CoinShares International Limited

Thank you for standing by and welcome to the CoinShares Q4 earnings broadcast. All participants dialing in are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. You can submit your questions via the postbox below the video on the platform. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host, Jerry Lee Brown. Thank you.

Thank you, Operator. I would like to welcome you all to CoinShares 2024 Q4 Earnings Call and Webcast. Speaking from management today will be John-Marie Magnetti, Chief Executive Officer, and Richard Nash, Chief Financial Officer. All those joining today are encouraged to log into the live event where you'll be able to view the accompanying presentation during today's call. Alternatively, the results and a copy of the presentation are available to download from the investor relations section of the CoinShares website. A replay of the webcast will be available for 30 days following the live call and a transcript will be posted on the company's website as soon as it is available. Following the presentation, we will host a short Q&A via the webcast platform. Should you wish to submit a question to the management team, please provide your name and company affiliation. We will do our best to get to as many as we can within the allotted time. Lastly, our safe harbour statement. CoinShares would like to remind everyone that, except for historical information contained herein, statements made on today's call and webcast that would constitute forward-looking statements are based on currently available information. The company assumes no responsibility to update such forward-looking statements, and I would like to appoint you to the risk factors associated with our business, which are detailed in our prospectus. At this time, I will turn the call over to John-Marie.

Good afternoon, everyone. I'm pleased to welcome you all to Co-Chair Q4 2024 Earnings Call. This quarter and the beginning of 2025 has marked what I believe to be the most transformative period in our industry history. The United States has started to execute a dramatic policy shift that has fundamentally reshaped the digital asset landscape. The U.S. presidential election outcome, followed by several pivotal developments, are all illustrative of the profound transformation at play. Not to mention them all, but one will notably remember the end of Operation Showpoint 2.0, which, by the way, was a real thing if anyone doubted it, the Bitcoin Strategic Reserve or Stockpile Initiative, David Sachs' appointment as a crypto czar, the implementation of Crypto 2.0 Task Force under Commissioner Esther Pierce's leadership, or the nomination of crypto-fluent chairman at the SEC and the CFTC. All these developments, coupled with the successful launch of Bitcoin and Ethereum US ETF in 2024, validate our long-held conviction about US market leadership. A view we maintain even during a period of extreme bearish sentiment. America's extraordinary strengths lie in its ability to execute decisive shifts when determined at the highest level of state. This is precisely what we are witnessing right now in the US, with profound global implications. Just as Paris and Bernard Arnault made influence in France's global fashion, the US dictates new financial paradigms. We are experiencing a fundamental paradigm shift in how crypto is perceived, and this transformation carries global influence beyond the US borders. The US are executing and the world is taking note. The recent surge in Trump and Millennium meme coins, regardless of one's personal views, further exemplifies this transformation and reinforce a clear reality. Tokens are eating the world. A remarkable parallel can be drawn between Bitcoin and digital asset popularity and Trump popularity, both affecting specific paradigm shifts in our time. Both embody the response to institutional distrust, positioning themselves as an alternative to the establishment. Bitcoin challenging the traditional financial system and fiat money, while Trump positioned itself as an alternative to the conventional political class. However, while there is clearly a zeitgeist around Bitcoin and digital assets in general, maintaining perspective is crucial. As market enthusiasm and a sense of urgency grip the industry, Coinshare, with our decade-plus experience spanning multiple market regimes, must continue to plan ahead and position itself as a beacon for investors, both retail and institutional, helping them navigate these transformative times, which is part of our stewardship duty. This philosophy is reflected in our new brand tagline, delivering reason to digital asset investing, a statement that encapsulates our DNA. As I have mentioned many times, our objective is to build a market cycle resistance investment company. The only way to achieve this is to embrace and provide reason, helping our client navigate with a higher degree of certainty through peaks and through. On that note, let's dive into our Q4 financial. And for that, I'm joined by Richard Nash, our CFO. Richard, over to you.

