Maintaining robust earnings in Q321

CoinShares 18 November 2021 Update
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CoinShares International

Maintaining robust earnings in Q321

Q321 results

Financials

18 November 2021

Price

SEK87.2

Market cap

SEK5,921m

SEK11.5978/£

Gross cash (£m) at end-Q321

18.8

Shares in issue

67.9m

Free float

25.5%

Code

CS

Primary exchange

Nasdaq First North

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

5.1

31.7

N/A

Rel (local)

(2.5)

26.6

N.A

52-week high/low

SEK123

SEK61

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 recently also acquired a blockchain equity index business.

Next events

Preliminary FY21 results

31 March 2022

Analyst

Milosz Papst

+44 (0) 20 3077 5700

CoinShares International is a research client of Edison Investment Research Limited

CoinShares International (CS) continues to benefit from the overall benign environment for digital assets. While lower trading volumes in the broader market translated into more limited income/gains from its capital market infrastructure in Q321 compared to the particularly strong Q121 and Q221, the rebound in digital asset prices versus end-June 2021 assisted its management fee income. Moreover, net outflows from XBT Provider Trackers have eased lately and in October were offset by net inflows into its institutional-grade CoinShares Physical ETPs.

Year end

Revenue (£m)

Adjusted EBITDA* (£m)

Adjusted EPS** (£)

DPS
(£)

P/E
(x)

Yield
(%)

12/19

11.3

11.2

N/A

0.0

N/A

N/A

12/20

18.4

22.1

0.28

0.0

26.9

N/A

12/21e

77.6

114.5

1.56

0.0

4.8

N/A

12/22e

100.1

107.0

1.39

0.0

5.4

N/A

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 per share attributable to shareholders of the parent.

Q321 adj EBITDA at £26.0m, close to Q221 result

CS reported a total comprehensive income of £26.2m in Q321 (vs £2.7m in Q320 and £26.6m in Q221). Its fee revenue reached £18.4m (vs £4.5m in Q320 and £19.6m in Q221), with the rebound in digital asset prices from end-June 2021 partially offsetting the net outflows in the period. Capital market infrastructure (CSCM) generated income/gains of £8.4m versus £3.2m in Q320 and £14.7m in Q221, with the sequential decline mostly driven by lower gains on CS’s delta neutral trading strategies (£2.6m vs £9.1m in Q221) amid more muted broad market activity. However, with gains from its principal investment portfolio at £4.8m in Q321 and more moderate administrative expenses (£5.7m in Q321 vs £9.7m in Q221), CS’s adjusted EBITDA was £26.0m versus £28.6m in Q221 (and £4.7m in Q320).

Measures to further enhance its investment appeal

In the Q321 investor call management highlighted that it plans to communicate a roadmap for CS’s development in the coming years to the market before the release of FY21 results (scheduled for March 2022). Any details on the launch of new products (CoinShares Physical ETPs in particular) will be something to look out for. Meanwhile, CS continues to explore new income sources as it started to engage in yield farming in the decentralised finance space. It is looking at uplisting to the regulated segment of Nasdaq Stockholm in Q2/Q322.

Valuation: 37% upside despite share price growth

Since our initiation of coverage on 15 October 2021, CS’s share price has appreciated c 16% to SEK87.2, which leaves an upside potential of c 37% based on the updated value estimate in our base-case scenario of SEK119.8 (vs SEK120.3 previously). We have updated our ‘Crypto Winter 2022’ scenario (see our initiation note for details), which now implies a fair value per share of SEK72.9.

Q321 results: Digital asset prices up, but volume down

We consider CS’s total comprehensive income and adjusted EBITDA as key financial performance indicators that are more relevant than its net income (see our initiation note for details). CS reported a solid total comprehensive income of £26.2m in Q321, significantly up from £2.7m in Q320 and close to £26.6m reported in Q221. Similarly, the company’s adjusted EBITDA reached £26.0m compared to £4.7m in Q320 and £28.6m in Q221.

