had over 600.

Robinson said he believes cryptocurrencies are “intrinsically neutral technology” and that their illicit nature also makes them excellent tools for cross-border payments. “Very powerful technology can be used for good or bad. That’s the nature of technology.”

But it adds another dynamic to America’s increasingly complex relationship with cryptocurrencies. Meanwhile, market regulators, Justice Departments, and Treasury Departments are trying to root out illegal cryptocurrency activity as much as possible, including crackdowns, criminal prosecutions, and sanctions.

But Washington also has many crypto supporters, including Republican lawmakers Tom Emmer, Cynthia Lumis, and Patrick McHenry. Democrats like Maxine Waters, a member of the US House Financial Services Committee, are less convinced.

As the lengthy talks over the U.S. debt ceiling have highlighted, the Capitol is a deeply divided place. It remains to be seen whether the link between cryptocurrencies and America’s deadly opioid epidemic will change minds.

What do you think about the role of cryptocurrencies in the fentanyl craze? As always, email us and let us know what you think. scott.chipolina@ft.com.

weekly highlights

• The bad news about cryptocurrencies continues. UK losses from cryptocurrency scams have increased by more than 40% over the past year, surpassing £300m for the first time ever, according to UK fraud news agency Action Fraud. My colleague Siddharth Venkataramakrishnan tells this story.

• Iosco, the governing group of global market regulators, has called on regulators around the world to dismantle cryptocurrency companies that are entwined with unmanageable conflicts of interest. Following Sam Bankman-Fried’s FTX bankruptcy and criticism of Binance’s transparency in its corporate structure, Iosco is spotlighting cryptocurrency conflicts of interest. Here is my story with Laura Noonan.

• Terraform Labs co-founder and disgraced former cryptocurrency mogul Do Kwon has had his bail revoked in Montenegro. He was arrested earlier this year after the bombing of $40 billion worth of TerraUSD and Luna tokens a year ago sparked an international investigation. He was arrested while trying to leave Montenegro with a fake passport.

• Another regulatory update: The European Systemic Risk Committee said in a report that EU regulators will seek leverage across cryptocurrency markets to limit the risks they pose to financial stability in the broader economic system. He said that restrictions should be introduced on de Bet. The ESRB also said the creation and design of smart contracts, the underlying technology of decentralized finance, should be overseen by regulators.

• Following in El Salvador’s footsteps, Bhutan, which was the first to coin the term “Gross National Happiness,” comparable to Gross Domestic Product, is also investing in Bitcoin mining. Druk Holding & Investments, a state-owned commercial holding company, will start pitching investors to raise up to $500 million for its crypto mining business. Here is the story of my colleague in New Delhi, Benjamin Parkin.

Soundbite of the Week: DeSantis Backs Bitcoin

Controversial Florida governor and new presidential candidate Ron DeSantis is joining Team Bitcoin.

In a session on his Twitter space with Elon Musk this week (when it worked), Republican Musk, considered by many to be Donald Trump’s biggest rival, criticized the “current administration” for bitcoin. criticized his attitude.

“The current administration is clearly going all out on Bitcoin…if it goes on for another four years, they will probably kill it.”

Data mining: TUSD enters the big leagues

The stablecoin market in 2023 is dominated by two companies, Tether and Circle, with very different fortunes.

Offshore BVI-registered company Tether, which issues homonymous tokens with a circulation value of around $80 billion, holds about 60 percent market share in the stablecoin market.

Circle, a US company with multiple state licenses to issue USDC tokens, is focused on temporarily de-pegging its tokens from dollar to dollar. . .*Check Notes*: The banking industry is destabilizing the cryptocurrency market.

However, there may be a new competitor in the form of TUSD, a stablecoin that first hit the market in 2018. Little is known about it. It was launched by a company called TrustToken, which announced in 2020 that ownership of the stablecoin would move to an “Asia-based consortium.” TrustToken was rebranded to Archblock last September.

TUSD has a market cap of around $2 billion, which is very small compared to Tether’s $83 billion market cap, but was recently boosted by Binance’s decision to include it in its zero-fee trading offer to its clients.

As of May 23, TUSD has become the second-largest stablecoin by daily trading volume, surpassing Circle’s USDC, which has ceded ground to competitors over the past few months.

Cryptofinance is edited by Philip Stafford.If you have any comments or feedback, please send them here cryptofinance@ft.com.