Thanks very much, Jean-Marie. So we started 2024 extremely well and are glad to announce that we've ended the year in a similar fashion with the favorable price movements and new all time highs seen in Q4 resulting in one of the group's strongest quarters on record. The year as a whole has been incredibly positive for the group with a number of key achievements. And while some of these manifest directly within the group's financials, There are also those that are far less visible, but of which we are equally proud, namely ongoing improvements to our internal processes and trading infrastructure, which are allowing us to build upon strong foundations and develop alongside the wider digital asset industry with a view to safeguard our positive financial results as we move forward. Anyway, back to 2024 and specifically Q4, top line performance amounted to £48.3 million. bringing our year-to-date top line figure to 126.8 million. We had already surpassed 2023 by the end of Q3 2024, and this quarter's performance has built on this significantly, landing us up 66% year-on-year when it comes to top line performance, with both asset management fees and capital markets gains both effectively doubling. On the cost side of things, we've seen some notable increases when compared to 2023 due to a variety of factors. Given direct costs predominantly comprise custody fees, trading fees and issuer costs, we do of course expect to see these increase fairly proportionally with top line performance, but we've also included at year end a cost of approximately £1.5 million following the establishment of an expected credit loss provision. This is a non-cash impacting item and is a prudent step taken to accommodate for the chance of default on some of the digital asset lending activities, although it is worth noting that we've never had such an instance occur. which we put down to our internal processes and a risk framework relied upon when assessing counterparties to which we are willing to lend. Within administrative expenses, we have also seen increases year on year, and these can be largely attributed to additional costs following the acquisition of Valkyrie in Q1 and the significant increase in the group's bonus accrual, which operates as a function of overall performance, which is, of course, significantly up on 2023. Despite these increases, we have seen a healthy maintenance of strong margins at both the EBITDA and net profit level. EBITDA for the quarter of £33.6 million is largely on par with our strongest quarter on record, which is Q1 2024, which landed at £34.2 million. These are the two strongest quarters in the group's history, and having them land in the same financial period is testament to the overall evolution of coin shares. Finally, before we move on to the asset management platform, just a reminder of something that we noticed last quarter, we've made an important change in the year to our accounting policy for digital assets, which has now resulted in a net profit figure that is an accurate reflection of the financial performance of the group, readily understandable by a wide range of users and easily reconcilable to the group's EBITDA figure. The report that we issued today includes a summary of this accounting policy change for anyone who wishes to seek further understanding of its implications. So looking more closely at our asset management platform now, and as a reminder, the components of this business unit are the CoinShares XPT provider ETPs, CoinShares physical ETPs, the CoinShares blockchain global equity index or block index, and also now the ETFs within the Valkyrie product suite. The story within asset management has been consistent throughout 2024. Strong top line and continued diversification of management fees coupled with cost control and solid margins. As can be seen from the table here, the overall gross profit margin of the group's asset management platform remains healthy and stable. Total management fees for the quarter of £25.3 million represent the strongest quarter on record for the business unit. Price action and the resultant all-time highs seen in Q4 are the main contributors to this performance, which has brought the full-year topline figure to £87.1 million. While the improved performance is primarily driven by price action, it is also obviously aided by the ongoing expansion and diversification of the product offering within the Group. We continue to move towards our goal of placing less reliance on CoinShares' XPT provider as the primary source of management fees for the Group. It now represents 77% of overall fees within the business unit compared to 92% in 2023. The profit margin of the asset management platform remains very healthy, although has declined marginally versus 2023, particularly within Q4. This is due to increased issuer costs as a result of the Valkyrie acquisition, which totaled £1.4 million for the year. The platform itself is therefore now profitable at the gross margin level, having generated fees of £1.7 million. Admin costs have shown a year-on-year increase due to the growth of the team, and certain associated costs still remain low compared to our peers, demonstrating the lean nature of the cost base and the scalability of the overall platform. Looking at XPT providers specifically, XPT fees for the quarter amounted to £18.7 million. The level of outflow we saw on the products over Q4 amounts to $370 million, bringing total annual outflow to $774 million. We have observed the usual trend of increased outflow during periods of price appreciation, with XPT holders redeeming to realize significant gains. Still, however, the underlying unique number of holders continues to grow as more people enter the product at smaller volumes than those redeeming. Total assets under management for CoinShares XPT providers still saw a material increase over the quarter, despite these outflows, of 