Crypto Asset Recovery: Tracing Wealth and Blockchain Analytics

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Podcast Transcript

Oliver Radway (OR) - We're glad to have you join us today. This is our second episode of the Enforcement and Asset Recovery podcast at Deminor. We’re delighted to welcome Henry Burrows from Hoptrail. Henry, it would be great to hear more about your firm. Could you introduce yourself and give us some initial insights?

HB - Thanks very much, Ollie. It’s great to be on your podcast. I’m the CEO and founder of Hoptrail. We’re a UK-based blockchain analytics company, and we started the business three years ago. Our main focus is on source of funds and source of wealth analytics. Essentially, we use blockchain data to help clients understand where money originates on the blockchain, the associated risks, and who the counterparties are. We piece together that puzzle within the ecosystem for them.

Because of that, we work mainly with traditional, regulated services—banks, law firms, trusts, and professional services firms. But due to the business we’ve built and the products we offer, we also find ourselves involved in asset tracing, investigations, and crypto-related dispute work. Here, we use our tools and techniques to help clients navigate complex issues or get to the bottom of complicated litigation. Hopefully, that gives you a brief but clear sense of what we do.

OR - Thanks, Henry. That’s super interesting. You mentioned setting up the firm a few years ago, and it sounds like it’s been a busy year for you, which isn’t surprising. Where have you seen most of your work coming from? Is it primarily crypto-related litigation or arbitration? Have you noticed a rise in arbitration, and has that impacted you?

HB - Yes, for us, the core service has always been source of wealth work—understanding where the money comes from. Our main clients are banks, and we have a product we call on-chain onboarding. This helps banks onboard customers by assessing the legitimacy and provenance of crypto assets. That’s always been our focus.

When we started, a personal experience inspired me. I had trouble explaining my crypto proceeds to a solicitor when I was trying to buy a house in 2019. She asked where the money came from, I said “crypto,” and she practically had a heart attack! I realised it was a problem not only for me but for many others, too. So, we developed products to address that gap. We’ve been running with this concept for a few years, and now we’re gaining interest in the UK, Europe, and beyond—especially among banks. Banks are beginning to see blockchain as an amazing compliance tool that can simplify their due diligence challenges if they know how to interpret the data.

This year, though, we’ve seen a massive increase in investigations. I’m not sure what to attribute this to entirely. Part of it may be that more people are hearing about Hoptrail. Often, they come to us in an emergency and need a quick solution, and we offer flexibility and rapid response. Another factor is simply the growth of the crypto ecosystem. Over half a billion people now hold crypto, and most of them are in their 20s and 30s, with many making substantial amounts of money. So, when things go wrong or money goes missing, it’s logical they would reach out to firms like ours to recover it.

In the past, if you lost £200 or £300 in Bitcoin, you might have thought, “Oh well, that was interesting.” But now, thefts often involve millions, which makes these cases tough to solve, and people are desperate to recover their funds.  I think it’s a mix of factors driving this shift. The reality is there aren’t many firms that can do what we do. Only a handful, maybe two or three, focus primarily on law enforcement, while others, like us, concentrate on the private sector.

OR - Brilliant. Stepping back a bit, at Deminor’s Enforcement and Asset Recovery team, we’re seeing more cases involving unconventional assets. Traditional assets like real estate or corporate interests aren’t always available, but we might discover some information in the public domain, or the client may hint that the defendant has wealth tied up in crypto. It still feels relatively unregulated, to the point where I’ve spoken with a digital asset recovery specialist who has connections in the field. This person can sometimes directly contact an exchange operator to identify and, if possible, freeze assets, all within legal boundaries. That’s a game-changer for people who fear there’s no chance of recovering lost crypto.

HB - Oh, yeah, there’s a lot to unpack here because it’s such a fast-moving space with so many possibilities. I believe it’s actually easier to trace assets in the crypto world than in the real world. Tracking down property or other high-value assets around the globe is time-consuming, costly, and not always successful. You may end up spending a lot without much progress. In crypto, it’s a different story because every transaction—let’s take Bitcoin as an example—is recorded on a public ledger for everyone to see. Every single transaction, including all past thefts, scams, and hacks, is out there for analysis. It’s just a matter of obtaining the data and knowing how to analyse it to trace stolen assets. So, thanks to this transparency, it’s relatively easy to locate stolen assets on the blockchain.

