Building trust in crypto with Jonathan Levin of Chainalysis | Equity Podcast

Crypto Crackdown and Potential Changes Under Trump

• The US Securities and Exchange Commission chair, Gary Gensler, has faced heavy criticism for his crackdown on crypto, including a recent lawsuit from 18 states, and is likely to be replaced under President-elect Donald Trump (42s).
• Trump has vowed to oust Gensler and is meeting with Brian Armstrong, the CEO of crypto exchange Coinbase, to discuss potential personnel appointments (51s).
• Chainalysis, a blockchain analysis firm, provides investigation software and compliance solutions to government agencies and financial services firms to help solve cryptocurrency-related cases and comply with money laundering obligations (1m50s).
• The company's founding story involves people who have English as a second language, which is why some people get the name wrong and call it "Chain Analysis" (1m47s).

Chainalysis: Growth and Operations

• Chainalysis is expecting to get busier due to the growing need for compliance solutions in the crypto space (2m17s).

Bitcoin's Price Surge and Bipartisan Crypto Support

• Bitcoin's price has surged to over $90,000 in the wake of Donald Trump's win, but it's unclear whether this will lead to continued euphoria or a pullback (2m26s).
• Cryptocurrency became a bipartisan issue during the election cycle, with both Kamala and Trump pushing for a strong movement in the US for the industry (2m53s).
• There is optimism that Trump's administration will repeal specific rules that have held back the industry in the US and provide clearer rules for people to build businesses (3m29s).

Chainalysis' US Base and Regulatory Expectations

• Chainalysis is based in the US and has chosen to run its operations there, despite the regulatory challenges (1m19s).
• There is an expectation of changes in regulations, with some technical accounting rules being rewound, allowing bigger banks to directly custody crypto according to federal regulations (4m9s).

Regulatory Changes and Lobbying Efforts

• Bipartisan bills about market structure and stable coins are anticipated to be pushed forward, with major progress expected (4m42s).
• Crypto platforms have poured hundreds of millions of dollars into lobbying, mainly for Republican candidates, with some of the main ones being Coinbase, Ripple, and Jump (5m5s).
• Chainalysis does not spend on political donations in elections, instead serving the federal government as a large customer in law enforcement and regulatory agencies (5m21s).

Potential SEC Leadership Changes and Regulatory Proposals

• There is talk of crypto insiders taking over the role of Gary Gensler, head of the SEC, who has been critical of crypto and trying to force it into the securities box (5m57s).
• Proposals such as the Safe Harbor for cryptocurrencies, which has support from the industry and SEC commissioners, are being considered to safeguard investors and help innovation in the sector (6m30s).

CFTC's Role and Jurisdictional Issues

• The Commodities Futures Trading Commission (CFTC) has been doing work inside the cryptocurrency industry, with oversight over derivatives products and market manipulation in the spot market (7m11s).
• There is more that the CFTC could do to safeguard investors further from market manipulation and other issues, but it has been held back (7m31s).
• The lack of clear jurisdiction is a significant issue in the crypto industry, and establishing clear rules is essential for building trust and effective programs, whether under the CFTC or SEC, which is something the industry has been seeking for clarity on (7m40s).

Concerns about Fraud and Consumer Protection

• There is a fear that fewer compliance requirements could lead to more fraud, scams, and meme coins, but it's unlikely that there will be a rollback of money laundering statutes or consumer protection for certain types of investments (8m11s).
• Fraud, including romance scams and "Pig Butchering" scams, is on the rise, and bipartisan efforts are necessary to protect consumers and investors (8m43s).
• "Pig Butchering" is a type of scam where a scammer gains the victim's trust, often by pretending to be in love, before taking their life savings (8m54s).
• Despite the risks, it's unlikely that there will be a repeal of consumer protection or national security measures, which is beneficial for businesses focused on helping with these issues (9m27s).

Cryptocurrency in Crime and Chainalysis' Role

• Cryptocurrency is being used in various types of crime, including counterintelligence cases, ransomware, weapons trade, narcotics, and child abuse material distribution (10m27s).
• Chainalysis has shifted its focus from crypto crime to using cryptocurrency to tackle all types of crime, and its customers in the public sector see it as an opportunity to embed cryptocurrency analysis within their full enterprise (11m0s).

Chainalysis' Blockchain Tracing Technology

• Every blockchain transaction is public, but tracing the transactions requires expertise in reading the numbers associated with each block on the chain (11m14s).
• Chainalysis bridges the gap by providing a way to trace blockchain transactions and identify the end user, making it possible to tackle various types of crime (11m26s).
• Chainalysis provides a map from real-world entities that put transactions in the blockchain to the transactions themselves, serving this data back to customers (11m36s).

Chainalysis' Involvement in Investigations (e.g., FTX)

• The company has helped law enforcement track and solve numerous cases, including high-profile ones like the FTX case, where they helped follow the money and recover funds for victims (12m9s).
• Chainalysis is involved in thousands of investigations daily, and their technology powers these investigations (12m20s).
• In the FTX case, Chainalysis helped identify counterparties and move quickly to enable administrators to recover and return funds to victims (12m33s).

Criminal Techniques and Chainalysis' Countermeasures

• People using crypto for crime are finding ways to cover their tracks using techniques like mixers and mixing software, but Chainalysis continues to research and build technology to track these activities (12m59s).
• Despite these techniques, law enforcement has been successful in cracking investigations with Chainalysis' help, and the blockchain preserves evidence forever, allowing for potential future solutions (13m32s).

Chainalysis' Use of AI

• Chainalysis is using AI to improve development processes, internal processes, and find new patterns to identify potential crimes, but has a high bar for exposing AI-generated evidence to customers (13m57s).
• The company believes that having proprietary data, such as their blockchain mapping data, will give them a huge tailwind in the AI technology trend (14m30s).
• Chainalysis has been in operation since 2014, and their extensive data collection will be valuable in training AI models to serve their users (15m25s).

Chainalysis' Founding and Growth

• Chainalysis was founded in 2014 and went through TechStars in 2016, with the founding team being European but choosing to base their operations in the US, specifically New York, due to its deep talent market and proximity to government clients in DC (15m33s).
• The company has over 700 employees worldwide, with a big office in DC that serves federal government clients as a subsidiary of Chainalysis (16m34s).
• Chainalysis' goal in basing their operations in New York was to access a deep talent market on the tech side, while also being close to government clients in DC (16m21s).

Building Trust in Crypto and Future Predictions

• The company's founder advises that building trust in crypto requires explaining the business opportunity to traditional finance companies, rather than focusing on the technology itself, and highlights the success of ETF products, stable coins, and cross-border payments in traditional finance (17m6s).
• The founder predicts that stable coins will be used for more payments in the future, with big names and enterprises starting to move money internally and cross-border for operational purposes, and governments also using stable coins for payments and infrastructure deals (18m20s).

Predictions for Stablecoins and Machine-to-Machine Payments

• Another prediction is that AI agents will have native wallets, enabling machine-to-machine payments, such as a fridge paying for groceries, which was a concept discussed in the early days of crypto (19m3s).
• Machine-to-machine payments are expected to be a significant application of cryptocurrency, but the real potential lies in AI agents making payments to other agents to complete tasks, which is a new trend emerging in the industry (19m23s).
• This trend is expected to gain more traction in 2025 and 2026, with more native applications of the technology being developed (19m37s).

Podcast Credits

• The Equity podcast is produced by Teresa Lo, with editing by Kell Bryce, illustration by Durban, and management of TechCrunch audio products by Henry Pickert (19m53s).