MONERO [XMR] REPORT - Scaling New Heights in Blockchain Performance: 2025 Portfolio / Part Two

Part Two / Page 4

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• United States: The U.S. has not banned Monero, but it has also not shied away from enforcement against privacy tools. The IRS in 2020 offered a $625,000 bounty for anyone who could develop Monero tracing techniques (Monero - Wikipedia), signaling government interest in cracking Monero’s anonymity. Blockchain analytics firms like Chainalysis and CipherTrace have contracts with U.S. agencies and have claimed varying degrees of limited success in tracking Monero (often relying on external data rather than breaking the cryptography). While Monero is not listed as a security by the SEC (it was launched fairly and is decentralized), it is also not listed on any U.S. regulated exchange (Coinbase, Gemini, Kraken-US, etc. do not support XMR). This is likely due to AML/CFT (anti-money-laundering and counter-terrorism financing) concerns – U.S. exchanges have generally avoided Monero to prevent regulatory ire. Additionally, OFAC sanctions on tools like Tornado Cash in 2022 have cast a chill over privacy tech; although Monero itself wasn’t sanctioned, the message is clear that U.S. authorities view the use of anonymity services as a red flag. FinCEN’s recent advisories explicitly list anonymity-enhanced cryptocurrencies as high risk, advising financial institutions to treat them with enhanced scrutiny (Is Monero banned/going to be banned in the EU/Germany - Reddit) (Report: EU May Ban Privacy Coins - PYMNTS.com).
  
  
• Other Countries:
  
  
  
  • Australia: There was no formal ban, but reports in 2020 indicated Australian regulators and banks pressured exchanges to drop Monero or risk being “de-banked” (Monero: All About the Top Privacy Coin - Chainalysis) (Monero: All About the Top Privacy Coin - Chainalysis). Many Australian exchanges did delist privacy coins around that time.
    
    
  • Canada: No outright ban, but some provinces’ regulations led certain exchanges (like CoinBerry) to stop offering privacy coins in 2022.
    
    
  • Dubai/UAE: In 2023, the VARA regulator in Dubai issued guidance that prohibits privacy coins under its licensing regime (Monero: All About the Top Privacy Coin - Chainalysis) (Monero: All About the Top Privacy Coin - Chainalysis). This closed off what was becoming a crypto hub to Monero.
    
    
  • UK: The UK has not banned Monero, but UK-based exchanges (e.g., Bittrex’s international arm and Kraken UK) delisted XMR in late 2021 due to FCA regulatory pressure (Monero: All About the Top Privacy Coin - Chainalysis) (Monero: All About the Top Privacy Coin - Chainalysis).
    
    
  • Overall, more than a dozen countries have either banned privacy coins on exchanges or have exchanges that voluntarily withdrew support due to compliance concerns.
    
    

Effect on Exchanges and Liquidity: The regulatory pressures have had a material effect on Monero’s market accessibility:

• In 2017, Monero was widely available on major exchanges globally. By 2024, Monero is absent from most large regulated exchanges in North America, Europe, East Asia, and Australia. It remains traded on smaller exchanges and certain international platforms that either have looser KYC or are based in jurisdictions that haven’t banned it (e.g., some exchanges in Southeast Asia, Russia, or decentralized exchanges).
  
  
• Even multi-asset wallets and services feel the pressure. Notably, Exodus Wallet (a popular U.S.-based crypto wallet) announced it will end support for Monero by August 10, 2025, citing a need to “streamline product offerings to align with [our] future strategy” (Monero Observer - Exodus to end XMR support on August 10 2025). While worded vaguely, this is widely seen as a response to regulatory compliance issues, as supporting Monero could invite scrutiny. Exodus users will no longer be able to hold XMR in that wallet, reflecting how even software providers are being careful.
  
