Blockchain intelligence firm TRM Labs has revealed that cryptocurrency deposits into crypto addresses linked to Chinese drug precursor manufacturers 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 in cryptocurrency, with 97% of the over 120 manufacturers studied offering payment options in digital currencies.

Bitcoin Dominates Transactions

According to TRM Labs, the overall amount of cryptocurrency deposited into wallets linked to these manufacturers increased by more than 600% from 2022 to 2023.

Bitcoin remains the dominant cryptocurrency used for these transactions, accounting for approximately 60% of the total payment volume. Following Bitcoin, the TRON blockchain saw about 30% of transactions, while Ethereum was used for roughly 6%.

The report also highlighted that 11 manufacturers were responsible for over 70% of all crypto-denominated sales of drug precursors. These manufacturers receive funds from unhosted wallets, cryptocurrency exchanges, and payment services, with their wallets most commonly hosted at exchanges.

In addition to the preference for cryptocurrencies, Chinese manufacturers also accept fiat currencies through platforms like PayPal, MoneyGram, Western Union, and traditional bank transfers.

The report revealed that Chinese drug precursor manufacturers mainly target countries including Canada, the Netherlands, Australia, Germany, and the United States. Advertisements have also been directed towards Russia and neighboring countries, particularly for mephedrone precursors.

China’s Role in The US Fentanyl Crisis

A U.S. congressional committee recently reported that the root cause of the U.S. fentanyl crisis lies in the People’s Republic of China, which manufactures over 97% of the precursors used in the global illicit fentanyl trade.

According to the report, China subsidizes the production of illicit fentanyl precursors, which has significantly contributed to the opioid crisis in the United States.

“The CCP has had this program in place since at least 2018. At that time, they subsidized at least 17 illegal synthetic narcotics that are Schedule I controlled substances, including 14 deadly fentanyl analogues.”

The committee found that China provides value-added tax rebates to companies manufacturing fentanyl analogs and other synthetic narcotics, provided these products are sold outside China.

Another September 2023 report by blockchain intelligence firm Elliptic also uncovered a network of 100 individual suppliers facilitating the illicit fentanyl trade. Elliptic noted that these suppliers use cryptocurrencies, particularly Bitcoin, Ethereum, Tron, and Monero, to conduct transactions and facilitate the transfer of funds from buyers to suppliers.