AML & KYC Will Swallow Cryptocurrency’s Market Cap

Kumar Thangudu

December 12, 2018

Note: AML stands for anti-money laundering and in the world of cryptocurrency equates to governments tracking source of funds for sketchy behavior by analyzing the web of transactions, wallets, and transaction ids and cross-referencing it with wallet addresses they’ve seen on the dark web.
KYC stands for Know Your Customer and essentially means any time a website forces you to self-identify with government issued identification.

It’s about to get real….


[Maximalists and investment bankers think I’m wrong, the same type of people in tech told me similar things about Theranos, Palantir, and Valeant too]

My thesis stands: AML and KYC will eat cryptocurrency’s market cap fast.

Pattern: Art, bitcoin, pokemon cards, supreme clothing, and digital art are tests of tax and money laundering controls of nation-states.

You think art is actually valuable? [some of it yes, but the reality is that most of it is for the wealthy to hide their money and play tax and money laundering antics]

  1. Start with dirty money. (5M USD)
  2. Grab art masterpieces at an auction with all 5M USD.
  3. Take art to bank, and borrow 4.5M USD against the collateralized art. You now have “cleaner” money, lols.

Censorship resistant or lower friction, liquid, scarce, provable assets are the ultimate money laundering substrates.

The Sinaloa cartel laundered with clothing and shoes.
The Russian Mafia laundered money past trade controls by putting vodka in chemical barrels.
The Ndrangheta laundered money through Malta. See a pattern?

Of the almost 60,000 reports of money laundering in Germany in 2017 only 474 cases resulted in judgements, sentences and indictments. Terrorists are getting money there….

The pattern is:
X entity laundered $Y past trade controls and taxes using N.

Let N= scarcely held, globally liquid asset

If I was a Real Noriega, I’d take the 20% cost — max fluctuation in fiat value- in cryptocurrency to move blood money.

The inability to conveniently move in and out of fiat is relevant to the value of cryptocurrency if you’re measuring its value in fiat.

Anecdotal stories of family offices, University endowments, and institutional money coming into cryptocurrency mean accelerated KYC/AML and are irrelevant to what I’m talking about.

This is the same rodeo folks…. part deux.

Somewhere in China, people with a lot of RenMinBi are handing duffel bags of it to Chinese ICO founders who can spend it natively and it’s the service fee for the founders to get the token listed and wash-trade it on foreign exchanges so the wealthy Chinese can liquidate to fiat outside of the eyes of Xi Jinping.

~10% of Chinese banks are guilty of money laundering, think it’s any better in the crypto markets?

China is known to be full of blackmail, extortion, bribery, and racketeering….think it’s any different in the crypto markets?

Guess where cryptocurrency markets are juicy? (SEA)

Beneath the veneer of the top 100 market cap, there are governance tables that are screwed and I’d be willing to bet that there are equally terribly mis-managed wallet custodies.

The HODLers have no clue.
Convince me otherwise with data.

As a simple example of governmental aggression against monetary attacks, India was willing to demonetize 95% of physical 500 and 1000 rupee note currencies to crush Pakistani Fake Indian Currency Notes(FICNs) they were dumping into the market.

India did this overnight and rendered ~90% of their currency useless.

The Chinese let it happen in India’s backyard.

The jaws of AML are clamping down on cryptocurrencies

I have yet to see a reasonable explanation against this, if we assume that the primary purpose of cryptocurrency is to evade money laundering controls and to pay homage to personal custody.

FINCEN is showing their aggression and requiring shapeshift to KYC all users.

Zcash and Monero’s trading volume will be shut down from a non-trivial number of p2p exchanges by virtue of KYC/AML.

Dark markets will likely be the most effective larger home of cryptocurrencies for many years to come.

Did your bitcoin come from a registered miner? We haven’t gotten to that point yet, but it’s not crazy to see it happen that governments would mark unregistered miners as “dark” miners.

Doesn’t seem crazy to me. There are ~20+ players in the chain analysis space.

It’s a race to the bottom to run nodes and resell KYC-driven analysis to exchanges that share reports with each other on sketchy wallet addresses based on mathematically proven TOR analyses/scrapes for addresses

Subscribe to get latest

Read the latest blog post on marketing, the macro, and tech.

Find me on


Run your growth and engineering blueprint
by a crew who's been wrangling in tech for
10+ years each.

Grab a call with us