Cryptocurrencies more specifically Bitcoin, just received a strong vote of confidence from an unlikely source. The former acting director of the Central Intelligence Agency, Michael Morell. He is a 33-year veteran of the agency and he published an independent paper commissioned by the newly formed lobbying group Crypto Council for Innovation (whose founding members include Coinbase, Fidelity Digital Assets, and Square) directly refuting this well-traveled narrative.
This paper puts senior government officials who issue public warnings about bitcoin’s alleged use by criminals, such as Treasury Secretary Janet Yellen, on notice. In an expansive study, Morell came to two key conclusions that were highlighted in the paper:
- The broad generalizations about the use of bitcoin in illicit finance are significantly overstated.
- Blockchain analysis is a highly effective crime fighting and intelligence gathering tool.
Morell also made it clear that there will also be severe geopolitical repercussions for the U.S. vis-a-vis China if it wastes energy and resources chasing a ghost as opposed to leveraging blockchain, and fintech more generally, to build the country’s technological and economic base. Specifically, he said:
we need to make sure that the conventional wisdom that is wrong about the illicit use of Bitcoin doesn't hold us back from pushing forward the technological changes that are going to allow us to keep pace with China.
It's pretty telling that most officials have a negative perspective on blockchain because when he began this study, Morell would be the first to tell you that he did not expect to reach these conclusions. We are fighting off years of the silk road and dark web that got used as fear propaganda. I can still remember all the bitcoin documentaries that framed it as a digital currency for those on the fringe.
In the discussion, he said that one of his key assumptions was that people like Secretary Yellen and Christine Lagarde, President of the European Central Bank, were some of the most informed people on the planet and that their perspectives were grounded in facts.
However, in doing his analysis he discovered just the opposite.The crypto space is not rife with illicit activity. In fact, there was probably less illicit activity in the Bitcoin ecosystem than there is in the traditional banking system! I once heard the US postal service is the largest drug smuggling operation.
So, what did he find?
The percentage of illicit transactions in crypto is minimal (less than 1% according to one report from Chainalysis), and falling. For additional context, he notes that estimates of illicit activity conducted through traditional intermediaries range between 2-4 percent of global GDP.
These findings will not surprise anyone here... I'm just excited to see that someone with some clout has published the findings that can be cited when other officials try to push the narrative.