Exhibit 1: CoinShares International Q321 results highlights

£m, unless otherwise stated

Q321

Q221

Q121

Q320

Revenue, of which

18.4

19.6

17.1

4.5

Retail platform (XBT Provider)

17.5

N/A

N/A

N/A

Institutional platform (CoinShares Physical)

0.2

N/A

N/A

N/A

Index platform (Block index)

0.6

0.0

0.0

0.0

Capital market infrastructure income/gains, of which

8.4

14.7

22.8

3.2

Liquidity provisioning

1.7

3.3

6.3

0.7

Delta Neutral Trading Strategies

2.6

9.1

10.1

1.6

Fixed income activities

3.1

1.7

2.7

1.0

Other

1.0

0.5

3.6

(0.0)

Principal investment gains/(losses)

4.8

4.1

0.0

0.2

Adj. administrative expenses

(5.7)

(9.7)

(5.7)

(3.3)

Adj. EBITDA

26.0

28.6

34.2

4.7

Adj. EBITDA margin

82%

75%

86%

59%

Depreciation and amortisation

(0.5)

(0.1)

0.0

0.0

Finance expense

(1.5)

(1.6)

(0.7)

(0.3)

Income taxes

(0.4)

(0.3)

(0.9)

(0.2)

Currency translation differences

2.6

(0.1)

(0.4)

(1.5)

Total comprehensive income

26.2

26.6

32.1

2.7

Adj. EPS (£, basic)*

0.38

0.40

0.50

N/A

Adj. EPS (£, diluted)*

0.37

0.38

0.48

N/A

Source: CoinShares International, Edison Investment Research. Note: *Total comprehensive income per share.

Fee revenue slightly down versus Q221

CS’s management fees were £18.4m in Q321, down c 6% versus £19.6m in Q221 (but still up 3x vs Q320). Consequently, Q321 fees represent the second-best result in CS’s history after Q221. The sequential decline was a function of lower average digital asset prices, bitcoin (BTC) and ether in particular, as a result of the sell-off in May 2021 (despite the subsequent partial rebound that started in late July 2021). Moreover, CS’s XBT Provider Trackers saw net outflows of c US$330–340m in Q321 (according to our estimates, based on company data). This was partially offset by net inflows into the CoinShares Physical ETPs, which are still in a ramp-up phase and thus remain only a minor top-line contributor for now (£0.2m in Q321). After the acquisition of the ETF index business from Elwood Technologies in July 2021, CS started recognising management fees from the Invesco CoinShares Blockchain Global Equity UCITS ETF, which in Q321 amounted to c £0.6m. We note the index business has recently expanded through feeder funds in Japan and Thailand (with the launch of another feeder fund in India scheduled for November).

Capital markets income and gains visibly up vs Q320 but down sequentially amid more muted activity in the broader market

CS’s CSCM operations posted income/gains of £8.4m in Q321, visibly up from £3.2m in Q320, but down from £14.7m in Q221. We note, however, that Q221 (and Q121) was characterised by particularly high market activity and volatility (which normally benefits CSCM), while Q321 has been a more muted period (eg BTC trading volumes went down by c 41% according to Arcane Crypto), which may be at least partially due to seasonality factors (summer holiday season). Consequently, CSCM’s delta neutral trading strategies delivered a £2.6m gain (vs £1.6m in Q320 and £9.1m in Q221). Meanwhile, fixed income activities generated a £3.1m income in Q321 (up from £1.0m in Q320 and £1.7m in Q221). CS’s liquidity provisioning income (generated primarily on XBT Provider Trackers) stood at £1.7m vs £0.7m in Q320 and £3.3m in Q221. CS continues to explore new trading opportunities and management highlighted during the Q321 investor call that CSCM started to engage in yield farming (ie staking or locking up digital assets to generate tokenised rewards) on decentralised finance protocols such as Compound, Aave and Maple Finance. According to a Glassnode analysis from early September 2021, USDC lending rates on Compound and Aave stood at c 3–4% in late August and early September 2021, but were as high as 12% before the market sell-off in May 2021. CS has also started to participate in the governance of selected protocols (eg Aave).

Results assisted by gains from principal investment portfolio

CS also recognised c £4.8m gains on its principal investments, most notably from 3iQ (£2.0m), Solana tokens (£1.6m) and carried interest from CoinShares Fund II (£1.4m).The latter was mostly driven by the US$155m series B funding round of the blockchain infrastructure-as-a-service company Blockdaemon (which is among others a node operator and staking infrastructure provider), carried out at a valuation of US$1,255m. Management highlighted that the current carrying value of its stake in 3iQ is still below the valuation implied by its latest funding round. After balance sheet date, the company announced a US$11.8m investment in a 9.02% stake in FlowBank, a Swiss-based online bank (see our initiation note for details).

Excess cash deployed into trading strategies

CS’s administrative expenses fell from £9.8m in Q221 to £6.2m in Q321 (thus returning closer to the Q121 level of £5.8m), which the management considers a more appropriate run-rate going forward. CS continues to improve its tech infrastructure and has added a number of new engineering hires to the team (with the total number of employees at CS of 58 compared to 42 at end-2020).

