Managing Directors' Report (Half Year 2023)
“The start of 2023 saw a resurgence in interest in digital assets after the previous period of chaos and destruction precipitated by the aftermaths of the collapses of various entities in the industry. Looking forward, we note that the Bitcoin halving narrative has started forming, with the upcoming halving expected to occur in the second quarter of next year. Further, Bitcoin Exchange Traded Funds (“ETFs”) have come back to the fore with applications from Blackrock, Fidelity and other Wall Street heavyweights making headlines. While the US regulatory stance remains uncertain with more and more eyes on the US SEC Bitcoin ETF approval (or denial) processes, the recent judicial landscape seems to be clearing up with the ongoing Ripple and Coinbase court proceedings.
As per the interim results, the net asset value of the Company at 30 June 2023 was £90.7 million, as compared with £70.0 million as at 31 December 2022, which resulted in a net asset value per share of 51.12 pence as of 30 June 2023, compared with 39.47 pence per share as at 31 December 2022.
Throughout 2023 our investment pipeline and access to projects remained strong and the Company continued to invest in new exciting projects including Anoma, Hydra Ventures, Code & State, Side Protocol and, most recently, Interop Ventures, all of which were largely funded through partial disposals of extremely successful investments from the existing portfolio, such as Lido and Rocket Pool (while still retaining these as major position of the Company as per the unaudited monthly NAV updates).
As mentioned previously in our full-year results report, a major upcoming event for the Company is going to be the mainnet launch of Celestia (formerly LazyLedger), a project that received investment from KR1 during its initial seed funding round a few years ago. With the digital asset landscape becoming more complex, fragmented and diverse, Celestia is leading a ‘new generation’ of emerging modular blockchain architectures, and we are excited to witness the growth of an ecosystem around that.
Further major developments of existing portfolio projects are the unveiling of Polkadot’s roadmap towards a future Polkadot 2.0, which will be more flexible and accelerate the adoption of Polkadot’s technology to many more developers. Similarly, the Cosmos ecosystem continues iterating with its release of ‘Mesh Security’, which provides projects with higher economic security while allowing them to retain complete sovereignty. Another project previously mentioned in our full-year results report, Vega Protocol, successfully launched its mainnet and has been going from strength to strength with continuously increasing trade volume being executed through the platform, which is a healthy sign for Vega to capture further market share in 2024 and beyond.
While still a great benefit to the Company, income from digital assets in the six months up until 30 June 2023 was £3.9 million, being down considerably from the full-year results as, firstly, it relates to an interim period of only six months but further as the ‘tail-end’ of rewards still being distributed from parachains in the Polkadot ecosystem has generally been lower compared to initial rewards. Other contributing factors were fairly stagnant prices across the entire crypto ecosystem, affecting the GBP equivalent for income from digital assets over the period as well as no additional rewards from ‘special situations’ such as from ‘lockdrops’ which materially added to the Company’s previous full-year results.
The underlying staking activities remain strong, even throughout a challenging market environment, with the Company recently adding Ethereum (“ETH”) through Lido’s Staked ETH (“stETH”) to the Company’s staked operations. This adds another staked asset to the Company’s existing staking activities, which already feature assets such as Cosmos (“ATOM”), Moonbeam (“GLMR”), Kusama (“KSM”) and Moonriver (“MOVR”), where almost the entire amounts of all positions held by the Company are staked. Polkadot (“DOT”) is another major asset, which contributes to KR1’s income from digital assets through staking activities. The Company expects to unlock all DOT that were contributed to parachain auctions in two tranches: the first in October 2023 (1.05 million DOT) and the second in January 2024 (0.6 million DOT). While on the one hand, this results in a phasing out of parachain rewards to the Company from the supported parachains (such as Acala, Astar and Moonbeam), on the other hand, the unlocked DOT can be added to the Company’s Polkadot staking activities again which, in turn, shall increase rewards on the staking side for the asset.
As we move through 2023 into 2024, we will keep building out the Company’s high-quality ‘long-only’ portfolio of innovative digital assets and as previously, KR1 plc remains at the very heart of the crypto ecosystem, fully focused and taking advantage of the disruption that this exciting technology will bring to society.”
Excerpt taken from the half year results of KR1 plc for the six months ended 30 June 2023, published on the Company’s website and available as an announcement here.
