The economic destruction is so bad that even retailers of what may be the most recession-proof product there is—illegal narcotics—are feeling the pinch as coronavirus hits darknet revenues.
Sure, stock markets have tanked, retail sales have collapsed, and millions of people around the world have been left unemployed. But when junkies cut back on feeding their addictions, you know it’s gotten serious.
Yet that’s what is happening, according to new research by the blockchain intelligence firm Chainalysis.
In looking into how the COVID-19 pandemic has affected the opaque buying habits of people who actually use bitcoin for buying goods and services, Chainalysis found the crisis has triggered “unexpected” behavior among consumers.
Coronavirus hits darknet revenues
The Chainalysis report suggests that darknet markets have suffered substantial declines in revenue following the recent drop in Bitcoin’s value. That’s despite the 70% increase in darknet purchases made with bitcoin in 2019 compared to 2018 that Chainalysis reported in January.
This downturn is unusual because, at least in the past, activity on these platforms was largely unaffected by market volatility—with BTC being used to buy drugs, firearms, and stolen credit card data irrespective of how much the cryptocurrency was worth.
Granted, there are other factors at play here. The pandemic has affected freedom of movement and global supply chains. This has undoubtedly affected the supply of popular substances such as fentanyl—and it’s no coincidence that large volumes of this drug were manufactured in China’s Hubei province, where the pandemic began.
“Perhaps darknet market customers aren’t buying as many drugs given the public health crisis. It’s also possible that vendors slowed down sales during the price drop, out of fear that the Bitcoin they accept one day could be worthless the next,” the Chainalysis report notes.
Crypto gambling craps out
It may be fashionable to assume that crypto-based gambling services would have been a big winner during the COVID-19 pandemic, but the Chainalysis research suggests an uptick in demand hasn’t been forthcoming. Volumes of bitcoin flowing into online casinos and gaming sites have been on the decline since March 9— despite many people being stuck at home, it seems few have opted to have a flutter.
The lackluster performance of the gambling sector may not have anything to do with bitcoin’s price, however. Chainalysis says there has long been a weak link between the gambling sector’s revenue and BTC’s value. This basically means that many gamblers would use BTC to place a bet even if the cryptocurrency was at an all-time high, because they “don’t approach gambling rationally or with an expectation of profit, but rather as a way to have fun.”
Good news for legitimate e-commerce
On the other hand, online and even (still open) brick-and-mortar merchants providing legitimate goods and services that can accept bitcoin—such as AT&T, Microsoft, game streaming platform Twitch and, indirectly, Amazon—have not met with a fall in purchasing volumes they would have normally expected with bitcoin’s declining value, Chainalysis said.
The company provided a few theories as to what might have shielded merchant services from bigger falls. For one thing, it’s possible that cryptocurrency users are opting to buy essential items through these platforms—products that aren’t currently available from outlets that accept fiat.
For another, demand for merchant services might have enjoyed an uptick because local retailers have had to close because of COVID-19. Finally, recurring payments, such as subscriptions for web hosting, might also be keeping revenues steady as other income streams dry up.
Warning that this is no ordinary Bitcoin price drop, the Chainalysis report added: “It’s a one-of-a-kind market event brought on by an unprecedented public health crisis. The question for cryptocurrency businesses is whether or not they’ll be able to return to their previous transaction levels and if their customers’ usage patterns will return to normal.”
Cybercriminals take advantage
In other news, Chainalysis has sent an email to its customers warning that cybercriminals are attempting to take advantage of the coronavirus pandemic.
The company’s CEO, Michael Gronager, provided evidence that fraudsters are trying to trick people into sending them cryptocurrency—often pretending to be from the World Health Organization or a charity in desperate need of medical supplies such as face masks.
Gronager said many of these scams don’t appear to have been successful so far—and as a whole, revenues from cybercrime actually declined in March. However, he warned: “We also anticipate that scammers may increase their efforts to target ordinary people, especially the vulnerable, when governments begin sending citizens relief funds, such as those outlined in the U.S. stimulus package passed last week.”
Even as consumer spending slows and business activity grinds to a halt, the message from Chainalysis is clear: “Crime doesn’t stop for a pandemic.”