CS’s cash position at end-September 2021 was £18.8m, down from £53.3m at end-June 2021. Based on our discussion with the management, we understand that a significant part of the previous cash position has been deployed into CSCM’s trading strategies, for example a cash and carry strategy as the digital asset futures markets moved from backwardation to contango in Q321. The latter was also an important driver of the net amounts due to brokers, which was £122.2m at end-September 2021 (including utilised credit lines CS has with its brokers) versus a net amount from brokers of £24.9m at end-June 2021. However, this movement was offset by increased digital asset holdings purchased to hedge these liabilities.

Guarantee for XBT Provider’s activities transferred

XBT Provider is operating under an exemption granted by Nasdaq (which operates the exchange where the XBT Provider Trackers are listed) given it does not hold an EEA MiFiD-compliant regulated status. To take advantage of the exemption, it has been required to provide a guarantee for its activities (which so far was provided by a group subsidiary, CoinShares Jersey). CS’s intention was to acquire Peak AM Securities (which holds an EEA MiFiD-compliant regulated status), but acquisition negotiations were terminated in August 2021 (as the Swedish regulator denied CS’s application for the ownership suitability assessment in relation to the acquisition of Peak AM Securities). However, CS’s legal and compliance team identified an alternative solution to transfer the guarantee internally to CoinShares Capital Markets Jersey. As this entity is responsible for hedging the liability under the programme, CS’s clients are now offered a more transparent setup with the hedging and guarantee related to the XBT Provider products within a single entity. This secures the continuity of the product platform while satisfying the requirements of the Jersey regulator.

Outlook: Growing investor interest in digital assets

Net outflows from XBT Provider Trackers more limited recently

The XBT Provider Trackers saw c US$1.1bn of net outflows ytd to 29 October 2021 (which resulted in the release of c £11m accrued management fees, according to the management), which we believe has been primarily driven by earlier investors realising gains following the strong bull run in digital assets since March 2020. We note, however, that net outflows eased somewhat recently with c US$171m between August and October. There were even a few weeks with net inflows recorded in late September and early October, while in November so far, the products reported a US$3.3m net inflow, according to CS’s weekly fund flow reports. Management also highlighted the number of individual holders of XBT Provider Trackers tripled from c 24k at the beginning of the year to 72k currently, suggesting these products continue to attract a considerable number of new investors.

Inflows into CoinShares Physical ETPs to be driven by institutional adoption

Meanwhile, net inflows to the CoinShares Physical ETPs continued with c US$70m in October (c US$180m ytd after excluding CS’s seed assets), offsetting net outflows from XBT Provider Trackers during the month. According to the management, CoinShares Physical was the third-best ETP platform in Europe in terms of inflows in Q321 (up from fifth in Q121 and Q221) out of nine digital asset ETP issuers active in Europe. Inflows should be supported by listing on further exchanges (eg the Bitcoin and Ethereum ETPs were recently listed on Euronext Paris and Amsterdam). CoinShares Physical ETPs have been introduced to appeal to institutional investors and we believe growing institutional adoption should represent a positive driver for fund inflows. This seems to be confirmed by the Institutional Investor Digital Assets Study conducted by Fidelity Digital Assets between 2 December 2020 and 2 April 2021 (published in September 2021) on a group of financial advisers, high-net-worth Individuals, family offices, pension funds and defined benefit plans, crypto hedge funds and venture capital funds, and more traditional hedge funds and endowments and foundations. According to the study, the share of surveyed European investors who intend to purchase digital assets in the future increased from 60% a year earlier to 75% currently. Interestingly, the study showed a more progressive view towards digital assets of European investors compared to US investors. Also important is that 84% of US and European investors surveyed indicated they would be interested in institutional investment products that hold digital assets. Their allocations to such investment products increased from 14% to 29%, although the share of surveyed European investors holding digital assets directly has also increased versus the prior year, from 29% to 41%.