  
• The LocalMonero P2P platform, which for years allowed peer-to-peer trading of Monero (similar to LocalBitcoins), announced it is shutting down by late 2024 (Empire Newsletter: Privacy coins sacrificed so crypto could run - Blockworks). This is significant because LocalMonero was a key avenue for users to acquire XMR without centralized intermediaries (often using cash trades). The closure after 7 years is attributed to various reasons, including market conditions and possibly regulatory environment. Its shutdown further constricts liquidity avenues (though alternative P2P and DEX solutions are emerging – see Ecosystem section).
  
  

The cumulative impact is stark: “Privacy coin dominance has shrunk with each market cycle since the first delistings,” as Blockworks noted (Empire Newsletter: Privacy coins sacrificed so crypto could run - Blockworks). In 2017, privacy coins (led by Monero) comprised ~5% of total crypto market cap; by 2023, they fell to <0.5% (Empire Newsletter: Privacy coins sacrificed so crypto could run - Blockworks). Monero, once rubbing shoulders with top-10 cryptos, is now the only privacy coin in the top 100 by market cap (Empire Newsletter: Privacy coins sacrificed so crypto could run - Blockworks). This decline in relative standing is largely due to their sidelining by regulated markets, rather than a failure of the technology. It demonstrates how regulatory actions have directly suppressed valuation and growth of this sector.

KYC/AML Conflict: The essence of regulation issues is that Monero transactions thwart the standard KYC/AML compliance procedures. Financial institutions must normally monitor transactions for suspicious activity, trace sources of funds, and comply with the FATF “Travel Rule” (which requires transmitting sender/receiver info for crypto transactions over certain thresholds). Monero’s design makes it impossible to verify sender or receiver identities on-chain or to prove the absence of illicit history of coins. For exchanges and custodians, listing Monero can be seen as inherently high-risk since they cannot provide the same level of compliance assurance. FATF guidance has warned about use of anonymity-enhanced cryptocurrencies and expects jurisdictions to mitigate their risks (often interpreted as discouraging their use in regulated venues) (Educational Byte: Are Privacy Coins Like Monero and Zcash Legal?) (Privacy Coins Benefits, Risks, And The Regulatory Outlook For 2024).

Law Enforcement Perspective: Monero is frequently associated with illicit use cases: darknet markets (e.g., the now-defunct AlphaBay adopted Monero early on), ransomware groups (some ransomware demand XMR instead of BTC (Monero - Wikipedia)), and money laundering operations. For example, in 2022, the DOJ mentioned Monero in an indictment of a darknet vendor, and Europol’s 2022 report noted criminals shifting to Monero to avoid detection. The perception (not entirely inaccurate) is that Monero is a favored tool for criminals trying to hide funds (Monero - Wikipedia). This creates political pressure to ban or limit it. Even though legitimate use cases for Monero exist (privacy for the law-abiding who simply don’t want to be tracked), those nuances often aren’t recognized in policy discussions. Regulators and politicians have labeled privacy coins as “unacceptable risks” to anti-money-laundering regimes. As one EU official put it, “Coins that are anonymous by design should be prevented” in regulated crypto services (It's Back to BTC for Darknet Markets After Monero's Binance Delisting: Chainalysis ) (It's Back to BTC for Darknet Markets After Monero's Binance Delisting: Chainalysis ).

It’s worth noting that Bitcoin remains the dominant currency for illicit activity by volume, simply because it’s more widely used overall. Chainalysis estimated only 0.14% of crypto transactions ($50B) involved illicit activity in 2023 (It's Back to BTC for Darknet Markets After Monero's Binance Delisting: Chainalysis ) (It's Back to BTC for Darknet Markets After Monero's Binance Delisting: Chainalysis ). Monero likely represents a subset of that. However, from a regulatory standpoint, Monero’s untraceability, not its total volume, is what raises alarms. Authorities worry not just about current illicit usage, but that if left unchecked, privacy coins could enable an uncontrollable shadow financial system.