33.5%, from $2.8 billion to a closing AUM of $3.75 billion. So on to CoinShares Physical now. And as with Q3, we can again announce that CoinShares Physical has posted its strongest quarter on record with management fees inclusive of revenue generated from staking fees of 5.5 million pounds. A core driver for this performance in 2024, which is something we previously mentioned, is the introduction of staking capabilities on the CoinShares Physical Ethereum product, which has brought a material benefit to both CoinShares and note holders alike. Inflow into the product suite for Q4 amounted to $35.4 million, bringing the total inflow for 2024 to $165 million. The flows for our core ETP product suites and those of our key competitors are published in our weekly digital fund flow report, which is available on our website. Additionally, the level of AUM held within each of XBT and CS Physical is disclosed and subject to daily attestation by Ledger Lens. And this is a solution that's embedded into our website to provide additional transparency and comfort to all of our stakeholders. For Valkyrie, we've seen fees of £664,000 in the quarter, bringing total management fees since the acquisition in Q1 to £1.7 million. These revenues spread across the four ETFs within the product suite have been aided by price action in the quarter, despite a small amount of net outflow of $16.9 million. The closing AUM across these four ETFs as at the end of the year stands at $606.2 million. And finally, on Block Index, the Block Index generated fees of £439,000 for the quarter, bringing it to £1.7 million for the year. It's very similar to Valkyrie. The revenues from the Block Index have been very consistent over the course of 2024, and it continues to perform well when compared to its peers. The overall net flow seen on the group's product suites combined with price movements in the quarter have resulted in an increase in external AUM for the group from 3.82 billion pounds to 5.5 billion pounds. Moving on to capital markets. So the top line performance of the group's capital market business in Q4 represents the strongest quarterly performance since Q1 2021. generating other income and gains of £21.2 million. The entirety of 2024 has evidenced the benefit that a diversification of activities can bring, and Q4 is no exception to this. The strong performance in the quarter has brought the year-to-date top line to £57.4 million compared to £29.7 last year. And this top line figure is stated exclusive of the exceptional item of 28.8 million pounds, which arose from the sale of the group's FTX claim during Q2, which in turn led to a special dividend paid in Q3. The largest contributor to the performance of capital markets remains our each staking activities, resulting in rewards for the quarter of circa 5.6 million pounds, bringing the year to date figure to 23.3 million versus 20.4 in 2023. We did state in our Q3 report that we expected the full year staking yields to be in excess of that seen in 2023, and we're happy to report that this is indeed the case. Liquidity provisioning started the year very strong due to the high levels of flow experienced on Coinjo's XPT provider. This decreased somewhat moving into Q2 and even more so into Q3, but has shown a material increase during Q4 with gains during the quarter amounting to 3.5 million pounds. As these gains are ultimately driven by gross flows on CoinJay's equity provider, the price action during Q4 has led to high levels of flow and in turn increased liquidity provisioning opportunities. While delta neutral trading strategies saw muted opportunities during Q3, the volatility seen in the market presented a variety of opportunities that the capital markets team were able to successfully leverage in Q4, resulting in performance for the quarter of 4.7 million pounds, bringing full year performance to 12.7 million versus 5 million last year. This is a strong testament to the ability of the trading team when it comes to leveraging our balance sheet to the best of our abilities when the opportunity allows. Digital asset lending has continued to show consistent performance with income of 2.1 million pounds for Q4. This consistency arises from the fact that our digital asset lending capacity is largely driven by our risk framework, which ensures that we only interact with a small number of high quality counterparties. And finally, it's noted that as at the end of 2024, the previous BTC treasury position that we announced in Q3 of 78 Bitcoin has increased over 100% to 163 Bitcoin as of the end of the year. Gains and losses on this treasury Bitcoin will be tracked separately from the capital markets performance moving into 2025. It's important that we report clearly the recurrent revenue generated by the capital markets team across a range of market conditions to ensure that the business line attracts the multiple it deserves with the performance not being impacted by the passive gains or losses on our growing treasury position. And finally, just some closing thoughts. And when I provide these, we always pull a graph up on screen to look at the quarterly performance of the group since the start of 2021, which is helpful to visualize this in context. So 2024 was a very solid year for the group and it was close to being our best every year on record. The activities undertaken to generate our revenue, our gains and our other income continue to diversify with less and less reliance being placed on one aspect of the business. We hope to continue this trend moving into 2025 and ensuring that we are well placed to generate profits and by extension value for our shareholders, regardless of what the market chooses to do. I would also just like to remind everyone that the information we have touched on here is included within the full earnings report that we released earlier today. And with that, I will now hand back over to Jean-Marie.

