Reports of tens of millions of dollars in crypto going to fund Palestinian operations in Israel are likely “overstated,” Chainalysis said. The forensics outfit published a blog post arguing that flows of crypto financing to Hamas and affiliated groups have become inflated far beyond reality. While acknowledging that it was crucial to stop any financing of terror through crypto, Chainalysis said it was also important to understand how such funding actually works, lest it lead to misconceptions.

We have “seen overstated metrics and flawed analyses of these terrorist groups’ use of cryptocurrency, and feel compelled to address some misconceptions,” the company said.

Last week, the Wall Street Journal reported that Palestinian Islamic Jihad received $93 million in crypto between August 2021 and June 2023 and that Hamas received about $41 million in the same timeframe. The report was partly based on data analysis from Elliptic, a Chainalysis competitor.

Critics of the WSJ report said the headline – “Hamas Militants Behind Israel Attack Raised Millions in Crypto” – suggested that crypto was funding the Palestinian operation directly, when it was not clear whether the flows were actually reaching terrorists. They also noted that crypto financing, while important to stop, was small compared to state-funded support (particularly from Iran).

Hamas announced in April that it was suspending crypto fundraising because it put its collaborators at risk of capture or worse. Chainalysis states that the transparency of blockchains is bad for actors trying to operate in the shadows.

“Given blockchain technology’s inherent transparency and the often public nature of terrorism financing campaigns, cryptocurrency is not an effective solution to finance terrorism at scale.”

“It’s possible that no one understands the challenges of using cryptocurrency for fundraising better than Hamas,” the company added.

Aside from the immediate question of whether crypto is financing Hamas, it’s relevant for a live policy debate about controls the U.S. might employ around money laundering. Senators Elizabeth Warren (D-MA) and Roger Marshall (R-KS) cited the WSJ’s reporting on Hamas financing in an op-ed for the same outlet Oct. 18. Both are sponsors of the Digital Asset Anti-Money Laundering Act, which seeks to increase reporting requirements on crypto transactions in a bid to tamp down on money laundering. Warren, in particular, is a staunch crypto critic with a stated goal to build an “anti-crypto army.”

Chainalysis said the “inflated” estimates cited by the WSJ likely count all flows going to service providers suspected of involvement in terror financing. But that’s not evidence that the funds actually reached wallets controlled by terrorists. “We have seen recent estimates related to the attacks on Israel that appear to include all flows to certain service providers that received some funds associated with terrorism financing. In other words, those totals include funds not explicitly related to terrorism financing,” it wrote.

Chainalysis added that it’s working to produce what it thinks are more accurate estimates for crypto flows to groups behind the Israel attack.