Recovery, as you mentioned, is the much harder part. I don’t have specific numbers, but I think the percentage of recovered assets in the real world is low. In crypto, it’s gradually improving since we can identify where the assets are more quickly. Then it becomes a question of, “Right, how do we recover these funds?” This is almost like a separate phase because the first step is gathering enough intelligence to trace the assets or identify which wallets are controlled by specific individuals or entities. In our field, that means using a platform with algorithms, heuristics, wallet tagging, and tracing capabilities.

Once you locate the asset, the next step is recovery. Recovery, both for you and for us, is a particularly interesting and rapidly evolving part of the industry. We’re seeing it become a more formalised process. I’ve heard stories like yours where someone simply reaches out to an exchange operator, and they’re able to assist. I think that’s becoming less common now, though, as exchanges have specific units that handle law enforcement requests, with increasingly strict requirements for compliance. It’s definitely evolving.

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‍OR - On a related note, when clients are in the process of litigating against individuals or companies to recover assets, part of the process often involves preparing evidence for freezing orders and injunctions. Without going into specifics, could you walk us through how that process works and what you do to prepare for it?

HB - For a relatively straightforward case, like the theft of Bitcoin or Ethereum, the first step is to compile an evidence pack. This provides a flow of funds from the victim’s wallet to wherever those assets are now located on the blockchain. We pull all the data together to show how the funds moved through the ecosystem and where they currently reside in specific wallets. That’s the first step—building the case with this data.

At the same time, we layer in any attribution we can. At Hoptrail, we have 350 to 400 million tagged wallets, so at some point in the chain, we’re looking to see if the assets have reached a centralised exchange or a known virtual asset service provider, like Coinbase, Binance, Kraken, or Bitstamp. If they have, we can approach them and request that they freeze the funds.

In the UK, generally speaking, if you’re the victim, you would start by filing a police report and getting a case number. Exchanges often require this as part of the process. Then, with the evidence pack of on-chain tracing data, you can demonstrate the flow of funds from the source to the current wallets. At this point, you have two options. You can approach the exchange directly and say, “We know these stolen funds are in an address at your exchange.” In the past, exchanges might have cooperated based on a police report and evidence, but now they typically require a formal request from a lawyer or law enforcement agency.

More often, they’ll also ask if you have a court order to freeze the funds. We recently encountered this with a large exchange. They acknowledged the funds were present, but requested a court order to freeze them. Obtaining a court order can take weeks, is costly, and involves explaining all the evidence to a barrister, providing witness statements, and appearing in court to secure the freezing order. Then you can return to the exchange and, hopefully, they will comply once you meet all requirements.

Sometimes, exchanges can be challenging. It also depends on how complex the tracing has been. If funds have passed through multiple wallets, an exchange might argue that the assets moved to another service before reaching them, so they’re not responsible. We’ve encountered this before. Overall, there are numerous complications. The legal system in the UK, while very effective, is slow and costly. By the time you have the freezing order, the funds may have already moved from that account. This time lag between crypto transactions and the legal process is one of the main reasons asset recovery is so challenging.

If the assets have been moved offshore, that adds even more complexity, as you then have to navigate other jurisdictions. All of these factors make the process of recovering funds quite difficult.

OR - What I’m hearing is that it can be a very complex process, often fraught with risks. Full recovery isn’t always guaranteed, and sometimes even partial recovery isn’t possible. Still, it seems somewhat reassuring that we are catching up with fraudsters. There are increasing mechanisms that we, as investigators, law firms, and clients, can leverage in the hope of recovering some assets.

HB - Yes, to some extent. Although I would say that fraudsters are often a step ahead. They tend to execute complex transactions, particularly with Ethereum. They won’t simply take stolen assets and deposit them straight into an exchange—unless they’re really careless—because that would make tracing too easy. Instead, they’ll carry out numerous complex transactions. They might swap into other assets through decentralised exchanges or transfer to other blockchains via bridging. It’s a challenging game of cat and mouse. Even with the ability to trace, clients often lose all their funds, so they don’t have much to pursue these bad actors with or cover the resources needed to see it through to the end. That’s one of the biggest issues.  

I think we’ll touch later on some emerging solutions in the market, but there are definitely hurdles. We’re getting better, though. There are barristers and judges out there who understand crypto and support what we’re trying to achieve through the courts, but it remains a slow process.

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OR - That’s a good segue into one potential solution: third-party funding. We’re seeing a growing number of clients interested in recovering their crypto assets or, more broadly, in enforcement efforts where they have awards or judgments to enforce. One method we consider is checking if the debtor holds any crypto assets. This area is still in its infancy, as is much of the crypto space, but it’s growing steadily. In the U.S., we’re starting to see initial litigation offerings and litigation finance firms specialising in crypto cases. Have you come across these or had direct experience working with third-party funders? If so, how has that experience been?