Thank you, Richard. Let me now provide an overview of our operational performance. I'm particularly pleased to report that our Asset Management Division delivered exceptional results in Q4 2024, with revenue reaching £25.3 million and bringing our full-year revenue to a record £87.1 million. This performance was driven by strong momentum across our product lines. The current share physical platform continues its growth trajectory, attracting $30 million in net flows and ending the year with $160 million in net positive inflows. Particularly noteworthy was the performance of our Stake Ethereum ETPs, which generated $75 million in inflows, while our XRP ETP added $31 million. We believe this reflects growing institutional confidence in the regulatory landscape both in Europe and the US. Our recent initiatives have also shown promising results. The Finanzen top 10 crypto ETP launched in Q3 has already raised $10.3 million. Traditionally, basket in Europe has not done super well, so this is encouraging. Meantime, our physical Bitcoin ETP saw $105 million in net outflow during December due to profit taking. Our overall platform asset grew by 54% to reach $2.3 billion. This growth culminated in our physical Bitcoin ETP, achieving a milestone as the European largest physical Bitcoin ETP. Marketing initiatives in key regions have proven effective. In Germany, our counterintuitive Don't Buy Too Much Bitcoin campaign resonated strongly, generating 95 million impressions and over 100,000 high-quality engagement sessions. The Nordic market responded similarly well to our tailored approach, with crypto-related discussion increasing 50% and overall brand mention up 57%. Our efforts in Sweden have been particularly successful, where Conchia now leads awareness metrics among crypto ETPs companies, all that whilst keeping a cost-conscious approach. The Conchia XBT platform, while experiencing $370 million of net outflow, benefited from strong market appreciation, with AUM increasing 30% to $3.74 billion. Still in Europe, and to finish there, on the equity side, our blockchain global equity index delivered a 13.3% return in Q4, substantially outperforming broader markets. Looking at the US, our Valkyrie business line achieved net positive flow of $19 million, primarily driven by $52 million in WGMI net inflow. This performance comes against a backdrop of remarkable market strength with $16 billion flowing into crypto products, particularly Bitcoin spot ETPs. This is not a market we are competing for in the US. We have no place competing against BlackRock or Fidelity. This is for us a table stake and are much more focused on bringing to market high value added products. Turning to our capital markets and hedge fund solution business, those activity demonstrated robust performance across all segments in Q4. The trading team delivered strong risk-adjusted returns of 4.7 million sterling, capitalizing on the volatility and price action following President Trump's return. Looking ahead, we anticipate a favorable trading environment, supported by the regulation of financial services and pro-crypto innovation policy at the SEC. While this outlook is promising, our success will continue to depend on market volatility and our ability to capture dislocating and basis changes. Liquidity provisioning saw significant improvement with gross flow materially higher than previous quarter. This resulted in 3.5 million sterling in revenue for Q4 alone, representing approximately 50% of our entire 24 liquidity provisioning revenue. Our lending operation maintained stability, generating 2.1 million sterling with low asset turnover. While we successfully onboarded a new borrower, we maintained our conservative approach, prioritizing credit quality and risk mitigation over growth. The loan book size remains stable, reflecting typical year-end de-risking by our borrowers. The staking business continued to perform well, with yields holding steady and generating 5.6 million GBP. We didn't experience the expected dramatic yield compression thanks to robust on-chain activity, increasing validator fees collection. The staking business continues to perform well, with yields holding steady and generating 5.6 million sterling. We did not experience the expected dramatic yield compression thanks to robust on-chain activity increasing validator collection. While we're monitoring potential yield compression in coming quarters, we believe pro-crypto policies could drive greater innovation and on-chain activity. In our fund business, we reached two significant milestones. We completed operational testing of our new FinTech Relative Value Fund, which we launched based on market demand. Meanwhile, our Bitcoin Integrated Strategies Fund maintained a prudent approach during the election period, tracking Bitcoin closely with only a modest 70 basis points on the performance. a commendable result, giving the market exceptional volatility. Combined with treasury gains, this division delivered 20.2 million sterling in Q4 top line, bringing the full year total to 57.4. In our principal investment portfolio, we saw growth of 1.8 million sterling, driven primarily by digital asset appreciation. A particular highlight was Cominu securing a US$75 million strategic investment from Blockstream, which will accelerate its expansion in collateral management and tokenization services. It was also the appropriate time for me to drop from the board to focus my energy on Coinshare. This is completing my personal reduction in external third-party mandates now down to zero, and I started this move at the end of 2023, which is now complete. Referred to our stock price, the market has recognized our progress as evidenced by our stock appreciation of 46% in Q4 and significantly increased trading volume. Our strategic accumulation of digital assets is now standing at 163 Bitcoin. Looking ahead, we are at a critical instance when opportunity and preparation meet. Our carefully built foundation in Europe and the United States since 2014 now serve as launch pads for our next phase of growth. Our infrastructure is ready, our teams are aligned, and our market position has never been stronger. So on that note, thank you very much for your attention. And operator, can you please open the line for questions?

