Extreme Volatility in Bitcoin and Digital Asset Markets

Yesterday, Bitcoin and other cryptocurrencies saw extremely volatile markets, with Bitcoin seeing its second-worst day of returns in Bitcoin’s entire trading history, with a percentage daily drop that has not been seen since 2013.

While previous extreme volatility events featured a fairly strong fundamental basis of reasoning around the price discovery on those respective days, i.e. the MtGox Exchange hack and Bitcoin theft in 2013 or the rejection of the first major Bitcoin ETF proposal by the SEC in early 2017, yesterday’s market volatility does not suggest any strong fundamental reason around the extreme move but points towards nothing but market mechanisms. A sell-off triggered an avalanche of liquidations on exchanges like BitMEX, Bitfinex and Deribit, which allow for leveraged trading and complex derivatives around the Bitcoin price and other cryptocurrencies. This led to a recursive breaking down of liquidity on other prominent exchanges in the cryptocurrency ecosystem that was amplified by transaction congestion on a number of blockchains, due to the limited scaling capacities, meaning market participants were not able to deposit reserve funds in time.

KR1’s long-term investment approach remains unchanged and we are seeing many truly disruptive and innovative projects in the Ethereum, Cosmos and Polkadot ecosystems with funding rounds finalizing soon.

KR1 has been monitoring the situation closely since yesterday morning, and the Company wants to assure shareholders that none of KR1’s assets were liquidated or threatened by the extreme volatility. However, as expected, the portfolio experienced a price shock of the underlying assets throughout the night that slightly recovered by this morning.

KR1 is also pleased that the Companies’ staking strategy has been performing very well and most staking proceeds were realized in recent weeks, before the price drop. KR1 will update on the Company’s staking activities shortly, after the first full-year from launch of the Cosmos Network, detailing 12 full months of staking activity.

George McDonaugh, Managing Director & Co-Founder of KR1 commented: “Bitcoin saw an extreme roller-coaster ride yesterday, starting around $7,800 USD down to just under $4,000 USD in a very short space of time. With a rebound of sorts back to $5,600 USD overnight, repercussions of this move could mean further volatility in the short term. Fundamentally, however, our long-term outlook remains strong, and when confidence eventually returns after this Black Swan event has stabilised, we expect crypto markets to maintain their overall upwards trajectory as demonstrated over the last few years. A fascinating result of yesterday’s volatility can be observed in Ethereum’s Decentralised Finance (DeFi) ecosystem, which has just gone through its strongest stress test to date and generally performed as intended. While I expect there to be a range of post-mortem analyses, the experimental world of DeFi will continue to thrive.”

We just released this public announcement via our exchange as we were facing questions from shareholders about the events in the crypto markets over the last 24 hours, you can find it here on the NEX Exchange or read above.

KR1 plc is Europe's leading publicly listed investment company focused on blockchain and decentralised technologies (KR1:AQSE). KR1 was founded in March 2016.

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