Michael Gronager on why he’s building ‘picks and shovels’ for the crypto industry

Michael Gronager on why he’s building ‘picks and shovels’ for the crypto industry

The co-founder and CEO of Chainalysis, the blockchain data company, has secured large investments from private markets and is using them to sustain a rapid rate of growth.

For Michael Gronager, 2014 was a pivotal year. He had already become interested in the possibilities of crypto a few years previously and in 2011 had helped Jesse Powell set up Kraken, today one of the biggest digital-asset platforms globally. But the events of early 2014 set off a rapid chain reaction. Mt. Gox, a Tokyo-based Bitcoin exchange that back then was the world’s largest, filed for bankruptcy after claiming that hundreds of thou-sands of Bitcoins had been ‘lost’ in a security breach. Michael watched on in astonishment. ‘The sentiment among everyone,’ he says, ‘including law enforcement, was: “Well, it’s magic internet money. If it’s gone, it’s gone. We don’t know where it is.”’


This response struck him as ludicrous. ‘We were looking at the most transparent financial system we’ve ever had,’ he explains. ‘And yet we can’t figure out where the money went? That doesn’t add up.’ Having completed a PhD in Quantum Mechanics at the Technical University of Denmark and sat on the board of the National Supercomputer Centre at Sweden’s Linköping University, Michael well understood the capabilities of big data. He knew that if you were able to scan through billions of transactions, you would be able to identify patterns and from those patterns, see the flow of crypto funds between entities. ‘So instead of having a billion transactions, you have a million different users, some big services, some individual wallets, with a flow between them over time,’ he explains. ‘That changes the view, because suddenly you understand what is going on. Suddenly you get this map of crypto.’

That changes the view, because suddenly you understand what is going on. Suddenly you get this map of crypto.

This was the core idea at the heart of Chainalysis, the company Michael set up later that same year. Back then, the exchanges were all small start-ups with very few resources, so the company’s earliest clients were law-enforcement agencies, which generally understood that cryptocurrencies were being used for activities such as money laundering, for instance, but still often regarded it as incomprehensible ‘magic internet money’. They immediately leapt at his software, because it offered a way to accurately monitor activities and transactions on the blockchain.

Today, Chainalysis counts among its customers crypto exchanges, government agencies, financial institutions, and insurance and cybersecurity firms. And with more clients and an ever-increasing volume of data, the product has been improved. ‘It’s based on machine learning,’ says Michael. ‘So, by working with our customers over the years, we’ve refined this algorithm to be extremely precise today. That’s why we can map out the world so well.’

Essentially, Michael sees the company’s mission as building up confidence and trust in the cryptocurrency industry. He saw first-hand in the mid-2010s that financial institutions and governments alike are easily spooked by a system that seems liable to security breaches by apparently anonymous criminals. In fact, transparency had been built into the system from the beginning, but no one had truly utilised it before Chainalysis. Trust is vital in order for this new digital economy to thrive. As Michael puts it, ‘I’m always thinking, “How will this further the industry? How will it further adoption towards a world where everyone can transact with more freedom and less risk?”’ Chainalysis is currently growing at a rapid pace. The company is doubling its workforce every year; there are currently around 600 employees and the founder and CEO reckons 500 more will join them before the end of 2022. To fuel this growth, the company has secured a large amount of investment. Since November 2020, Chainalysis has announced three funding rounds, with each one bringing in USD100m. The most recent round, announced in June 2021, took the company’s valuation beyond USD4bn. Much of this extra cash is being put towards a global go-to-market strategy. ‘We’re a company with a lot of customers worldwide,’ Michael explains. ‘We need to be present in a lot of different locations. To be able to sell on that global scale requires a lot of investment on the go-to-market side.’

Despite the growth being seen by the company and the industry around it, Michael still believes that the wider public, and even many investors, are a long way from fully understanding the crypto sector. ‘This is a mega trend, but it’s a mega trend that isn’t necessarily recognised by everyone,’ he says. ‘You’ll find investors on the public side of the markets, who think crypto is just a fad, that it’s not going to happen, that it’s bad.’



Aside from the fact that getting set up for an IPO while growing at breakneck speed would present huge challenges, this lack of broad understanding is a central reason why Chainalysis has so far looked to private markets for investment. ‘Today, I actually have better access to people who understand the vision of the company, and can value that vision, on the private markets than I would on the public markets,’ Michael says. At some point, he’s confident that this will flip and that the public markets will show a greater understanding and therefore a greater appetite to invest, but for now, that level of discussion exists far more in the private markets.

This is a mega trend, but it’s a mega trend that isn’t necessarily recognised by everyone.

His confidence is built on an unshakable belief in the transformational power of blockchain technology. ‘It’s going to transform everything that is about value,’ he says, noting the way that NFTs have created scarcity and upended the concept of value in the realm of digital art. ‘This is a trend of the same size as what happened with the internet. You think you understand it, and then 10 years later, you figure out that it was actually about something else, because it keeps transforming and getting even bigger by an order of magnitude.’

If indeed that is the case, then Chainalysis is well placed to take advantage. Michael is aware that there will be other, more B2C-orientated companies in the crypto space that will pop up and grab the headlines for certain periods of time. That doesn’t bother him. ‘We’ll be working with all of them,’ he says. ‘Building picks and shovels for an industry is always good business, and we are basically building the infrastructure for an industry that is growing.’

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