Hello, everyone. We have a number of questions today, so we'll try and get through as many as we can in the time we have available. And the first round of questions come from Red Eye, which the first is for you. How do you expect the pricing change for the Bitcoin ETP to affect the average fees across the physical ETP brand?

Okay, so the CoinShares physical Bitcoin ETP has the lowest mandatory fee. All the products within the CoinShares physical suite have been reduced to 25 basis points. But what we've actually seen across that product suite is inflow in excess of the outflow of Bitcoin into other products, which has actually maintained the average fee across the whole suite. It sits at approximately 1.8% at the moment, and given the way the flows are going, we expect it to be maintained at roughly that or potentially even higher if we see more inflows into our stake products.

Thank you very much. John-Marie, one for you. What is your medium and long-term view of what is happening in the US regarding crypto?

All right. Thanks, Jerry. I'm going to keep it very short. What's happening right now is transformative. The U.S. market is evolving very, very fast, and we are waiting for the results of the crypto task force under Esther Pierce to give us indication of where the market is going. But the direction of traveling is pretty clear, and it will move certainly faster than people expect.

Thank you, Jean-Marie. Rich, back to you. Could you please provide details on the yield earned on the assets tied to crypto assets due to the XPT structure?

Sure, so a large portion of the group's balance sheet and the digital assets that we hold are in association with an XBT provider and we deploy these in a variety of ways. We don't deploy all of them, but the yield we earn on them varies depending on the activity. So, for example, Ethereum staking, we had the Ethereum staking yield rate. The digital asset lending tends to generate yields of approximately 4.5%. The delta neutral trading strategies we undertake are much higher, between 8% and 10%. So it really varies from around 3% to 10% depending on the activity, but noting that we do not deploy all of those assets.