Regulatory Outlook: In the near-term (1–2 years), the outlook is that pressure will increase:

• The EU MiCA/AMLR enforcement in late 2024 will likely set a precedent that other regions could follow. If Monero cannot be listed on any compliant exchange in a large economic bloc like the EU, liquidity and price discovery migrate to fringe platforms. This fragmentation can reduce Monero’s market efficiency and dampen demand from mainstream investors (who often can’t or won’t use offshore exchanges).
  
  
• The Financial Action Task Force (FATF) will continue evaluating countries on crypto AML compliance. They have mentioned anonymity concerns repeatedly. Countries could be indirectly pressured to ban privacy coins or force strict controls to meet FATF standards.
  
  
• The U.S. could escalate actions: possibly targeting DeFi or DEX projects that facilitate Monero swapping, or further funding analytics research. Notably, in 2023, a leaked Chainalysis presentation suggested they still cannot reliably trace Monero (Chainalysis officially confirms that Monero is still causing problems) – a thorn in law enforcement efforts. The IRS/HSI have renewed contracts for Monero tracing research in 2024 (no breakthroughs publicly known yet). If frustration grows, the U.S. might consider more direct restrictions. There’s no current indication of an outright U.S. ban on holding Monero (that would be an extreme step, akin to banning encryption tools, raising constitutional questions), but increased scrutiny on any institution dealing with XMR is expected.
  
  

However, it’s not all one-way. There is a counter-narrative of privacy rights:

• Privacy advocates argue that financial privacy is part of fundamental rights, and blanket bans on privacy coins punish lawful users. This argument has seen some resonance in the EU Parliament debates; a few MEPs questioned whether MiCA’s stance on privacy coins is too harsh (Monero Users' XMR to Be Converted to BTC as Privacy Coins Shunned in Europe | CCN.com).
  
  
• If Monero usage grows in peer-to-peer fashion beyond government reach, regulators face a choice: push it completely underground or seek some middle ground. Some have speculated about an unlikely scenario where a regulated version of Monero with opt-in transparency could emerge (though Monero’s community would reject that). More realistically, regulators might settle for keeping Monero isolated from the banking system (which is the status quo).
  
  
• Also, banning Monero doesn’t eliminate it; it just pushes it to decentralized exchanges, unregulated venues, and OTC trading. As one analysis noted, attempted bans often spur users to seek out even more anonymizing solutions (Monero Users' XMR to Be Converted to BTC as Privacy Coins Shunned in Europe | CCN.com). For instance, when exchanges delisted XMR, many darknet market users simply traded BTC for XMR through peer networks instead (It's Back to BTC for Darknet Markets After Monero's Binance Delisting: Chainalysis ) (It's Back to BTC for Darknet Markets After Monero's Binance Delisting: Chainalysis ). Monero’s value proposition actually rises as financial surveillance increases, which could lead to a cat-and-mouse dynamic.
  
  

Investor Impact: For an investor, regulatory environment is arguably the largest risk factor for Monero:

• Legal Risk: While owning Monero is not illegal in most jurisdictions (it’s treated as a virtual asset similar to Bitcoin under property law for taxation, etc.), the inability to trade it on regulated venues means an investor may have liquidity risk and custody risk. One cannot simply use their prime broker or a trusted institutional exchange to buy XMR; one might need to use less familiar exchanges or OTC brokers. This adds counterparty and operational risk. Family offices and funds with strict compliance may face prohibitions on holding such an asset directly.
  
  
• Liquidity and Price Suppression: Reduced exchange listings mean thinner order books and higher spreads. Institutional investors typically need sufficient liquidity to enter/exit positions; Monero’s daily volume (~$80–100M on-chain volume and ~$85M reported exchange spot volume (Monero Price, XMR to USD, Research, News & Fundraising | Messari)) is relatively low for large trades, partly due to these delistings. This can deter large investment or at least require more creative accumulation strategies (e.g., gradually mining or OTC deals).
  
