Over the years, politicians and legacy financial leaders have increasingly portrayed cryptocurrency as purely a haven for criminals and terrorists. After Hamas’s initial attack on Israel in October 2023, Senate Banking Committee Chairman, Sherrod Brown, warned that “terrorists know they can use crypto in ways they could never use dollars,” while Sen. Elizabeth Warren and a bipartisan coalition claimed Hamas and Palestinian Islamic Jihad raised over $130 million in digital assets ahead of the Israel attacks, calling crypto a “clear and present danger” to national security. This rhetoric has hardened into a widespread assumption that crypto is the lifeblood of terrorist organizations.
The myth: Crypto as a primary tool for terrorist finance
But the evidence tells a different story. The U.S. Treasury’s 2024 National Terrorist Financing Risk Assessment concluded that while terrorist groups have experimented with digital assets, they “still prefer traditional financial products and services.” The Congressional Research Service also noted that Hamas-linked wallets may have received tens of millions in crypto, but stressed the scale of such fundraising remains uncertain and dwarfed by state sponsorship, cash couriers, and informal networks.
How on-chain analytics uncover terrorist financial networks
Crypto has introduced a new vector for hacks, scams and illicit finance, but it is not the lifeblood of terrorist organizations some believe it to be. In fact, blockchain’s permanent, traceable ledger is turning into one of the most effective tools available to law enforcement and counter-terrorist-financing professionals. Far from shielding illicit finance, crypto is helping to reveal it.
Crypto is increasingly used to move money rather than to pay for goods and services. Unlike in traditional bank accounts, funds don’t just disappear. The bigger challenge comes at the conversion phase, when crypto is exchanged into local currency. This is where cooperation from local services is essential—helping to interdict illicit activity without resorting to punitive measures that risk labeling them all as bad actors.
Why blockchain transparency is a law enforcement advantage
This duality was evident in a research briefing released by the Royal United Services Institute (RUSI). Even Islamic State affiliates, often portrayed as tech-savvy, still choose “hawala” because it is familiar, fast, and critically offline. Wholesale migration to digital assets remains unattractive for terrorists due to price volatility, difficulty converting to local fiat, and, most threatening to clandestine groups, the permanent, transparent ledger each transaction leaves behind.
Why proportional regulation beats blanket bans
At the same time, crypto’s visibility has allowed investigators to uncover patterns they would never obtain from tracing cash. Crystal analysts have tracked hundreds of terror-linked wallets, including Hamas’s “Shadow Unit,” which solicited USDT donations on the TRON network via Telegram. Over just two weeks in February 2025, the wallet received 34 deposits totaling roughly $25,000 before U.S. authorities froze the funds. That is a rounding error next to the group’s multimillion-dollar cash hoarding, but the blockchain trail handed investigators a map of counterparties, accounts, wallet addresses, and off-ramp services.
Or consider Lebanon’s explosion of informal OTC crypto kiosks, which RUSI and Crystal identified as funneling $12.9 million in 2024 into exchange accounts. Nearly every suspicious wallet ultimately moved funds into a mainstream exchange, creating a single chokepoint where compliance teams could freeze assets and identify the people behind them. When our team linked a Syrian peer-to-peer platform nested inside a company claiming jurisdiction in Hungary and Luxembourg to Islamic State facilitators, it was possible because every hop across the chain preserved timestamps, amounts, and destination addresses.
The path forward: Collaboration, data sharing, and smarter oversight
Crypto’s role in terrorism fundraising is growing, but pretending it will go away is not a strategy. Prohibition and political soundbites risk obscuring activity rather than stopping it. Well-intentioned but reactionary proposals (blanket bans on privacy coins, de-risking entire regions, or forcing exchanges to collect data they cannot verify) risk driving activity underground and erasing the very data that lets investigators connect the dots.
A smarter regulatory response should instead:
- Leverage the data,don’t bury it. Encourage exchanges and analytics firms to share red-flag patterns through public-private partnerships.
- Target the weak links. Focus oversight on small conversion services and OTC brokers where compliance is weakest, rather than imposing blanket bans.
- Update training across agencies. Blockchain forensics should be a core skill, not a nicheexpertise, for frontline investigators.
- Maintain proportionality. The Treasury still ranks crypto far below cash, trade-based laundering, and gold in terrorist financing risk. Policy should reflect relative, not perceived, risk.
Cryptocurrency can be exploited but it can also be weaponized against exploitation. When authorities are empowered with the right tools, crypto becomes a visibility layer in global finance. By zeroing in on the fiat-off-ramp intermediaries terrorists still depend on, regulators can turn blockchain’s permanent record into a force multiplier for national security.
