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An attractively priced option on crypto adoption

CoinShares International 10 August 2022 Update
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CoinShares International

An attractively priced option on crypto adoption

Q222 results

Financials

10 August 2022

Price

SEK34.65

Market cap

SEK2,364m

SEK12.2702/£

Gross cash (£m) at end-June 2022

13.9

Shares in issue

68.2

Free float

30.1%

Code

CS

Primary exchange

Nasdaq First North

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

3.7

(46.7)

(51.2)

Rel (local)

1.2

(48.6)

(38.7)

52-week high/low

SEK100.50

SEK22.60

Business description

CoinShares International develops innovative infrastructure, financial products and services for the digital asset class. It manages and provides liquidity for exchange traded products and undertakes proprietary trading in digital assets. It also acquired a blockchain equity index business and a consumer-facing crypto company in 2021.

Next events

Q322 results

1 November 2022

Analyst

Milosz Papst

+44 (0) 20 3077 5700

CoinShares International is a research client of Edison Investment Research Limited

We consider CoinShares International (CS) an attractively priced option on the prospective adoption of digital assets. We estimate that CS’s market capitalisation of £204m (on a fully diluted basis) is at present at least 85% covered by the sum of CS’s cash at bank (£13.9m at end-June 2022), net amounts from brokers (£38.1m) and the accrued management fees related to XBT Provider products (we estimate the current balance at c £120m). Moreover, CS is now trading at c 0.93x book value. With a steady fee income and good equity position, we think CS is well placed to be one of the beneficiary survivors of the current ‘crypto winter’.

Year end

Revenue
(£m)

Adjusted EBITDA*
(£m)

Adj. EPS**
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/20

18.4

22.1

0.28

0.00

10.1

0.0

12/21

80.9

121.7

1.64

0.00

1.7

0.0

12/22e

49.3

20.0

0.25

0.00

11.3

0.0

12/23e

36.1

31.5

0.28

0.00

10.1

0.0

Note: *Sum of revenue, income and gains from capital markets infrastructure and gains on principal investments less administrative expenses excluding D&A. **Total comprehensive income (excluding currency translation differences and fair value gain/(loss) on investments recognised in other comprehensive income) per share attributable to the shareholders of the parent.

Remaining cautious in its capital markets activities

CS recognised a £17.7m loss from the TerraUSD (UST) collapse in Q222 (see our previous note for details ), resulting in a CoinShares Capital Markets (CSCM) loss of £11.4m during the quarter. Having said that, it has so far avoided any further significant losses from counterparty risk arising from the financial issues of several large players, which sent ripples across the digital asset industry. CS has successfully recalled most of its decentralised finance (DeFi) and fixed income positions and remains in a defensive mode in its capital markets activities for now.

CoinShares Physical continues to attract new funds

Meanwhile, the company further expanded its exchange traded products (ETP) suite (five products launched in Q222). While net outflows from the legacy XBT Provider products continued at c US$132m (vs US$246m in Q122), the CoinShares Physical platform recorded a minor positive net inflow in Q222, bringing the H122 net inflows to US$105m (excluding seed assets). We consider the above as an indication of sustained investor interest in digital asset exposure. CS’s equities platform saw US$60m net outflows, translating into H122 net inflows of US$35m. The decline in digital asset prices in Q222 reduced CS’s assets under management (AUM) to £1.66bn at end-June 2022 (vs £3.95bn at end-March 2022), resulting in asset management fees of £14.2m in Q222 (compared to £19.6m in Q221).

Valuation: Fair value at SEK80.0

We have reduced CS’s FY22 forecasts on the back of more muted CSCM activity but have retained our mid- to long-term digital asset allocation assumptions, arriving at a CS valuation of SEK80.0 per share (down from SEK85.0 previously).

