KR1 plc, a European digital asset investment company, has presented its interim report for the half-year ended 30 June 2020. The group reports net assets of £8.1 Million and profit of £609,000 amid coronavirus pandemic. Here is the Managing Director’s Report.
The first half of 2020 was a remarkable period in recent human history. To call these times unprecedented feels like an understatement. Across the world, Covid19 continues to spread unabated, leaving huge question marks on how and when the world’s major economies will begin to recover. Such an unparalleled shock to the system undoubtedly creates ripple effects for all markets, especially financial. The reaction to this crisis set in motion major stimulus packages from the central banks of leading global economies, adding pressure to already fraught global banking infrastructure. The result was a subsequent cascade of financial volatility as money sought new, safer asset classes to sit out a now seemingly inevitable financial winter. This is the backdrop that the life raft of digital assets finds itself afloat on. The digital asset investment sector KR1 operates in has, on the whole continued to function normally despite the ravages of this pandemic. This crisis is the ultimate stress test for this new nascent asset class, and what we believe will be the making of it.
Throughout the period we continued to invest in high quality projects focused on disruption and innovation. Looking back at this difficult period it’s clear, investing through these bleakest of times can produce some of the best investment opportunities and returns, witnessed by new funding rounds and the solid progress these projects are making. Only the teams with the highest conviction and tenacity are able to innovate during these times. Valuations are often fairer, rather than the frothy raises seen in bull markets, as projects vie for funds from tighter venture capital purses.
Decentralised Finance (“DeFi”) took the crypto world by storm, starting earlier this year through new innovative yield generation projects, large amounts of Bitcoin moving over to Ethereum to be usable at last, and huge trading volumes on smart-contract-based decentralised exchanges. This trifecta created a strong DeFi-flavoured tailwind returning impetus to a sluggish crypto market, with both Bitcoin and Ethereum smashing through two-year highs. Following closely behind with huge surges of interest were many of our excellent portfolio projects, highlights over this period being Nexus Mutual, Melon Protocol, Rocket Pool and anything Polkadot related.
The force with which Polkadot broke into the top five list of crypto assets, meant that investors’ money took aim at this new protocol. Many Polkadot ecosystem projects are now gaining huge attention and enjoying oversubscribed funding rounds and fervent public token distribution events. KR1 saw the potential of Polkadot early and has been backing projects building on Polkadot from day one, long before Polkadot’s DOT token came to market. Subsequently, we have managed to secure a ‘seat at the table’ on many of the best Polkadot investment opportunities. For KR1, this means that the Company has a world class pipeline of investment projects, a solid reputation as one of the premier Polkadot ecosystem venture firms, and a very healthy core position in Polkadot’s DOT, a network we see as one of the few real challengers to Ethereum.
The Company’s net assets of £8,082,646 at the end of June 2020 reflected a window into the slightly depressed crypto markets following the heavy Covid19 related sell-off in March 2020. Subsequently, in the summer months, the Polkadot DOT token coming to market was transformational for KR1, not only in terms of return and increased assets on the balance sheet, but also for the future staking revenue that we expect to generate going forward.
Alongside this watershed moment for KR1, we have continued to generate steady income from our position in the Cosmos network. The native ATOM staking yields in this H1 period to 30 June 2020 accrued to a lower GBP equivalent revenue figure than previous periods due to depressed market conditions in the earlier half of the year. However, with the markets improving over the summer months our strategy to realise staking yields at the best possible prices proved successful once again, resulting in higher realised prices than the daily prices of when staking rewards were generated.
Our reputation and brand within the digital asset ecosystem strengthen daily as we fund evermore important and respected projects. With so many of our investments from previous years now tradable and considerably more valuable, not only has our balance sheet grown, but it has also become far more liquid. This means that portfolio management becomes an ever more important aspect for KR1 as some positions become very valuable. Maximising returns, whether through staking yield bearing assets, realizing profits through sales, or by utilizing these assets as security collateral for new crypto networks in terms of ‘Lockdrops’ or ‘Stakedrops’, has become a new priority in our portfolio management.
KR1 is a public stock on London’s AQSE Growth Market (KR1: AQSE), which was previously the NEX Exchange. Aquis Exchange plc recently acquired NEX Exchange with the intention of making improvements to the exchange infrastructure in regards to electronic trading, higher volumes, deeper liquidity and allowing for a more global investor base. We are looking forward to seeing how the new Aquis Exchange team implements their plans for improving the legacy NEX Exchange over the months to come.
On a wider level we are currently seeing some correlation between Bitcoin, other digital assets and movements in the equity and gold markets. The macro outlook long term, with central bank balance sheets overflowing, places Bitcoin, Ethereum and other key digital assets firmly as an essential asset to add to company treasuries or investor portfolios. This is best shown by the recent and very significant purchase of $425 million of Bitcoin that US company MicroStrategy made as a hedge against possible rampant inflation. As mentioned in our full year report, well renowned fund manager Paul Tudor Jones also started to purchase Bitcoin to include in his investment portfolio. We expect the trend of strengthening balance sheets and diversification into Bitcoin to continue as the world’s monetary policies shift evermore towards unbridled money printing and higher inflation. The digital asset world will continue to disrupt and innovate in all directions, and although the disruption will be most keenly felt in finance first through DeFi, we will see this impact every industry over time.
At KR1 we will continue to back amazing teams innovating in DeFi, the Polkadot and Cosmos ecosystems and other key crypto areas. Exciting times are ahead for KR1 shareholders as we are in a very strong position for the digital asset markets entering a new bull cycle. We are witnessing this with increased assets on the balance sheet, successful partial investment exits at many multiples and newer, stronger cash flows from more and more staking activities being switched on.