A Practical Guide to Crypto Investigations

Bitcoin has become a recurring element in modern financial crime investigations. From investment scams to ransomware and street-level offenses, law enforcement officers increasingly encounter cryptocurrency in their casework.

This article is informed by a recent engagement with local law enforcement involving a complex Bitcoin-based investment scam. In that case, criminals promised high returns, collected Bitcoin from victims, and then disappeared. Investigators initially struggled to trace the funds, but through careful blockchain analysis and the use of investigative tools, transaction paths were uncovered and ultimately linked to real-world entities.

The goal of this guide is not to suggest a lack of capability within law enforcement. Many agencies are highly skilled investigators. Rather, this article is designed to provide foundational knowledge for officers who are new to cryptocurrency investigations and need a practical starting point.

As crypto continues to appear in everyday investigations, understanding how Bitcoin transactions work—and how virtual activity connects to real-world actors—will become an essential skill.

What This Guide Covers

This article provides:

• A clear explanation of how Bitcoin transactions work
• An overview of manual Bitcoin tracking techniques
• An introduction to blockchain analytics tools that simplify investigations
• Guidance on explaining crypto evidence clearly, including in court

By the end, investigators should be able to confidently explain how Bitcoin transactions are traced, rather than relying solely on software outputs. This understanding also helps investigators recognize and correct potential analytical errors, improving investigative accuracy.

Following the Money: From Blockchain to the Real World

In many cases, investigators must follow illicit funds from the blockchain into the traditional financial system. Banks and cryptocurrency exchanges act as the “on-ramps and off-ramps” between virtual assets and real-world money.

When investigators can trace funds on-chain and overcome jurisdictional challenges, subpoena powers may be used to identify suspects, seize assets, and freeze accounts held at exchanges or financial institutions. Understanding this connection between the virtual and physical worlds is critical for effective crypto investigations.

Bitcoin’s Role in Criminal Activity

Bitcoin’s public and transparent ledger makes it useful for both legitimate activity and crime. Crypto crime is not limited to nation-state actors or international money laundering networks. Local and regional investigations increasingly involve cryptocurrency.

Common cases include:

• Investment and “pig butchering” scams
• Business email compromise (BEC) schemes
• Blackmail and sextortion
• Ransomware attacks

Analysis of over 250,000 abuse reports shows ransomware, sextortion, and blackmail as the most frequently reported crypto-related crimes. Bitcoin is now used across a wide spectrum of criminal activity, from small drug transactions to multi-million-dollar fraud schemes.

Major Cases and Rapid Investigations

Bitcoin’s immutable ledger has enabled law enforcement to resolve complex cases more quickly than traditional financial crimes.

In one notable case, Michael Kane and Shane Hampton were convicted for manipulating cryptocurrency markets through spoofing and wash trading. By tracing blockchain transactions tied to their fraudulent token, investigators were able to connect the activity directly to the perpetrators.

In another case, Remy St. Felix led violent home-invasion robberies targeting cryptocurrency holders. Investigators combined blockchain analysis with traditional investigative techniques to dismantle the network and secure convictions.

These cases demonstrate how blockchain transparency, when paired with solid investigative work, can accelerate complex investigations.

AML Regulations and the Crypto Travel Rule

Governments worldwide have strengthened Anti-Money Laundering (AML) regulations to address cryptocurrency misuse. The Financial Action Task Force (FATF) provides the global framework for these efforts.

A key requirement is the Travel Rule, which mandates that crypto service providers collect and transmit identifying information about transaction originators and beneficiaries. In the European Union, enforcement begins on December 30, 2024, under the Markets in Crypto-Assets (MiCA) regulation.

The Travel Rule requires:

• Names of both sender and recipient
• Distributed ledger addresses
• Account numbers and identifying information

Because Bitcoin is pseudo-anonymous, enforcing these requirements presents challenges. As a result, international cooperation and advanced blockchain analytics tools are essential for effective AML enforcement.

Bitcoin Addresses Explained

Bitcoin addresses are strings of letters and numbers that function like account numbers, allowing users to send and receive Bitcoin on the blockchain. While often compared to email addresses, a Bitcoin address is not a wallet.

A wallet is software that manages multiple addresses and their associated keys.

Public and Private Keys

• Public Key: Used to receive Bitcoin, similar to a mailbox
• Private Key: Acts like a password and allows the Bitcoin to be spent

Anyone with access to a private key controls the Bitcoin at that address. This concept is fundamental to understanding ownership, theft, and seizure in crypto investigations.

Over time, several types of Bitcoin addresses have been developed, each with unique features that investigators should be aware of when analyzing transactions.

Conclusion

Bitcoin investigations no longer sit at the fringe of law enforcement work. They are now part of everyday financial crime enforcement. By understanding how Bitcoin transactions function, how to trace funds on the blockchain, and how virtual assets connect to real-world entities, investigators can build stronger cases, testify with confidence, and make better use of blockchain analytics tools.

Crypto crime may be digital—but accountability remains firmly rooted in the real world.