Q222 results: £17.7m loss from the UST collapse

CS reported and adjusted EBITDA loss of £8.2m in Q222 (vs a £28.6m profit in Q221) and its adjusted net loss came in at £11.4m (vs a £26.6m profit in Q221), mostly due to a one-time loss of £17.7m arising from the UST stablecoin de-pegging (see our previous note for details). Its total comprehensive loss was minimal at £0.1m in Q222 (vs a £26.6m profit in Q221), assisted by a currency translation gain of £11.3m arising from the appreciation of the US dollar (in which CoinShares Capital Markets (Jersey) Limited is denominated) against sterling.

Exhibit 1: Q222 results highlights

£m, unless otherwise stated

Q222

Q122

Q421

Q321

Q221

Revenue, of which:

13.9

18.0

25.8

18.4

19.6

XBT Provider

13.0

16.3

24.4

17.5

19.5

CoinShares Physical

0.6

0.4

0.5

0.2

0.1

Equities platform

0.6

0.5

0.6

0.6

-

B2C*

(0.1)

0.7

0.3

-

-

Capital market infrastructure income/gains, of which:

(11.4)

10.1

16.2

8.4

14.7

Liquidity provisioning

1.6

2.0

2.4

1.7

3.3

Delta Neutral Trading Strategies

(1.3)

0.6

5.3

2.6

9.1

Fixed income activities

0.8

1.2

3.5

3.1

1.7

DeFi

4.9

6.3

3.6

-

-

Other

(17.4)

0.1

1.5

1.0

0.5

Principal investment gains/(losses)

(5.1)

(0.1)

0.7

4.8

4.1

Adj. administrative expenses

(5.8)

(9.2)

(10.0)

(5.7)

(9.7)

Adj. EBITDA

(8.2)

18.7

32.9

26.0

28.6

Adj. EBITDA margin

N/A

67.1%

77.0%

82.0%

74.7%

Depreciation and amortisation

(0.7)

(0.6)

(0.5)

(0.5)

(0.1)

Finance expense

(2.4)

(2.2)

(2.9)

(1.5)

(1.6)

Income taxes

(0.1)

0.1

0.3

(0.4)

(0.3)

Currency translation differences

11.3

4.1

(0.4)

2.6

(0.1)

Total comprehensive income

(0.1)

20.2

29.5

26.2

26.6

Adjusted net income

(11.4)

16.1

29.7

N/A

N/A

Source: Company data; Note: *Acquired in December 2021.

CSCM: Moving into defence mode

CS recognised the loss on UST in its Capital Markets Infrastructure segment (under ‘other’ activities) but has so far avoided any further large losses from the contagion spreading recently across the digital asset markets, as it has no direct exposure to the troubled players such as Celsius, Three Arrows Capital, BlockFi or Voyager. The company has significantly reduced its DeFi positions, notably in institutional lending protocols such as Maple and TrueFi. Together with the lack of income from the Anchor protocol following the UST collapse in May, this translated into a decline in DeFi income to £4.9m in Q222 from £6.3m in Q122. CS has also successfully recalled most of its balances in its fixed income activities outside of DeFi to limit losses from defaulting counterparties (generating a £0.8m income in Q22 compared to £1.2m in Q122 and £1.7m in Q221). The CEO highlighted during the earnings call that most of the contagion in the form of counterparty risk arising from poor risk management of several large players in the sector has likely materialised. This particularly applies to Europe and the United States, while some incremental risk may still materialise in the case of Asian players.

Income from liquidity provisioning for the XBT Provider products was £1.6m, down from £2.0m in Q121 and £3.3m in Q221, influenced by lower digital asset prices. With most of the trading capital tied up in DeFi in the earlier part of the quarter, CSCM did not generate any meaningful income/gains from delta neutral strategies, where it booked a small loss of £1.3m in Q222. This arose from opening a long futures position to take advantage of historically low annualised premiums to maintain the required exposure related to XBT Provider products, with the potential to reduce CS’s interest expense and/or invest the cash in higher yielding strategies. The Value at Risk on CSCM’s derivative book stood at £125k at end-June 2022.