Thank you. John-Marie, do you believe that there are any contagion risks relating to micro strategies and the potential fallout on Bitcoin if a perpetual motion machine were to flip?

Micro strategy or Metaplanet are two companies we are following very closely from a risk management perspective. uh we are former commodity traders so we went through metal castle chef pamela and all the lovely names so we do believe they're doing stuff the right way we do believe they're a good company but you know we never uh we're always cautious so we are keeping a close eyes on what's happening thank you number one for you john marie how can coin shares capitalize on real world asset and tokenization trends uh right now we don't it's not part of our business mandate

Thank you. Richard, given the asset mix, is the current staking DeFi income reasonable to expect for 2025 and what is the driver of the realised yield?

So the driver of the yield there on is obviously the price of Ethereum and the yield that is available on Ethereum staking. When we look at the proportion of our Ethereum and the proportion of our balance sheet that we're staking, that will remain largely consistent moving into 2025. What we have less clarity over, of course, is the yield and the underlying price of Ethereum.

Thank you. Jean-Marie, how has your calculus regarding buybacks and acquisitions changed with higher volume and priced shares?

Well, it's not my calculus per se. We have a buyback authorization from the AGM from last year going until the next AGM to buy block trade in the market. So we are still... Contemplating that, however, we have now a bit more liquidity in our stock, so a buyback might be available on the market as well and probably something we will push at the next AGM as a request. to be able to do buyback in the market directly, not as a block trade. When it comes to acquisition, we have always mentioned we were acquisitive at the right price. So we saw transactions last year being a bit mispriced by other companies, and we will not follow this trend. We will always try to buy at the right price for our shareholder, even if it means passing on opportunities.

Thank you. Rich, last one for you from Red Eye. How do we think about the tax rate going forward?

Historically, to date, we have a very low blended tax rate across the group due to the jurisdictions in which we operate. I guess this question probably leads to the fact that we now have a greater presence in the US. and the Valkyrie platform is profitable on a gross profit level. There's still other costs that we're incurring in the US that are resulting in us having a net loss bigger on the bottom line in the entities that are in the States. thereby not really increasing our tax rate at the moment. But obviously, as that platform continues to grow and we continue to get inflows, that will flip and we will ultimately be paying tax in more jurisdictions than we are now and will result in an increase on that blended rate. But all that will be is indicative of success of our operations in the US.

thank you john marie last one from red eye for you have you seen any effects of the micro regulation yet had it changed the landscape um i know it does not directly affect coin shares but perhaps it's created some acquisition opportunities

MICA in itself is a catalyst. Funny enough, I think the US presidential election has more impact in Europe than MICA itself, as the US are moving and the world is watching. So we have more impact from the US policies and intended policies than from MICA itself but MICA is being implemented right now. CoinShare application is in with the AMF and is being reviewed and we hope we have a positive outcome on that very soon. In the meantime it will help also investment committee and other banks and decision maker trustees and so on to get more comfortable with the asset class and sometime overcome their apprehension when it comes to something which may be perceived as unregulated at first, which is now being regulated in more than one way.

Thank you. Moving on now to some questions from Kevin Didier at HCW. John-Marie, you have spoken about increasing coin shares marketing approach, especially in the US where competition is the toughest. What and when do you expect coin shares will ramp up on these expense levels?

Thank you, Kevin. As we discussed many times before, Coinshare is not a PE-backed or VC-backed company. It's backed by a shareholder, and every dollar we spend is a dollar we are weighting against paying back to our shareholders, or in terms of ROI, we have a very strong metric. All what we do is like we are not spraying. And when it comes to marketing, we are being extremely tactical. And an example of that is our company in Sweden last winter, which has been extremely successful in terms of metrics. And we can expand on that at another point. But in short, don't expect massive cash splash out from us. It will be always measured and targeted. Thank you.

Richard, on the admin expense, it seems to have increased a bit in Q4 2024. Is that due to the marketing related expense or just an end of year adjustment and comp being given due to sales and profits?