Forecast changes and valuation

On the back of the more limited net outflows from XBT Provider Trackers recently, we have reduced our assumed net outflows in FY21e and FY22e to c US$1,178m and US$1,023m, respectively (vs previous assumptions at US$1,319m and US$1,302m, respectively). We have also slightly raised our global digital asset allocation assumptions for FY21e to FY24e, supported by the recent solid inflows across the market, and recent strong performance of digital assets. Nevertheless, we keep our relatively conservative 2.0% and 2.5% allocation forecast for FY25e and FY30e unchanged. The above has translated into higher management fee forecasts for CS of £100.1m in FY22e (vs £72.0m previously) and £92.9m in FY23e (vs £66.5m previously), while our FY21e forecast remains broadly unchanged (£77.6m vs £78.1m previously). That said, as fees generated on XBT Provider Trackers are accrued until investors redeem the certificates, the above had only a limited positive effect on our forecasted cash release of fees in the near term (although it assisted the expected cash fees in later years). Moreover, the reduced forecast outflows (together with an adjustment we made to the assumed average spread) translated into a lower expected income from liquidity provisioning in the near term.

Given the large swings between quarters in CS’s amounts due from and to brokers, including the utilised proportion of credit lines with brokers, we are now reflecting the interest expense on these credit lines in our free cash flow calculations rather than adjusting CS’s valuation for the last reported net amounts due from/to brokers. Moreover, we have reflected the lower cash position at end-September 2021 compared to end-June 2021 and updated our fx assumptions. As a result, our value estimate of CS in our base-case scenario is SEK119.8 per share (vs SEK120.3 previously). Since our initiation of coverage on 15 October 2021, CS’s share price has appreciated c 16% to SEK87.2, which still leaves an upside potential of c 37% based on our fair value estimate. We have also updated our ‘Crypto Winter 2022’ scenario (see our initiation note for details), which now implies a fair value per share of SEK72.9.

Exhibit 2: CS’s DCF valuation model

£m, unless otherwise stated

Q421e

FY22e

FY23e

FY24e

FY25e

FY26e

FY27e

FY28e

FY29e

FY30e

Adjusted EBITDA*

25.9

107.8

104.1

107.8

115.7

120.6

125.7

131.0

134.6

140.8

Interest expense

(1.5)

(7.1)

(6.7)

(6.6)

(7.0)

(7.8)

(7.8)

(7.8)

(7.6)

(7.3)

CSCM income/gains adjustment

0.0

(1.6)

(7.5)

(13.4)

(19.6)

(25.9)

(33.8)

(42.6)

(52.3)

(63.1)

Income taxes

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Change in working capital

(19.0)

(72.6)

(40.4)

(12.6)

8.6

17.2

27.1

44.4

40.9

41.8

Capex

(8.7)**

(0.2)

(0.2)

(0.2)

(0.2)

(0.2)

(0.2)

(0.2)

(0.2)

(0.2)

FCFF

(3.4)

26.3

49.3

75.0

97.6

104.0

111.0

124.9

115.3

112.0

DFCFF

(3.3)

22.8

38.2

51.9

60.3

57.4

54.7

54.9

45.3

39.3

WACC

12.0%

 

 

 

 

 

 

 

 

 

Residual growth rate

2.0%

 

 

 

 

 

 

 

 

 

Sum of DFCFF

421.3

 

 

 

 

 

 

 

 

 

Residual value

236.0

 

 

 

 

 

 

 

 

 

Principal investments

23.5**

 

 

 

 

 

 

 

 

 

Digital assets/tokens

4.0

 

 

 

 

 

 

 

 

 

Enterprise value

684.7

 

 

 

 

 

 

 

 

 

Net debt/(cash) 30 September 2021

(18.8)

 

 

 

 

 

 

 

 

 

Equity value

703.5

 

 

 

 

 

 

 

 

 

Share count (fully diluted)

71.3

 

 

 

 

 

 

 

 

 

Fair value per share (£)

9.9

 

 

 

 

 

 

 

 

 

£/SEK

12.0

 

 

 

 

 

 

 

 

 

Fair value per share (SEK)

119.8

 

 

 

 

 

 

 

 

Current share price (SEK)

87.2

 

 

 

 

 

 

 

 

 

Upside/(downside)

37%

 

 

 

 

 

 

 

 

 

Source: CoinShares International data, Edison Investment Research. Note: *Adjusted for non-cash share-based payments. **Adjusted for the FlowBank deal.