  
• Custodial Solutions: Many institutional custodians do not support Monero (because of compliance or technical complexity of running a Monero node). This limits the ease with which a fund can securely store XMR. Some crypto custodians (like BitGo in the past) did support Monero, but as regulatory scrutiny grew, even some custodians dropped it. Self-custody is always an option (Monero’s strong security means you can hold keys offline with no delegation needed), but for some institutions self-custody is not preferred.
  
  
• Valuation Upside Capped?: One might argue that Monero’s upside is fundamentally capped by its accessible market. If it remains cordoned off from the vast majority of retail and institutional money that flows through compliant exchanges, its price may not reflect full potential demand. Indeed, when Monero was delisted by Binance in 2023 (Binance being the largest exchange globally), it effectively removed exposure from millions of users. A Chainalysis report in 2025 noted that darknet markets “returned to Bitcoin” after XMR’s Binance delisting due to liquidity issues (It's Back to BTC for Darknet Markets After Monero's Binance Delisting: Chainalysis ) (It's Back to BTC for Darknet Markets After Monero's Binance Delisting: Chainalysis ). This suggests that if legitimate users find XMR hard to acquire, they might simply not use it or use less private alternatives – a bearish factor.
  
  

On the flip side, regulatory resistance can create a moat around Monero for those willing and able to hold it. Monero’s scarcity on exchanges could lead to a “black market premium” where the price is higher in P2P markets due to difficulty obtaining it. We have seen hints of this: at times, XMR has traded at a premium on decentralized or peer-to-peer venues compared to centralized exchanges (especially during regional crackdowns). If, for example, a major exchange in the U.S. did ever list Monero, one could expect a price surge due to newfound access. While that scenario is unlikely in the near term, it’s a reminder that current regulatory barriers are priced in to some degree – removal of those barriers (even partial) could unlock value.

Summary: The regulatory environment for Monero is challenging and likely to get more restrictive before (or if) it ever eases. Monero is essentially being forced out of the regulated financial system, limiting its growth but not killing it. It continues to exist in the gray market and via decentralized solutions. For an investor, this translates to elevated risk (regulatory and liquidity risk) but also the potential for regulatory arbitrage gains if one believes privacy rights or technology might eventually win some concessions. Monitoring regulatory developments is key: for instance, if a major economy were to reverse course and allow privacy coins under certain conditions, that would be a bullish game-changer. Conversely, if more countries outlaw even possession of Monero or make it non-convertible, that could significantly impair its value. Currently, the trend leans towards the latter (more restrictions), which is a significant factor in our risk analysis and valuation scenarios later in this report.

Additional Sources – Regulatory Environment:

• FATF Guidance (June 2023): “Targeted Update on Implementation of the Travel Rule” – discusses risks of anonymous crypto assets, implicitly targeting privacy coins.
  
  
• EU MiCA Regulation Text (2024): Sections related to CASP (Crypto-Asset Service Provider) obligations regarding anonymous tokens – provides the legal wording for the privacy coin restrictions.
  
  
• EU Parliament News (2023): Coverage of debates around privacy in digital euro and crypto – some MEPs arguments for privacy rights.
  
  
• U.S. FinCEN Proposed Rule (2020): Notice on self-hosted wallets – while not directly banning privacy coins, shows regulatory attitude to anonymity (FinCEN, FIN-2020-AL56).
  
  
• Department of Justice Report (2020): “Cryptocurrency: An Enforcement Framework” – has a section on anonymity-enhanced cryptocurrencies (AECs) labeling them as high risk.
  
  
• Chainalysis 2024 Crypto Crime Report: Key stats on illicit usage breakdown (how much uses BTC vs Monero, etc.) (It's Back to BTC for Darknet Markets After Monero's Binance Delisting: Chainalysis ) (It's Back to BTC for Darknet Markets After Monero's Binance Delisting: Chainalysis ).
  
