Stablecoins overtake Bitcoin in illicit flows, May 31 River report finds

Criminals now move more value through stablecoins than Bitcoin, marking a shift in how illicit funds flow through crypto markets.

Criminals now prefer stablecoins over Bitcoin for illicit transactions, according to a May 31 report from River citing Chainalysis data, exposing new regulatory vulnerabilities for the $200 billion stablecoin market.

"The shift toward stablecoins for illicit activity reflects their growing dominance in legitimate markets as well," the report said, citing Chainalysis transaction data. Stablecoins now account for a larger share of illicit crypto flows than Bitcoin, reversing a pattern that held for years.

The finding comes as regulators worldwide tighten oversight of stablecoin issuers. Circle froze $12.6 million in USDC tied to Zama's privacy protocol earlier this month, while the Trump administration issued a May 19 executive order directing the Treasury to scrutinize peer-to-peer payment platforms used for off-the-books wage payments — a move that could sweep stablecoin transactions into a broader financial surveillance framework.

The report's findings could accelerate regulatory action against stablecoin issuers including Tether and Circle, potentially forcing stricter know-your-customer and anti-money laundering requirements. Tighter compliance could reduce stablecoin liquidity and create short-term selling pressure across crypto markets as uncertainty grows over how regulators will respond.

Chainalysis data shows that traditional financial institutions now monitor crypto transactions more aggressively than crypto-native exchanges. Banks flag suspicious crypto flows at thresholds as low as $55 for illicit activity, compared with $100 at exchanges, according to a separate Chainalysis report. For non-illicit flows, the gap widens: banks set alert minimums at roughly $150, while exchanges use thresholds closer to $950. Nearly half of organizations onboarded in 2026 operate at compliance standards that would have ranked among the strictest 10% in 2020, the report found.

The Trump administration's May 19 executive order adds another layer of scrutiny. The order tasks federal regulators with tightening fraud screening and limiting credit lines for undocumented immigrants, a policy that experts say could push more people toward crypto alternatives. Nicholas Anthony, a research fellow at the Cato Institute, said the order effectively "deputizes banks as immigration enforcement officers." Nic Carter, founding partner at Castle Island Ventures, warned that expanding government oversight of financial access establishes a dangerous precedent. "Trump is going after illegal immigrants today, but what happens in a Democratic administration?" he said.

Circle's freeze of $12.6 million in USDC tied to Zama's confidential contract earlier this month illustrates the tension between centralized stablecoin control and decentralized finance. On-chain researcher ZachXBT noted that the freeze occurred despite the contract being publicly labeled on block explorers, raising questions about when and why custodians intervene in interconnected DeFi ecosystems. The episode adds to a pattern of criticism over Circle's handling of asset freezes, including allegations that it failed to freeze $232 million in funds tied to the Drift Protocol breach in April.

For stablecoin issuers, the convergence of regulatory pressure and shifting illicit activity patterns creates a dual challenge: they must demonstrate robust compliance to satisfy regulators while maintaining the frictionless user experience that drives adoption. The outcome of this balancing act will shape whether stablecoins become the backbone of mainstream finance or remain a regulatory flashpoint.

This article is for informational purposes only and does not constitute investment advice.