The Rise of Cryptocurrency in the Synthetic Drug Trade

• Chinese drug precursor manufacturers supply the global synthetic drug trade: Nearly two-thirds of fentanyl precursor manufacturers studied by TRM also advertised at least one other precursor for drugs such as mephedrone, MDMA, and spice, with targeted advertisements to Canada, the Netherlands, Australia, Germany, and the US. 
• The use of cryptocurrency in this trade is growing. Chinese drug precursor manufacturers received over USD 26 million in cryptocurrency in 2023, a 600% increase from 2022. The first four months of 2024 show a doubling compared to the same period in 2023. 
• 60% of cryptocurrency payments to Chinese precursor manufacturers to date have been made on the Bitcoin blockchain, followed by 30% on TRON, and 6% on Ethereum.
• Almost 60% of Chinese drug precursor manufacturers were also found to be advertising nitazenes, a novel class of powerful synthetic opioids—as well as xylazine, a strong veterinary sedative sometimes mixed with fentanyl.
• Using blockchain intelligence to surface insights into manufacturer wallets and movement of funds allows law enforcement to generate actionable leads from exposure to cryptocurrency exchanges and crypto ATMs.

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Fentanyl is one of the most destructive and urgent drug threats facing the United States today. Earlier this year, the Drug Enforcement Agency (DEA) published their 2024 National Drug Threat Assessment, stating, “The shift from plant-based drugs, like heroin and cocaine, to synthetic, chemical-based drugs, like fentanyl and methamphetamine, has resulted in the most dangerous and deadly drug crisis the United States has ever faced.”

In addition to the damage narcotics like fentanyl inflict on American families, the movement of these illicit drugs across borders also poses significant risks to national security—a complex web of synthetic drug manufacturers, suppliers, and vendors that extends far beyond US borders.

Today, the factories that produce the world’s fentanyl precursors—of which a significant number are located in China—also manufacture and sell the key ingredients for almost every other common synthetic drug sold in European and Asian markets. These include precursors for mephedrone, MDMA, and new novel synthetic opioids like nitazenes—which can be up to ten times stronger than fentanyl.

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The use of crypto by precursor drug manufacturers is on the rise

In a recent report, TRM’s team of blockchain intelligence experts found that cryptocurrencies play a critical role in funding the international drug precursor manufacturers producing illicit drugs like fentanyl, nitazenes, mephedrone, spice, MDMA, and amphetamines. Of the 120 Chinese precursor manufacturers we examined—spanning 26 cities and 16 provinces—97% offered payment in cryptocurrencies.

Though drug precursor sales are still predominantly transacted through traditional, fiat payment methods, cryptocurrency’s share has continued to grow over the years. Our research found that the amount of cryptocurrency deposited into wallets linked to Chinese precursor manufacturers increased by over 600% from 2022 to 2023, and more than doubled in the first four months of 2024 (compared to the same period in 2023).

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Further, to date, Bitcoin has been the blockchain of choice for these Chinese drug precursor manufacturers—accounting for approximately 60% of cryptocurrency payment volume, followed by the TRON blockchain at around 30% and the Ethereum blockchain at about 6%.

Manufacturers have direct links to vendors and darknet markets and remain undeterred by sanctions

The fact that some synthetic drug precursors also have legal, conventional applications (e.g. cosmetics and cleaning products) can give manufacturers plausible deniability about their use in the illicit drug trade. However, TRM Labs has identified at least 20 Chinese precursor manufacturers with direct links to online vendors of banned and controlled substances and darknet markets (DNMs) in Russia and the west. It is likely that payments to these manufacturers represent drug vendors sourcing precursors to produce illegal drugs like fentanyl and nitazenes.

Though OFAC and the US Department of Justice (DOJ) have taken action to stem the flow of precursors, six of the manufacturers in TRM’s study continued to advertise precursors even after being sanctioned or indicted.

Blockchain intelligence is key in the global fight against illicit drugs

TRM experts examined hundreds of advertisements from the Chinese precursor manufacturers evaluated in our study, and found that the top five markets targeted were Canada, the Netherlands, Australia, Germany, and the US.

In the global fight against narcotics, the ability to analyze manufacturer wallets and flow of funds is key to ultimately dismantling the financial networks underpinning the global supply chain for synthetic drugs. 

“Being able to trace crypto is absolutely essential in virtually every investigation, but particularly narcotics trafficking investigations. When we take out [a criminal’s] money, that's when we really deal a significant blow to them.”

Mike Prado
Deputy Assistant Director, Homeland Security Investigations (HSI)

On-chain insights and exposure to cryptocurrency exchanges and ATMs can offer law enforcement with valuable leads. Manufacturer wallets are most commonly hosted at exchanges, with funds sent from unhosted wallets, cryptocurrency exchanges, and payment services. In the US, for example, cryptocurrency ATMs were found to have sent more than USD 170,000 directly to Chinese precursor vendors in 2023. While this identified volume is relatively small, these transactions provide law enforcement with valuable leads for identifying fentanyl manufacturers or precursor resellers.

The global precursor trade’s increasing reliance on cryptocurrency presents a unique opportunity for authorities to leverage blockchain intelligence—and highlights the importance of international cooperation to stem the flow of illicit funds across borders, disrupt the synthetic drug trade, and weaken global trafficking networks.

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For even more insights and analysis on cryptocurrency’s role in the drug precursor market, be sure to download your copy of our “Beyond Fentanyl” report.