Exhibit 3: Financial summary

Year ending December (FRS 102) £000s unless otherwise stated

2018

2019

2020

2021e

2022e

2023e

2024e

2025e

Income Statement

 

 

 

 

 

 

 

 

Revenues

10,549

11,331

18,389

77,598

100,129

92,915

94,625

102,221

Administrative expenses

(10,927)

(9,284)

(14,312)

(28,893)

(35,632)

(37,047)

(40,266)

(44,674)

Other operating income

4,811

529

607

1,240

1,278

1,316

1,355

1,396

Intercompany collateral (expense)/income

557,896

(118,108)

(1,440,569)

(3,334,037)

(31,362)

(635,936)

(663,623)

(731,497)

Realised gain on digital assets/financial instruments

(37,907)

53,555

42,133

(132,283)

107,172

113,275

128,334

154,966

Realised gain/(loss) on investments

(1,074)

(405)

942

5,378

0

0

0

0

Adj. EBITDA

12,993

11,171

22,113

114,470

107,016

103,373

107,034

114,960

EBIT

523,347

(62,382)

(1,392,810)

(3,410,997)

141,584

(465,478)

(479,575)

(517,588)

Finance income

693

931

3,793

10,532

11,585

12,743

14,017

15,419

Finance expense

(148)

(404)

(1,191)

(5,402)

(7,148)

(6,725)

(6,629)

(6,969)

Pre-tax profit

523,892

(61,855)

(1,390,208)

(3,405,867)

146,020

(459,460)

(472,187)

(509,137)

Income taxes

(230)

(269)

(401)

(1,599)

0

0

0

0

Net income

523,662

(62,124)

(1,390,610)

(3,407,466)

146,020

(459,460)

(472,187)

(509,137)

Total comprehensive income

14,407

8,914

18,419

108,618

98,861

95,642

99,399

106,985

Reported EPS (diluted, £)

N/A

N/A

(21.68)

(49.83)

2.05

(6.44)

(6.62)

(7.14)

Adjusted EPS (diluted, £)*

N/A

N/A

0.28

1.56

1.39

1.34

1.39

1.50

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

163

163

168

177

192

Intangible assets

0

7

20

11,651

10,809

9,967

9,125

8,283

Investments

6,158

5,585

3,626

14,753

14,753

14,753

14,753

14,753

Long term receivables

15

323

329

53

53

53

53

53

Non-current assets

6,387

6,290

4,199

26,620

25,778

24,941

24,108

23,281

Trade and other receivables

9,350

27,011

62,274

1,314,438

1,251,705

1,350,628

1,534,247

1,829,767

Digital assets

217,521

427,524

1,826,695

3,703,220

3,412,731

3,630,024

4,099,922

4,907,485

Cash at bank

32,897

2,350

2,266

18,509

13,741

29,426

76,205

148,538

Amounts due from brokers

N/A

39,405

66,518

133,434

120,700

127,573

144,533

174,527

Current assets

259,767

496,290

1,957,752

5,169,600

4,798,877

5,137,652

5,854,906

7,060,318

Total assets

266,154

502,580

1,961,951

5,196,220

4,824,655

5,162,592

5,879,015

7,083,599

Share capital

2,214

2,215

31

34

34

34

34

34

Share premium

111

111

2,387

27,430

27,430

27,430

27,430

27,430

Other reserves

104,322

168,813

1,209,630

2,524,688

2,477,529

3,032,631

3,604,216

4,220,339

Retained earnings

(68,003)

(125,795)

(1,155,551)

(2,361,225)

(2,215,205)

(2,674,665)

(3,146,852)

(3,655,989)

Total equity

38,644

45,343

56,497

190,927

289,787

385,429

484,828

591,813

Trade payables and other liabilities

227,469

419,340

1,792,936

4,765,489

4,310,710

4,556,188

5,161,901

6,233,112

Amounts due to brokers

N/A

37,631

112,121

238,274

224,157

220,975

232,286

258,674

Current tax liabilities

42

266

398

1,531

0

0

0

0

Current liabilities

227,510

457,237

1,905,454

5,005,294

4,534,867

4,777,163

5,394,187

6,491,786

Non-current liabilities

0

0

0

0

0

0

0

0

Total equity and liabilities

266,154

502,580

1,961,951

5,196,220

4,824,655

5,162,592

5,879,015

7,083,599

Ratios

 

 

 

 

 

 

 

 

Adj. EBITDA margin

52.1%

54.0%

62.8%

86.7%

75.6%

74.1%

73.2%

72.5%

Adj. net margin

59.4%

38.4%

47.6%

82.2%

69.8%

68.6%

67.9%

67.4%

ETP management fee (% of average AUM)

2.5%

2.5%

2.5%

2.3%

2.2%

2.1%

1.9%

1.7%

Source: Company accounts, Edison Investment Research. Note: *Total 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 2021 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 2021 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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