As a result of the above, CSCM reported a loss of £11.4m in Q222 (or a £6.3m profit excluding the UST loss). Together with the reduced capital markets activity, CS paid down all revolving credit lines it has with brokers. As a result, it had a net amount due from brokers of £38.1m at end-June 2022, compared to a net amount due to brokers of £205.2m at end-March 2022. We understand that CSCM has remained cautious in terms of activity so far in Q322, which if sustained would result in a significant reduction in interest expense.

Asset management: AUM and fees lower, but inflows into CoinShares Physical continue

CS booked £14.2m in asset management revenue in Q222 (vs £19.6m in Q221). The vast majority of fees still comes from the legacy XBT Provider products (£13.0m in Q222), but with gradually increasing importance of the CoinShares Physical platform and the equities platform (£0.6m each).

We note that despite the turmoil in the digital asset markets, CoinShares Physical enjoyed net inflows of US$105m (excluding seed assets) in H122, of which US$86m was in Q122. We believe that this demonstrates the strength of the platform’s value proposition. During the quarter, CS launched five new products based on the following assets: FTX Token, Chainlink, Uniswap, Matic and Cosmos (the last two with embedded staking mechanism), bringing its current suite within CoinShares Physical to 14 products. We estimate that all the new CoinShares Physical products launched in 2022 year to date had a combined AUM of c US$66m at end-June 2022 (of which c 84% are seed assets of Solana and FTX Token ETPs provided by FTX). Net outflows from XBT Provider seen throughout FY21 and in Q122 continued in Q222 at around US$132m (vs US$246m in Q122), according to our calculations. The decline in net outflows is likely driven by lower digital asset prices, but also may have been driven by the declining share of unit holders who invested before the latest bull run, which started in 2020. CS’s equities platform saw a c US$60m net outflow in Q222, bringing the H122 balance to c US$35m of net inflows.

CS’s AUM stood at £1.66bn at end-June 2022, of which 58% was attributable to XBT Provider, 8% to CoinShares Physical and 34% to the equities platform. This represents a decrease from £3.95bn at end-March 2022, affected by the decline in digital asset prices, and has translated into lower custody fees, resulting in lower direct costs of CS’s asset management platform at US$0.5m in Q222 vs US$1.4m in Q122. Coupled with a reduction in administrative expenses to £1.1m in Q222, from £1.9m in Q221, this translated into a still robust operating profit of the segment of £12.6m (vs £16.3m in Q221).

Principal investments: Write-downs of 3iQ and Solana tokens

Both CS’s equity investments and proprietary digital asset holdings were written down during the quarter, resulting in a principal investments loss of £5.1m in Q222 (vs a £4.1m gain in Q221). Major drivers were 3iQ Asset Management (revalued downwards by c US$3.5m in Q222 to US$2.5m), whose valuation was affected by the fall in AUM amid lower digital asset prices, as well as CS’s proprietary holdings of Solana tokens (down by c US$1.4m to US$0.7m). This was partially offset by c US$0.6m of carried interest from CoinShares Fund II booked in Q222 (US$3.0m in total in H122).

The largest holding within CS’s principal investments portfolio remains its 32.06% stake in the online bank, FlowBank, which is basically a Swiss provider of online trading services with a local banking licence. Its carrying value at end-June 2022 was US$29.1m (out of CS’s total portfolio of US$44.2m) and the stake is accounted for using the equity method. During a recent interview (released on 25 May 2022), FlowBank’s CEO highlighted that he expects the company to be profitable on a monthly basis starting from the second half of 2022 or even earlier (possibly in May/June). In Q222, CS recognised a minor £0.1m loss from its share of joint venture and associate profits/(losses), which we understand consists primarily of its stake in FlowBank and Gold Token SA.