HB - We’ve done a lot of work with law firms, though we haven’t directly worked with third-party funders yet. I do hear a lot about that world, and I think it’s an area that will develop significantly over the next few years. There’s a lot of interesting tech being developed to speed up or enhance processes for identifying stolen assets, especially in cases where class actions are involved. Typically, we get involved when individuals have lost assets and reach out to us directly, or when a law firm representing them approaches us. We don’t usually work with third-party funders, though we were recently approached by an organisation that’s similar to a third-party funder—they provide after-the-event insurance for individuals who have lost all their assets. This helps them secure the funding to carry out on-chain analytics and pursue recovery. It’s a niche area within your field, I suppose. I’m beginning to hear more about these kinds of solutions, which is really interesting, but I haven’t yet encountered it extensively.

OR - Lastly, Henry, where do you see the future of crypto, crypto analytics, and investigations? I’ve seen discussions recently about Michael Saylor, founder of MicroStrategy, potentially transforming his company into a Bitcoin bank. That would presumably mean a lot more work for firms like yours in areas like onboarding and source-of-wealth analysis. What’s your view on where we’re heading?

HB - On the Saylor issue, I think it’s because his business balance sheet is now almost entirely Bitcoin. He’s still selling some software, but at this stage, he might as well turn it into a Bitcoin-only company. It makes sense, especially if you view crypto as a new financial system, as many in our field do. It’s a way to transact and engage with financial tools without needing a third-party intermediary like a bank. You can lend, earn, and borrow on-chain without involving banks like Barclays or HSBC.

A lot of our tracing work arises because this rapidly growing world of decentralised finance is complex. It creates opportunities for both banks and bad actors, who exploit the system to steal funds. In this ecosystem, you and I effectively are the bank. Once funds are stolen, there’s no one to call up and reverse the transaction—you can’t exactly call Bitcoin! The challenge is that, while people can control their own money, there’s no recourse, and so many sophisticated tools are available that those with more knowledge can take advantage of others.

This complexity is where we see a lot of the stolen funds, hacks, and exploits. Regarding the future of crypto, I’d say this: There are now about half a billion people globally holding crypto, and that number has grown quickly over the last two years. Around 30-40% of that group are in their 20s and 30s. Over time, more people holding digital assets will age, and this half-billion figure is likely to grow to a billion or more, especially in regions like South America, Africa, and the Middle East. In some areas, not only are people using crypto, but many are making substantial amounts of money from it. During the 2021 bull run, I heard anecdotally that 1,000 to 2,000 new millionaires were created daily. And in the recent bull run of late ’23 to early ’24, the figure was about a thousand a day.

So we’re seeing a generational wealth shift. In the past, people built wealth through stocks, shares, or property. Now it’s through digital assets. The issue is that when these individuals interact with traditional, regulated services, they often encounter resistance. A solicitor or banker might hear someone explain, “I was staking Akita tokens on PancakeSwap,” and have no idea what that means. The need for our business is driven by this gap between digital assets and traditional financial services.

The same applies to tracing and investigations. Because it’s tech-heavy, we have to collaborate with those who understand the field and have the platforms to scale, automate, and speed up the process—it’s a race against time. When assets are stolen, the bad actors know they need to be faster than anyone tracing them. For example, when an exchange is hacked, they’ll usually announce it on Twitter and share the address where the stolen assets were sent. Everyone is watching the blockchain, but if the thieves are quick, they can cash out before anyone catches on.

The demand for our services and tools is increasing as the industry grows, and more people encounter challenges like losing funds, compliance issues, and onboarding headaches. It’s interesting how, just a few years ago, I was trying to solve my own problem to buy a house. Now, I’m helping others bridge the gap between digital wealth and traditional financial services. It’s rewarding, especially when you have cases like an 18-year-old with millions in Shiba Inu tokens in their wallet who wants to get on the property ladder. We can help demonstrate that their funds are legitimate, and that’s satisfying.

OR - I hadn’t thought of that perspective at all. You’re absolutely right—the system is still rigid, so people can only borrow under certain conditions. Yet, as you said, 18-year-olds can become millionaires overnight and want to buy property in London. How do they do that? Fascinating. Henry, thank you so much for joining us today. It’s been great to catch up and hear more about Hoptrail and the work you’re doing. I hope we can catch up again soon.

HB - Thanks a lot, Ollie. Great to be here.

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To see the post on Deminor's website, please visit: https://www.deminor.com/en/news-insights/crypto-asset-recovery-tracing-wealth-and-blockchain-analytics/

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