A Conversation with Jonathan Levin at Strictly VC NYC 2024

Chainalysis and the Cryptocurrency Landscape

• Chainalysis provides investigation software and compliance solutions to government agencies and financial services firms, helping them solve cryptocurrency-related cases and comply with money laundering obligations (27s).
• The company's founding story involves people with English as a second language, which may contribute to the common mispronunciation of the company's name as "chain analysis" (19s).
• Chainalysis expects to be busier due to the growing cryptocurrency market, particularly with the recent surge in Bitcoin's value following Donald Trump's win (57s).
• Cryptocurrency became a bipartisan issue during the election cycle, with both Kamala and Trump's platforms pushing for a strong movement in the United States for the industry (1m32s).

Regulatory Changes and Expectations

• There is optimism about specific rules being repealed, allowing new businesses to build and changing the regulatory landscape, with a shift from regulation by enforcement to clearer rules (2m17s).
• The expected changes include the repeal of technical accounting rules that have held back bigger banks from directly custodying crypto, enabling household names like HSBC to custody crypto according to federal regulations (3m1s).
• Bipartisan bills about market structure and stable coins are also anticipated to be pushed forward, with major progress expected on these issues (3m38s).
• The regulatory changes may involve classifying crypto as a commodity rather than a security, and there may be different kinds of regulations rather than simply less regulation (2m51s).

Political Influence and Lobbying

• Trump is viewed as more of a hype man for crypto than a serious advocate, with crypto platforms investing hundreds of millions of dollars in lobbying, mainly for Republican candidates (3m57s).
• Chainalysis does not spend on political donations in elections, instead serving the federal government as a large customer in law enforcement and regulatory agencies (4m18s).
• The company has worked with different administrations over the years and aims to be part of the technology infrastructure that the government runs on, rather than playing politics (4m22s).

SEC and Regulatory Scrutiny

• Trump has been critical of Gary Gensler, head of the SEC, who has taken a hard stance on crypto, trying to force it into the securities box (4m56s).
• There is talk of crypto insiders taking over Gensler's role, but no announcement has been made, and the focus should be on concrete proposals and rules to safeguard investors and help innovation (5m19s).
• Proposals like the Safe Harbor for cryptocurrencies have support from both the industry and SEC commissioners, and people should look at the concrete rules rather than just the personalities involved (5m38s).

Investor Protection and Market Regulation

• Commodities make it more difficult to safeguard investors due to less transparency and reporting, and this is something that needs to be worked out (6m5s).
• The CFTC has been doing work in the cryptocurrency industry, overseeing derivatives products and market manipulation, but more needs to be done to safeguard investors (6m19s).
• Clear delineation of jurisdiction is needed to build programs to protect investors, and the crypto industry has been calling for clear rules (6m55s).
• There are concerns that fewer compliance requirements could lead to more fraud, scams, and meme coins, but the focus should be on protecting investors and consumers (7m21s).

Cryptocurrency and Crime

• Consumer protection laws related to laundering statutes are unlikely to be rolled back, and fraud is on the rise, including romance scams and "Pig Butchering," a type of scam where a scammer gains a victim's trust before taking their life savings (7m53s).
• Pig Butchering is a shocking term meant to grab attention, and it's a very unfortunate event when it happens, highlighting the need for protection against such threats (8m39s).
• Cryptocurrency is being used in various types of crimes, including counterintelligence cases, ransomware, weapons trade, narcotics, and child abuse material distribution (9m32s).

Chainalysis' Role in Crime Investigation

• Chainalysis helps bridge the gap in tracing cryptocurrency transactions by providing a map from real-world entities to blockchain transactions, serving this data back to customers (10m41s).
• The company's technology powers thousands of investigations daily, and they have been involved in high-profile cases, including helping law enforcement track fraud in the crypto world, such as the FTX case (11m47s).
• Chainalysis has moved from focusing solely on crypto crime to addressing cryptocurrency's role in all types of crime, and their customers now see cryptocurrency as an opportunity to tackle various crimes (9m21s).
• The company's research and data collection help provide a map from real-world entities to blockchain transactions, enabling customers to better understand and address cryptocurrency-related crimes (11m19s).
• Chainalysis helped solve various cases, including the FTX case, by following the money and identifying assets spread across multiple counterparties, enabling administrators to recover and return funds to victims of the crime (12m0s).

Technological Advancements in Crypto Crime

• People using crypto in crime are finding ways to cover their tracks using techniques like mixers, mixing software, and privacy coins, but Chainalysis has been successful in cracking investigations with government partners (12m40s).
• The blockchain preserves evidence forever, allowing law enforcement to potentially solve cases in the future with new technology, even if they can't be solved today (13m21s).

AI and Data in Chainalysis

• Chainalysis is using AI to improve development processes, internal processes, and find new patterns to identify potential obfuscation techniques, but has a high bar for exposing AI-generated evidence to customers (13m36s).
• The company believes that having proprietary data is crucial for exploiting AI technology, and those with the best training data sets will have a huge tailwind in the technology trend (14m19s).

Chainalysis' Founding and Growth

• Chainalysis was founded in 2014, went through TechStars in 2016, and is based in New York, with the founding team being European but choosing the US for operations early on (15m32s).
• Chainalysis initially considered London or Copenhagen as its tech hub, but ultimately chose New York due to its access to a deep talent market and proximity to Penn Station for easy travel to DC for government business (16m9s).
• Chainalysis is a US company with over 700 employees worldwide, and has a big office in DC that serves federal government clients as a subsidiary (16m49s).

Building Trust and Adoption in Crypto

• The company's founder advises other founders trying to build trust in crypto to focus on explaining the business opportunity and outcomes that cryptocurrency can generate for traditional finance businesses, rather than the technology itself (17m25s).
• There are already success stories of cryptocurrency in traditional finance, such as ETF products and stable coins being used for payments, which can help build trust (18m2s).

Future of Cryptocurrency and Payments

• The founder predicts that stable coins will be used for more payments in the future, and that governments and huge enterprises will start moving money cross-border for operational purposes (18m53s).
• Another prediction is that AI agents will have native wallets, enabling new applications of machine payments, such as AI agents making transactions on behalf of businesses (19m37s).
• AI agents are emerging that can pay other agents to complete various tasks, representing a new trend within the industry (20m9s).
• This trend is expected to gain more traction in 2025 and 2026, with the technology becoming more native and widespread (20m22s).
• The development of this technology is considered exciting and holds promise for the future (20m28s).