Cryptocurrency Payments to Chinese Drug Manufacturers Surge in 2023

Blockchain intelligence firm TRM Labs reports that China-based precursor manufacturers received over $26 million in cryptocurrency in 2023, with approximately 60% of these payments made in Bitcoin.

Cryptocurrency seems to be becoming a more preferred payment method for Chinese drug manufacturers. The amount of crypto deposited into wallets linked to these entities increased sixfold from 2022 to 2023, according to TRM Labs.

In a recent research report, analysts at TRM Labs revealed that deposits into addresses linked to Chinese drug producers more than doubled in the first four months of 2024 compared to the same period in 2023. In 2023, Chinese precursor networks received over $26 million, with 11 manufacturers accounting for over 70% of all crypto-denominated sales of drug precursors.

Crypto funds sent to Chinese precursor manufacturers primarily come from unhosted wallets, cryptocurrency exchanges, and payment services; the manufacturers’ wallets are most commonly hosted at exchanges.

Approximately 60% of the crypto payment volume to Chinese precursor manufacturers occurred on the Bitcoin blockchain, followed by 30% on the TRON blockchain and about 6% on the Ethereum blockchain. Despite the surge in crypto payments, Chinese manufacturers also appear to be comfortable with accepting payments in fiat currencies via other methods like PayPal, MoneyGram, Western Union, and bank transfers.

According to TRM Labs’ study, Chinese drug precursors mainly target countries such as Canada, the Netherlands, Australia, Germany, and the U.S. as their top destinations for shipping. There are also advertisements targeting Russia and neighboring countries for mephedrone precursors.

In April, a U.S. congressional committee reported that China subsidizes the production of illicit fentanyl precursors, fueling the U.S. opioid crisis. The committee found that China provides value-added tax rebates to companies manufacturing fentanyl analogs, precursors, and other synthetic narcotics, provided they sell them outside China.

Another blockchain intelligence firm, Elliptic, noted that fentanyl is favored by drug cartels due to its lower production cost compared to heroin and its potency, which is 50 times stronger, making it the leading cause of death for Americans aged 18-45.

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