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Chainalysis CEO Nansen on Finding and Tracking “Smart Money” in Cryptocurrency

“Smart money” refers to investments made by professionals and institutions, which are known to have a better understanding of the financial markets than the average retail investor.

In the crypto space, users can see every transaction made on the blockchain. There is a lot of data to sift through, but theoretically it is possible to identify trades made by professional investors.

Crypto analysis companies such as Nansen, Chainalysis and CryptoQuant are designed to track on-chain data and identify investment opportunities.

“We analyze almost a petabyte of data every day,” says Alex Svanevik, CEO of Nansen. In the early days of crypto, data tracking was limited to chains such as Bitcoin and Ethereum.

However, as the space has expanded, it has become necessary to broaden the horizons in search of smart money. “If you only follow one ecosystem, you might miss a lot of activity in the others. You can’t limit yourself to just one ecosystem.

Chainalysis CEO Michael Gronager offers a similar view saying, “The number of transactions has increased and will continue to do so. For Chainalysis, we need to follow each blockchain because it could be important for our client.

The search for smart money

Identifying trading opportunities requires following the correct portfolio addresses. This can be a challenge given that there are nearly 70 million active wallets today, according to research from

“There is a lot of noise on the blockchain,” says Svanevik. “With Nansen, we wanted to find a way to get the signal back up.”

The company strives to maintain a set of addresses worth following when it comes to investing and trading. These are usually portfolios that have a proven track record of making profitable investments.

Alex Svanevik is the CEO and Founder of Nansen / Image Credit: Screenshot from TIA 2022 conference

“There are two ways to think about smart money,” says Svanevik.

First, there are large funds and institutions that are known to spend a lot of time and money on investing. Then there are the individual traders – the NFT flippers, the yield producers – who have proven themselves with their own strategies.

Nansen identifies and labels different wallet addresses using a combination of algorithms and manual analysis.

There is no miracle solution. You need to have research analysts watching what’s going on, and in some cases that means reading fundraising news and mapping token distribution to top investors. It is a combination of man and machine.

– Alex Svanevik, CEO and Founder of Nansen

By doing so, the company is able to provide trading signals, which can help investors navigate the crypto market.

How the blockchain business has evolved over the years

In previous bear markets, like that of 2018, falling crypto prices have coincided with a drop in user activity. This crypto winter turned out to be different.

“The trading volume hasn’t decreased much,” says Gronager. “The value of transactions, yes, but the number of transactions [hasn’t gone down].”

Michael Gronager is the CEO and co-founder of Chainalysis / Image credits: William Mebane for Bloomberg Businessweek

This is courtesy of the actual use cases that have emerged in the crypto space. Beyond speculative investments, users can now use crypto assets – such as NFTs and tokens – for games or to access online communities.

“I don’t really see a bear market,” Gronager says, on the basis that interest in the space hasn’t died down despite what crypto prices might suggest.

“Transaction activity for NFTs is very high,” adds Svanevik. “But it’s spread across more markets and channels than a year ago.”

Apart from the volume of transactions, Svanevik believes that the emergence of stablecoins has been another major change. “We now have over US$100 billion worth of stablecoins; only the injection of US dollars into the crypto-economy is very important.

This changed the way funds are collected on the blockchain. In 2017, projects were raising capital in Ethereum, which they had to sell following the stock market crash. Today, stablecoins allow projects to raise and hold their funds on-chain, sheltered from market volatility.

The growing use of crypto-analysis

Beyond smart money tracking, crypto analytics can also be used to track and recover stolen crypto through hacks and scams.

The largest blockchain hack to date – targeting Axie Infinity’s Ronin blockchain – resulted in the theft of over US$600 million. Since then, 10% of funds have been recovered through collaboration between law enforcement and industry players, including Chainalysis.

ronin axie infinity hack
Axie Infinity’s Ronin blockchain was hacked in March 2022 / Image credits: Ronin

Chainalysis trains algorithms to find patterns and identify wallets involved in illicit activity.

“We have a team of about 50 people who transact with the darknet, terrorist cells and [other such actors].” By creating this dataset, the company is able to work with law enforcement and help solve crypto-based financial crimes.

Gronager believes this is a more realistic way to combat these crimes than banning the protocols and apps used by bad actors.

It refers to Tornado Cash, which was recently sanctioned by the US Treasury. The Treasury claimed that the protocol was used by hackers to launder over US$7 million in crypto.

Gronager comments on the aftermath saying, “There are almost no funds flowing through Tornado Cash, but now there are copies. You cut off a dragon’s head, and it sprouts three new ones. Was that really what you wanted to accomplish?

He adds that the tools to identify and track these money laundering methods are becoming increasingly sophisticated.

Had Tornado Cash been allowed to continue operating, crypto analysis firms would have been able to better understand money laundering patterns. “[By not sanctioning Tornado Cash]he would probably have [enabled] more funds to grab.

Featured Image Credit: Token2049

Read also : Nansen, Binance, and Solana lead the creation of crypto businesses that can survive bear and bull markets

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