B2C: Development in progress

CS continued the integration of the Napoleon Group (acquired in Q421) and successfully launched a beta version of NapBots (trading bots) on 11 July 2022, with a formal relaunch and rebranding planned for Q322. Furthermore, on 4 July 2022, CS completed the acquisition of Napoleon Asset Management, the first crypto asset manager in Europe with an Alternative Investment Fund Managers Directive licence. Management highlighted that the B2C platform remains in its infancy and that the £0.8m operating loss in Q222 is a function of costs incurred to drive growth of this business line.

Forecast revisions and valuation update

We have retained our mid- to long-term digital asset adoption assumptions, as we see enough evidence that digital assets have established themselves as another distinct asset class. Further adoption signs include the recent deal signed by BlackRock with Coinbase to provide its clients access to digital assets (by connecting Coinbase to its Aladdin platform). Consequently, we have made only limited adjustments to our FY25e forecasts, with our new adjusted EBITDA expectation down 10.8% vs our previous forecasts published in June. For FY22, however, we have reduced our adjusted EBITDA forecast from £41.0m to £20.0m, primarily due to lower CSCM income/gains (£6.9m vs £31.8m previously) given the lower Q222 results compared to our expectations (even though the latter accounted for the UST loss) and CS’s expected muted trading activity in Q322. We assume a gradual pick-up in CSCM activity from Q422, but expect somewhat lower income and gains in FY23e and FY24e, as we factor in more moderate activity in the broad digital asset markets compared to FY21 following the current ‘crypto winter’. The weaker CSCM forecast for FY22 is partially offset by lower administrative cost assumptions given the reversal of bonus accruals CS booked in Q222 and more limited direct costs amid lower CSCM activity and AUM of CS’s asset management business (translating into reduced trading fees and custody fees, respectively).

We now arrive at CS’s fair value per share of SEK80.0 based on our discounted cash flow (DCF) model (compared to SEK85.0 previously). This implies a significant upside to CS’s current share price of SEK34.65. Consequently, we believe that CS represents an attractively priced option on the prospective digital assets adoption. We estimate that CS’s market capitalisation of £204m (on a fully diluted basis) is at present at least 85% covered by the sum of CS’s cash at bank (£13.9m at end-June 2022), net amounts from brokers (£38.1m) and the accrued management fees related to XBT Provider products (we estimate the current balance at c £120m). Moreover, CS is now trading at c 0.93x book value. With a steady fee income and good equity position (£220.9m at end-June 2022), we think CS is well-placed to be one of the beneficiary survivors of the current ‘crypto winter’.

We note that the upgrade of the Ethereum network (often referred to as ‘The Merge’), which will involve migrating the network from a proof-of-work to a proof-of-stake (PoS) consensus algorithm, is now scheduled for September. We believe that, in line with other CoinShares Physical ETPs based on PoS blockchains, CS is likely to offer a fixed percentage staking yield to Ethereum ETP holders at some stage, retaining any excess yield. However, at this stage we do not account for any excess staking yields CS could earn on its CoinShares Physical Ethereum ETP AUM, given the limited visibility in terms of the exact staking yields on the Ethereum network following The Merge (which will depend, among others, on the proportion of total Ether (ETH) supply being staked on the network). For illustrative purpose, we estimate that every 10bp excess yield on CoinShares Physical Ethereum ETP AUM would raise our CS valuation by c 1.5%.

