The plunging value of Bitcoin and other cryptocurrencies has an unexpected silver lining for security services – terrorists are losing cash.

Terror groups and the shadowy extremists who sponsor them often use cryptocurrency – a form of digital money that uses encryption to secure transactions – because it is difficult to trace.

But the price of Bitcoin plunged this week, losing more than 30% of its value.

And a former CIA analyst says the crash will give some extremists a financial headache.

Yaya J Fanusie, the director of analysis for Defense of Democracies’ Center on Sanctions and Illicit Finance, said: “For terrorists, there might be a more long term aversion to using cryptocurrencies as a fundraising mechanism.

“In late 2017, we observed multiple cryptocurrency crowdfunding campaigns by jihadist groups spring up during Bitcoin’s huge price spike.

Corresponding desire

“With the price rise came more media attention on cryptocurrencies and probably a corresponding desire for these extremist groups to diversify their funding with bitcoin.

“We don’t have much insight into all jihadist funding activity, but it makes sense that crowdfunding through cryptocurrencies will be less attractive when the price undergoes a sustained nose dive – not only for those raising funds, but also for potential donors who would see the diminishing value of their donations if they use digital currency.”

Cryptocurrencies use cryptography, a form of secret coding originating from the Second World War, to process transactions securely.

Last month Mr Fanusie warned that criminal gangs and extremists were using “decentralised exchanges” (dEX) to trade cryptocurrencies anonymously.

Moving funds

These groups are attracted to the potential of being able to move hundreds of millions of dollars in value across the world.

While most cryptocurrency exchange businesses are getting more compliant with existing financial legislation, dEXs do not take custody of users’ tokens and do not verify customers’ identities – perfect for moving ill-gotten gains.

In fact, many proudly advertise this lack of oversight as a selling point.

Mr Fanusie says there are examples of drug cartels and organised criminal gangs in the US, Asia and Europe using cryptocurrencies as part of their money laundering process.

However, he says the crypto crash will not hit these crooks as hard as extremist groups.

Attractive feature

“Most criminals using cryptocurrencies probably are not using it to store value, but to move funds quickly and convert them into fiat cash,” he said.

“So the impact will likely fall more on everyday speculators than criminals looking for quick transactions.

“Cryptocurrencies can be moved quickly and easily across borders. For cybercriminals, this will remain an attractive feature even at low prices.”

Mr Fanusie spent seven years as both an economic and counterterrorism analyst in the CIA, where he regularly briefed White House-level policy makers, US military personnel, and federal law enforcement.

In 2008, he personally briefed President George W Bush on terrorism threats, and in 2009, he spent three months in Afghanistan providing analytic support to senior military officials.

After government service, Yaya worked with a small consulting firm where he led a team of analysts working on a multi-billion-dollar recovery effort involving a global corruption ring.

He also operated his own consulting practice training firms specialising in strategic analysis and business due-diligence.

Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.