  
• Europol IOCTA 2022: Europol’s Internet Organized Crime Threat Assessment – mentions Monero usage in cybercrime and the difficulties it poses.
  
  
• Protos (2023): News: “LocalMonero to Shut Down after 7 Years” – confirming the P2P exchange closure and implications (Empire Newsletter: Privacy coins sacrificed so crypto could run - Blockworks).
  
  
• Monero Observer (ongoing): A news site tracking Monero community updates, including delistings and regulatory responses (e.g., posts on Kraken delisting, Exodus dropping XMR (Monero Observer - Exodus to end XMR support on August 10 2025)).
  
  
• Reddit r/Monero (various): Community discussions on exchange delistings, including Kraken EU and Binance, with insights into timelines and user responses.
  
  
• Blockworks Empire Newsletter (June 2024): “Privacy coins sacrificed so crypto could run” (Empire Newsletter: Privacy coins sacrificed so crypto could run - Blockworks) (Empire Newsletter: Privacy coins sacrificed so crypto could run - Blockworks) – analysis piece summarizing the regulatory crackdown and market share impact on privacy coins.
  
  

Ecosystem, Adoption, and Usage Trends

Despite – and in some ways, because of – the regulatory headwinds, Monero has cultivated a robust ecosystem and user base dedicated to financial privacy. This section surveys Monero’s real-world adoption metrics, the ecosystem of services supporting it, and how usage has evolved. These factors are crucial for evaluating demand and network effects that underpin Monero’s value.

Transaction Volume and On-chain Usage: Monero’s on-chain activity provides a window into adoption:

• Monero processes roughly 20,000–30,000 transactions per day on average in recent years (Monero: All About the Top Privacy Coin - Chainalysis) (Monero: All About the Top Privacy Coin - Chainalysis). In 2021, it hit a peak of ~8.8 million transactions for the year (≈24k/day), and in 2022 it saw ~8.6 million transactions (Monero: All About the Top Privacy Coin - Chainalysis). This was a slight dip (likely due to the crypto bear market and some darknet market closures), but still a dramatic increase from just a few years prior. For context, Monero’s annual transactions doubled from 2019 to 2020 and again from 2020 to 2021 (Monero: All About the Top Privacy Coin - Chainalysis) (Monero: All About the Top Privacy Coin - Chainalysis).
  
  
• Cumulatively, since launch, Monero surpassed 32 million total transactions by early 2023 (Monero: All About the Top Privacy Coin - Chainalysis). While this is an order of magnitude lower than Bitcoin’s nearly 800 million total transactions (Monero: All About the Top Privacy Coin - Chainalysis), it’s significant given Monero’s smaller user base and niche status. It indicates that Monero is actively used, not just stored.
  
  
• The number of transactions doesn’t directly equate to number of users (one user can do many transactions, and vice versa), but it’s a good proxy for network utilization. By necessity, Monero’s privacy means we can’t count active addresses or unique participants. However, anecdotally Monero’s community and usage have grown steadily: for example, the Monero subreddit has over 300,000 members in 2025 (up from ~150k in 2021), reflecting rising interest.
  
  

Transaction Sizes and Throughput: A typical Monero transaction (with one input, two outputs) is ~1.5 kB post-Bulletproofs ( Bulletproofs | Moneropedia | Monero - secure, private, untraceable ). With 2-minute blocks, Monero’s current capacity is on the order of ~1MB every 2 minutes (though it’s not a fixed cap due to the dynamic block algorithm). Thus, Monero could handle roughly 30 transactions per block comfortably, i.e., ~900 tx per hour (~21,600 per day) without increasing block size. In peak times, block size can grow (with miners taking a slight reward penalty if blocks exceed a long-term median). In practice, Monero has handled bursts above its baseline. So far, capacity has not been a limiting factor – the network could likely support significantly more transactions if demand increased. Low fees also indicate ample headroom.

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