Exhibit 2: Summary of forecast revisions

 

FY21

FY22e

FY23e

FY24e

FY25e

 

Actual

Old

New

diff (%)

Old

New

diff (%)

Old

New

diff (%)

Old

New

diff (%)

Revenue, of which:

80.9

51.9

49.3

(5.1)

37.1

36.1

(2.7)

48.6

49.1

0.9

69.4

73.2

5.5

XBT Provider

78.5

44.7

43.1

(3.7)

29.1

25.2

(13.4)

34.7

30.5

(11.9)

41.6

37.0

(11.0)

CoinShares Physical & other *

0.9

2.4

3.0

25.6

4.3

7.6

76.2

9.4

14.3

52.3

22.1

30.9

39.5

Equities platform

1.2

2.2

1.9

(10.4)

2.3

1.9

(16.9)

2.8

2.5

(10.2)

3.4

3.0

(10.2)

B2C

0.3

2.6

1.2

(52.9)

1.4

1.4

(0.6)

1.8

1.8

(0.6)

2.3

2.3

(0.6)

Capital market infrastructure income/gains, of which:

62.1

31.8

6.2

(80.6)

51.9

35.9

(30.8)

59.9

44.0

(26.5)

68.8

54.9

(20.2)

Liquidity provisioning

13.8

7.7

6.6

(15.1)

4.6

5.5

18.8

6.5

5.7

(13.3)

8.4

4.6

(44.8)

Delta Neutral Trading Strategies

27.2

10.9

0.5

(95.0)

19.0

16.0

(15.9)

23.3

21.7

(7.0)

27.5

30.7

11.6

Fixed income activities

10.9

6.7

2.5

(62.7)

6.8

2.5

(62.7)

6.8

2.5

(62.7)

6.9

2.6

(62.7)

DeFi

3.6

4.0

13.9

246.3

18.8

11.5

(38.6)

19.7

13.8

(29.8)

20.7

16.6

(19.8)

Other

6.6

2.5

(17.4)

NM

2.7

0.3

(87.5)

3.6

0.3

(90.4)

5.3

0.3

(93.4)

Principal investment gains/(losses)

9.6

(0.1)

(5.3)

NM

0.0

0.0

N/A

0.0

0.0

N/A

0.0

0.0

N/A

Administrative expenses excluding D&A

(31.1)

(42.4)

(30.3)

(28.4)

(46.1)

(40.2)

(12.9)

(50.6)

(46.8)

(7.5)

(56.6)

(55.0)

(2.8)

Adj. EBITDA

121.7

41.0

20.0

(51.4)

42.6

31.5

(26.0)

57.2

45.5

(20.5)

79.9

71.3

(10.8)

Total comprehensive income

110.5

33.9

18.2

(46.4)

29.0

20.3

(29.9)

42.1

33.7

(20.0)

62.0

57.0

(8.2)

Source: Company data, Edison Investment Research. Note: *Includes fees from CoinShares Physical, 3iQ and Invesco

Exhibit 3: Financial summary

Year ending December, £000’s unless otherwise stated

FY18

FY19

FY20

FY21

FY22e

FY23e

FY24e

FY25e

Income Statement

 

 

 

 

 

 

 

 

Revenues

10,549

11,331

18,389

80,892

49,278

36,107

49,080

73,177

Administrative expenses

(10,927)

(9,284)

(14,312)

(32,167)

(32,560)

(42,399)

(49,071)

(57,234)

Other operating income

4,811

529

607

11,427

18,427

19,349

20,316

21,332

Profit/(loss) on financial instruments

519,988

(64,553)

(1,398,436)

(2,236,196)

1,905,694

(1,141,829)

(790,728)

(2,223,823)

Realised gain/(loss) on investments

(1,074)

(405)

942

5,287

(5,574)

0

0

0

Adj. EBITDA

12,993

11,171

22,113

121,688

19,950

31,480

45,463

71,310

EBIT

523,347

(62,382)

(1,392,810)

(2,170,757)

1,935,113

(1,128,772)

(770,404)

(2,186,547)

Finance income

693

931

3,793

10,905

10,356

7,132

8,079

9,211

Finance expense

(148)

(404)

(1,191)

(6,810)

(7,245)

(8,927)

(9,494)

(12,107)

Pre-tax profit

523,892

(61,855)

(1,390,208)

(2,166,662)

1,938,223

(1,130,567)

