We recently published our 31 December 2018 final year results, please find them here via the exchange or the full report on our website. As many of you expected, given the long ‘crypto winter’, the results published were not as stellar as our results the year before, which was definitely reflected in the share price in December 2018.
As of this moment, we’re in a totally different world, read more about what we’ve been seeing in the last year and as of recently in George’s commentary below.
“Technology adoption cycles are often volatile and full of uncertainty. The highs and lows are driven by the market trying to judge the impact new technology will have on society and we lurch between hope and fear as the size and scale of the disruption begins to take shape. It is a testament to how powerful Satoshi’s invention has become, that the dials of hope and fear in the blockchain ecosystem are constantly turned up to eleven and over the last year we have seen once again what crypto means by a ‘correction’. Bitcoin entered a deep and unforgiving 54-week bear market and hit a low of around $3,100, an 84% correction from the highs of 2017.
In line with this, the last year has presented a new set of challenges for KR1 as a company and although we sold positions at the heights of 2017, placing us in a very strong position for the long-term future, we still had to navigate falling prices across the board, a lack of liquidity, and a temporary shift away from or slowdown of initial token offerings (ICOs). What remains is an array of new approaches from regular equity raises and ‘SAFT’ agreements (Simple Agreement for Future Tokens) to security token offerings and initial exchange offerings (IEOs). Holding and managing positions in digital assets allows KR1 to function at full capacity as a capital allocator in a space that moves as fast as the crypto economy. We cannot yet fully grasp the true extent of how this foundational technology can be applied to society, and hence, as we explore the possibilities, there are fascinating opportunities at every turn.
As the market began to correct, we knew the rate of innovation within the development community would not slow down. It, therefore, became our core focus to continue finding and investing in great projects, especially as valuations began to come down to more reasonable levels. In the depths of the bear market, great opportunities were becoming unmissable opportunities and so to take full advantage, we decided to raise new capital to bolster our investment capabilities and we successfully raised £785,000 at a price of 5p per share in December 2018. Given the crypto market conditions at the time, this sum was above expectations and shows that we have garnered great support from our early investors as well as articulated our vision successfully to new supporters.
Since we first launched KR1 in early 2016 to take advantage of the emerging crypto economy, hundreds of other funds have entered the market, raising sizable sums, scaling quickly and deploying capital at the inflated valuations seen at the peak of 2017. Whether purchasing liquid digital assets, future-token contracts or equity, many of those funds that emerged after KR1 have either experienced major withdrawals from investors this past year or are heavily underwater since inception. Being late in the cycle can effectively end an endeavour before it begins. However, a portfolio like KR1’s, built from the very start of the token economy, with some investments dating back into 2016 and early 2017, and with projects coming to market at regular intervals, enables us to draw down certain positions that are in profit while maintaining positions that are currently below where we invested in them. This has proven a great strategy even in the last year in the crypto markets as we did not miss out on any opportunity and were still able to stick with long-term projects alongside their product roadmaps.
During the bear market, numerous institutions and crypto banking providers, as well as OTC desks, started dealing in assets other than just Bitcoin and we have now on-boarded with many of them to ensure seamless crypto to fiat transactions. Also, a lot of new, more credible ‘USD-pegged’ stablecoins have launched that are fully compliant in various jurisdictions and we also now have the first versions of trust-less/decentralised stablecoins that have massive sums of collateral backing them. Our capabilities to manage risk within the portfolio are now greatly enhanced.
We decided before the downturn to keep the team small and nimble and this decision has meant our cost base has remained relatively low during the ‘Crypto Winter’ months. Further, just as positive sentiment returned to the market more recently, just a few weeks before the release of our results, we had the eagerly awaited launch of the Cosmos network, one of our earliest investments. This has given us a major boost, not just for the significant price that the token has achieved but also as the first fully functioning Proof of Stake blockchain. With that, we are now generating a yield (staking yields) from this particular investment as the network rewards participants for actively securing the network and validating transactions. It is early days, but the current projections, based on the performance of the protocol so far, suggest this one holding alone could generate revenues which go a long way to covering the annual costs of the Company.
When considered alongside the fact that our other two largest investments, Dfinity and Polkadot, are also Proof of Stake chains that may generate similar yields, we believe we have managed to place ourselves at the heart of the next shift in the lifecycle of this technology and we are very excited for what is to come.
Focusing on another investment, we knew that a secure and battle-tested custody solution would be an essential requirement to get major financial institutions to enter the crypto space. Vo1t represented the best of both worlds for us, a start-up at the perfect stage for investment yet fully operational with the very best in class security operations. Our equity holding in Vo1t saw a great uplift in a significant funding round reported in the last year as they are continuing to sign up clients, increasing assets under custody and launching new product lines including lending, OTC, crypto to fiat exchange and staking, as well as a combination of ‘hot’, ‘warm’, ‘cold’ and ‘frozen’ crypto storage solutions. We are excited for their roadmap ahead and will continue to store a majority of our assets with them going forward.
It may well be too early to call, but we have recently seen a major shift in sentiment, driving the price of Bitcoin upwards to prices not seen for half a year or more. Should this indeed be the shift from a bear market to a bull market, then this new asset class is in a very strong position to find new highs and establish native digital assets as one of the major alternative asset classes in the financial world.
This is the first time that permission-less, global assets have been available to so many. Whether it is on cheap mobile phones with internet access in the developing world or from a fancy trading station well equipped with a Bloomberg terminal in New York, it is still the same asset. Add to this picture the fact that in 2019, major entities from the legacy financial system are getting involved, including Fidelity, JP Morgan, CME, NYSE, Yale Endowment and Harvard, as well as some of the biggest tech giants such as Facebook.
“We are more confident than ever that digital assets will power a new wave of technologies that are the logical next step in an increasingly digital world that all of us participate and live in and where the things we interact with conversely interact with each other autonomously. This future digital world should be based on the premises of trustlessness, independent verifiability, the laws of mathematics and decentralisation where no single point of failure occurs” - George McDonaugh, KR1 CEO
We are more confident than ever that digital assets will power a new wave of technologies that are the logical next step in an increasingly digital world that all of us participate and live in and where the things we interact with conversely interact with each other autonomously. This future digital world should be based on the premises of trustlessness, independent verifiability, the laws of mathematics and decentralisation where no single point of failure occurs. Our job at KR1, on behalf of our shareholders, has always been to capture some of those networks on which the digital world will be built upon and we look forward with great optimism to the future of this emerging technology.”
George McDonaugh, CEO
KR1 is Europe’s leading digital asset investment company supporting early-stage decentralised and open source blockchain projects. Founded in 2016, KR1 has been a notable investor in many key projects that will power the decentralised platforms and protocols that form the emerging Web3 infrastructure. In the spirit of the open and decentralised movement, any individual or institution can buy KR1 shares through the London-based NEX public stock exchange.
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