Podcast: Why does Nansen’s Alex Svanevik think the crypto bear market is over?

Alex Svanevik, co-founder and CEO of the blockchain analytics platform Nansen, speaks to Opto Sessions to discuss the origins of the company, how it functions as a compass for investors exploring the world of digital assets, and why he believes that the crypto bear market is entering its closing stages.

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Alex Svanevik started out in artificial intelligence (AI) and machine learning, founding Codeus “a little ahead of the [AI] curve”. Realising he didn’t know enough about business at the time, he spent almost three years in management consulting to learn the fundamentals. He then returned to his “data roots”, working in senior data science roles for organisations including Schibsted Media Group [SCHA.OL] and CoinFi, before discovering Ethereum and catching the crypto bug in 2017. Ultimately, this led to him co-founding Nansen in 2019.

Nansen is named after the explorer, scientist, diplomat and humanitarian Fridtjof Nansen. “We view the folks who are pioneering the crypto industry —investors and builders — as somewhat analogous to explorers of new frontiers”, says Svanevik, adding that he conceptualises Nansen as the compass these explorers use to navigate the space.

A gap in the market

Svanevik and his two co-founders Lars Bakke Krogvig and Evgeny Medvedev saw a gap in the blockchain information market for on chain analytics for investors. Their aim was to help blockchain investors “make sense of what happens on-chain” and guide them in their discovery of tokens, as well as to understand the different digital assets they might want to invest in.

Additionally, the platform enables investors to defend their portfolios with alerts about major events within the space. “For example, if a large player is selling a bunch of tokens that you are interested in, or that you’re holding...

“The rationale was basically to let the [person] in the arena actually get really advanced analytics tools.”

Signals in noise

On top of this, Nansen has a unique technological advantage in attributing identities to entities on the blockchain, thanks in part to Svanevik’s background as a data scientist.

“When you see an address, for example 0X123, send $100m to 0XABC, that’s not really enough. You need to say, ‘Hey, this is Alameda depositing into FTX,’ or something like that. And to do that, you need to attribute entity information or behavioural information to the different addresses.”

Doing so not only helps Nansen’s “explorers” understand individual transactions, but it can also give insight into aggregate flows. The day before Opto and Svanevik met, “a lot of people were monitoring capital flows out of exchanges, specifically Binance and Coinbase [COIN], because of the recent Securities and Exchange Commission (SEC) news, and that’s just not possible if you don’t have the attribution of addresses to entities.

“If you’re trying to monitor either Binance or Coinbase, you’re looking at millions, or even tens of millions, of unique addresses.”

Now, according to Svanevik, Nansen has labelled over 250 million addresses using various technological methods, covering over 80% of the activity on the chains it supports. All of these labels originate automatically, via an algorithm or heuristic process, but for the most significant wallets Nansen also uses manual checking processes to ensure accuracy.

Smart money

The next logical step from Nansen’s labelling of wallets and tracing of flows was to identify the so-called ‘smart money’ entities within blockchain investing. Nansen’s website gives subscribers the ability to follow these players, “study their trades, mimic their movements, and become smart money yourself.”

There are two categories of smart money wallets that Nansen identifies, according to Svanevik. The first of these are the major institutional investors into digital assets. “This could be one of the leading funds in crypto, whether that’s DeFiance or a16z”, or another noteworthy fund.

“The other class is more behavioural and arguably more meritocratic. It doesn’t care about who you are, in terms of an identity, you’re only looking at your results in trading on-chain.” Svanevik gives the hypothetical example of a wallet that consistently beats the market, or that has a track record of minting or discovering NFTs early on and consistently flipping them for profit.

“Instead of having to sift through the activity patterns of hundreds of millions of addresses, you can zoom in on the hundreds or maybe thousands of addresses that are worth following.”

As with transactions across the chain, Nansen also allows subscribers to view smart money moves in aggregate, giving a sense of whether overall market flows are reflected in the activity of the space’s best-informed investors.

The final boss?

Svanevik likens the SEC’s action against Binance and Coinbase to “the final boss of the cycle”. There are multiple ways in which it could pan out. Svanevik hopes that the exchanges beat the SEC, which would “be a pretty clear sign of brighter times ahead”. Defeat, however, could see them and other crypto companies relocate their businesses outside of the US.

Nevertheless, given how “brutal” 2022 was for crypto, and continuing challenges such as the SEC case, Svanevik observes that crypto markets are displaying remarkable resilience.

“If you’re still sticking around, you’re probably a believer that will stick around no matter what, given all the negative events that happened last year… That’s a sign of strength, to be quite honest; we’ve managed to make it through a really, really difficult time for crypto.”

Drivers for an eventual upturn could be a positive outcome for the exchanges in the SEC case, or innovations within the space itself, such as “Web3 gaming projects that raised a lot of money two years ago that are finally going to ship games very soon”. He also acknowledges the scope for as-yet unrealised innovations, for example within NFTs or decentralised finance.

The current macro environment also presents possible tailwinds for the space. “Excessive money printing, central banks out of control, banks collapsing, bailouts” are all “super consistent with the narratives that crypto has always been talking about.”

When asked what he is most bullish about within the space, Svanevik cites the Ethereum ecosystem. “The Ethereum ecosystem has shown that it can develop and improve and fix issues. Every upgrade that people have doubted, the Ethereum ecosystem has just crushed it.”

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