(771,819)

(2,189,443)

Income taxes

(230)

(269)

(401)

(1,284)

0

0

0

0

Net income

523,662

(62,124)

(1,390,610)

(2,167,946)

1,938,223

(1,130,567)

(771,819)

(2,189,443)

Total comprehensive income

14,407

8,914

18,419

114,346

18,168

20,308

33,724

56,957

Reported EPS (diluted, £)

N/A

N/A

(21.68)

(32.62)

26.77

(15.62)

(10.66)

(30.24)

Adjusted EPS (diluted, £)*

N/A

N/A

0.28

1.64

0.25

0.28

0.47

0.79

DPS (£)

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Balance Sheet

 

 

 

 

 

 

 

 

Property, plant and equipment

214

376

223

510

510

577

714

922

Digital assets

N/A

N/A

N/A

N/A

2,495

2,495

2,495

2,495

Intangible assets

0

7

20

19,781

18,908

18,035

17,162

16,289

Investments

6,158

5,585

3,626

24,501

41,536

41,536

41,536

41,536

Long term receivables and other

15

323

329

581

1,360

1,360

1,360

1,360

Non-current assets

6,387

6,290

4,199

45,372

64,810

64,004

63,268

62,603

Trade and other receivables

9,350

27,011

62,274

1,075,971

551,054

775,790

959,232

1,537,196

Digital assets

217,521

427,524

1,826,695

2,736,481

953,360

1,645,463

2,112,714

3,803,550

Cash at bank

32,897

2,350

2,266

11,088

5,542

19,608

91,295

98,308

Amounts due from brokers

N/A

39,405

66,518

118,976

42,869

78,159

102,226

186,941

Current assets

259,767

496,290

1,957,752

3,942,516

1,552,824

2,519,020

3,265,467

5,625,994

Total assets

266,154

502,580

1,961,951

3,987,888

1,617,634

2,583,024

3,328,735

5,688,597

Share capital

2,214

2,215

31

34

34

34

34

34

Share premium

111

111

2,387

30,781

30,781

30,781

30,781

30,781

Other reserves

104,322

168,813

1,209,630

667,846

(1,252,209)

(101,334)

704,208

2,950,609

Retained earnings

(68,003)

(125,795)

(1,155,551)

(497,727)

1,440,496

309,929

(461,890)

(2,651,334)

Total equity

38,644

45,343

56,497

200,934

219,101

239,409

273,133

330,090

Trade payables and other liabilities

227,469

419,340

1,792,936

3,491,612

1,127,156

2,055,049

2,687,851

4,915,273

Amounts due to brokers

N/A

37,631

112,121

292,708

270,517

287,707

366,892

442,375

Lease liabilities

0

0

0

0

859

859

859

859

Current tax liabilities

42

266

398

2,635

0

0

0

0

Current liabilities

227,510

457,237

1,905,454

3,786,955

1,398,533

2,343,615

3,055,602

5,358,507

Non-current liabilities

0

0

0

0

0

0

0

0

Total equity and liabilities

266,154

502,580

1,961,951

3,987,888

1,617,634

2,583,024

3,328,735

5,688,597

Ratios

 

 

 

 

 

 

 

 

Adj. EBITDA margin

52.1%

54.0%

62.8%

85.1%

36.0%

43.7%

48.8%

55.7%

Adj. net margin

59.4%

38.4%

47.6%

80.0%

32.8%

28.2%

36.2%

44.5%

Source: Company data, Edison Investment Research. Note: *Total comprehensive income (excluding currency translation differences and fair value gain/(loss) on investments recognised in other comprehensive income) per share attributable to shareholders of the parent.


General disclaimer and copyright

This report has been commissioned by CoinShares International and prepared and issued by Edison, in consideration of a fee payable by CoinShares International. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by CoinShares International and prepared and issued by Edison, in consideration of a fee payable by CoinShares International. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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