Managing Directors' Report (Half Year 2022)
“After last year’s record results, owing to the growth of digital asset value and portfolio performance, the first half of 2022 saw KR1’s portfolio heavily impacted by the wider macro correction of speculative asset prices, or more specifically crypto. By mid 2022, we had entered bear market territory and as such saw prices of all digital assets fall steeply. As in previous downturns, the Company remains steadily focused on its long-term investments in innovative decentralised technology. While we are increasingly attracted to the low risk profile and opportunities provided by staking and other opportunities to produce a yield on portfolio assets, which these half year results demonstrate strongly, we do not engage in complex trading strategies or utilise leverage.
As we entered the bear market, we continued to see and invest in the most disruptive projects with fair valuations. An overhang from a fading bull market meant that many valuations were still unsustainable, and this was reflected in the wider investment market downturn. The bear market has a number of distinct benefits, which include giving project teams more time to deliver on roadmaps without constant price pressure. These conditions allow teams to gain traction with their products and services. Ultimately this will set the stage for better times ahead and for the onboarding of the next tranche of users and investors into crypto.
The entire market witnessed the epic collapse of Terra Luna and the subsequent 3 Arrows Hedge Fund collapse, which were seismic shocks to the whole system. While private enterprises engaged with over-leverage and a lack of transparency, on-chain activity proved to be very robust and without any crisis. This demonstrates the benefits of blockchain versus more traditional trading structures. And, of course, the crypto bear market has been set against the backdrop of wider macroeconomic uncertainty and geopolitical tensions, from the invasion of Ukraine, to the inflationary environment and current cost of living crisis.
However, there remain many reasons to be optimistic as to the future of digital assets. We continued to see a constant stream of new institutions coming onboard to crypto, which included Blackrock, Brevan Howard and many other respected financial institutions. Regulation is also starting to be formulated and this will ultimately cement digital assets as a recognised asset class and increase the inbound activity of institutional and retail investors.
As of writing, Ethereum's 'Merge' (i.e. complete transition to a 'Proof-of-Stake' network) has finally happened. It’s been a long wait for this milestone to complete and it was very encouraging to see. This transition was necessary to become more efficient, both in terms of technology and energy efficiency as we increasingly witness the troubling impacts of climate change.
As an investment company, we keep ourselves more focussed on the disruptive potential of the technology. Prices may rise and fall but our thesis remains the same: we are in a unique, once-in-a-generation wealth creation phase. Our position as capital allocators in the space gives us a privileged overview into what is coming down the line. We expect to see innovation and disruption continuing at pace with projects like Celestia pushing the boundaries of blockchain design and data availability. By keeping to our thesis, investment principles and process, we remain extremely confident that KR1 will emerge from the bear market strongly and well-positioned for the cyclical upturn.”
Excerpt taken from the half year results of KR1 plc for the six months ended 30 June 2022, published on the Company’s website and available as an announcement here.
