Managing Directors' Statement 2020
“From KR1’s inception in 2016, the Company has continuously pioneered investing into digital assets as an emerging asset class with the mission to be Europe’s premium blue chip company for exposure to crypto in the public markets. Such a mission necessitates a long term view and requires building the Company in a sustainable way with a focus on making the most of the cyclical and volatile nature of the crypto markets to grow the quality of the Company’s underlying assets in the portfolio whatever the ‘weather’. The recent financial year was no exception to that with the Company achieving excellent returns on investments in several projects, growing the net assets on the balance sheet substantially to £37,866,475 at the year-end (2019: £7,473,823) and strengthening the Company’s staking revenue stream with multiple ‘Proof-of-Stake’ enabled assets, in particular Polkadot (“DOT”). The Company has come a long way since its first investments in 2016, has achieved many milestones, steadily grown the shareholder and assets base and also built an exceptional reputation in the crypto ecosystem.
The past year saw the Company invest in many world-class teams building exciting, innovative decentralised projects against a backdrop of extreme volatility events, both to the down- as well as up-side. Some of them have already come to market and seen incredible traction post-year-end, such as Swarm and Lido and projects such as Acala, Moonbeam, Plasm (recently rebranded to Astar) and HydraDX being highly regarded in the Polkadot and Kusama communities.
Digital asset markets moved in an encouraging way, picking up towards the end of 2020 after facing extreme turmoil in the early stages of the pandemic, which left the Company's operations and portfolio unaffected. Throughout the year, Bitcoin (“BTC”) moved from fluctuating around the US$10,000 mark to a year-end close just shy of US$30,000 whilst Ethereum (“ETH”) saw a strong and steady increase from just over US$130 at the beginning of the year towards around US$750 by year-end. One of the most influential drivers of the Company’s recent performance, Polkadot (“DOT”) had not yet started to gain full momentum by year-end and was trading in the range of US$5 to US$7 while similarly, Cosmos (“ATOM”) was trading fairly flat around US$6 at that time. Post year-end, there has been a staggering upsurge and even with the recent retracement, it is a testament to the disruptive potential this technology carries for the global economy as we know it and illustrates the resilience of decentralised protocols confronted by the market panic from the pandemic. With digital assets reinforcing their wider ‘macro’ appeal in light of virtually unlimited quantitative easing across continents, the once-fabled institutional money began to enter the space and has since been heavily allocating to, both, Bitcoin and Ethereum and, on occasions, ventured further out the risk curve. The recent pullbacks are, once again, prime examples that the crypto markets are not for the faint-hearted, with narratives around bans in China reappearing time and time again and Elon Musk's partial, albeit confusing, reversal on his Bitcoin advocacy in light of the well-known ‘Proof-of-Work’ energy consumption.
More in-depth metrics also provide a very positive backdrop to the current market. Stablecoin issuance exceeded US$100 billion and while for many market participants this space is still very much in its infancy, one can only wonder how a global-scale adoption of stablecoins or similar solutions could look in a few years’ time. Over the past year, Ethereum has seen incredible activity in on-chain transaction volume and transaction fees, which is a huge achievement for Ethereum and decentralised finance (“DeFi”) ecosystem. The utility and impact of many DeFi protocols are staggering, generating jaw-dropping fees with one such example Uniswap leading the charge, generating trade volume and fees that exceeded volumes on some of the most prominent centralised exchanges. In the Ethereum ecosystem, we backed MetaCartel Venture DAO, Lido and Swarm, which are all key projects supporting and benefiting from Ethereum’s growth over the past time period.
Focusing on other blockchains in the portfolio, it is our firm belief that, in time, further innovative decentralised networks such as Polkadot or Cosmos are going to become as important as Ethereum for the blockchain space and we have continued to support their respective ecosystems with several investments. Progress has been very strong in these projects with the teams hitting their milestones and deliverables on the roadmap. As a recent example, Acala has partnered with a FinTech company ‘Current’, integrating Acala’s DeFi services to more than 3 million users into their core banking product. We anticipate developments like these as the start of a growing ‘crypto crossover’ trend into mainstream financial services.
Polkadot’s sister chain Kusama has also recently hit a major milestone with the crowdloan and parachain systems kicking off as planned and allowing the application layer to form. With Polkadot soon to follow suit in the coming months, we expect to continue seeing an excellent pipeline of investment opportunities in this area and also great opportunities emerging from, both, Kusama’s and Polkadot’s parachain auctions.
Apart from the widely covered Coinbase direct listing, the ‘Netscape moment for crypto markets’, another recent impactful event in the Company’s portfolio was Dfinity’s (“ICP”) mainnet launching and a release of its tokens on the market, followed by some controversies around its market dynamics, which for the time being might overshadow the potential of the technology.
We believe the emerging digital asset ecosystem remains an investment opportunity without parallel, a revolution in two parts: Firstly, a new financial system being built out and secondly, decentralised technologies forming the base layer for a new and better internet. Much of the innovation inherent in the breakthrough that is the invention of digital scarcity is still to be uncovered. When Ethereum found its first few blocks in 2015 only few could possibly imagine how impactful composable decentralised finance services would get, which now are a core feature of the space.
As proven by our long-standing successful track record, we have navigated the cyclical crypto markets, continuously invested and actively managed a growing portfolio of assets. We have also built a sustainable revenue stream, alleviating the pressure to sell core investment assets for operations. All of this gives us the resilience we need for generating long term shareholder value and success into the future and enables us to be the premium choice in digital assets for public markets investors.”
Excerpt taken from the Audited Final Results of KR1 plc for the twelve months ended 31 December 2020, published on the Company’s website and available as an announcement here.