It's a combination of most of those things, Kevin. So we did have a marketing push towards the end of the year, which has resulted in increased admin expenses, both on a consolidated basis and also when you look at asset management on a standalone basis. I believe there's another question around admin expenses increasing within asset management. So yes, there was a marketing push towards the end of the year, but also the overall performance of the group was very strong and we, as everyone knows, we accrue a portion of our overall performance for the bonus pool for Stan. So the performance of the group over the second half and particularly the last quarter of the year has resulted in a larger bonus accrual and therefore larger loan expenses.

Thank you. John-Marie, back to you. Please, can you give us some color on the new product introductions? We expect to see some new stuff at Valkyrie that may have missed any new introductions made. What is the plan in the US and what about Europe? Do you have any new product introductions targeted as we speak?

So as usual, I can't do any forward-looking statements, so I'm going to be very careful and talk only about what is public. First of all, filing for single coin in the US is a little bit, I would say, speculative because the SEC at that point didn't give yet guidance on the right way to file a single coin in the US. And as you know, we didn't file an Ethereum product because we didn't want to do Ethereum without staking because it was the wrong things to do in the US at that point in time. We still believe that filing without staking even for Solana is not the right thing to do. So we want to see guidance on staking and work with the SEC on finding the right approach for that. So that's point number one. We speculatively filed for Litecoin as public information and for XRP. So that's two filings we did with that single coin product. And we have another under the 33 Act placement. And then there is a 40 Act product, which is which has been published in EDGAR platform. So it's a public information as well that we are hoping to come to the market in H1.

Thank you very much. John-Marie, can you comment on how the firm is acquiring Bitcoin for treasury purposes? Are these open market purchases or staking of court tokens too? How much capital do you intend to invest in Bitcoin treasury?

Right. So the Core Token is a story because Kevin also follows DeFi technology. So we're not going to talk too much about Core Token here. But from the Bitcoin pure perspective, you know, we have a capital market desk. We are basically rebalancing our Ethereum portfolio on the basically TWAP into Bitcoin. So we don't keep our Ethereums taking reward and we swap them into Bitcoin.

Thank you, Jean-Marie. Richard, one for you. Why did the cost of sales trend higher in December with the gross profit margin falling to 77%? Should we expect that to be the new normal going forward? And if not, what would be a reasonable assumption?

So the increase in Q4 that resulted in a deterioration of that margin is a one-off, really. So it's covered in the report. What we did in Q4 is we set up an ECL provision, an expected credit loss provision. I think I referred to this earlier in the presentation. As we are increasing our lending activities and setting the stage to further do so as we go into 2025, we deemed it prudent to establish a provision to accommodate for any potential losses we may incur as a result of these lending activities. We haven't ever incurred any today, which, as I stated before, is down to our risk framework and how we approach engaging with counterparties. So that was a one-off cost of approximately £1.5 million, which is driving that temporary decline in margin. Now that provision has been set up, it will roll and kind of increase marginally or decrease marginally in conjunction with the quantum of our learning activities so that that decline is uh hopefully just just seen in q4 2024 and we'll be back to back to normal moving forward thank you john marie what are the firm's plans for kumainu it's the largest holding now how are we mitigating the risk and what is the exit strategy i think you may be on mute john marie

I was, sorry. So Comino is our custody joint venture between Ledger and Omura. And Coinshare, this was an important asset to have in 2018 when there was no custody solution regulated back then. We have now a multitude of regulated custodians and actually Coinshare's strategy has been to diversify its risk of custody by working with several custodians. we work not only with Comino but others in terms of this investment it's a position we get as a contribution of our sweat equity in the early days it is now significantly up versus our entry price the request we had along with several other shareholders was to be able to look for liquidity for our position and ask the management of the company to make sure that legacy shareholder were allowed to be given liquidity as part of their asset fundraising effort. So Blockstream is taking a large position in the company now and the company is going to be run much more by Nomura and Blockstream and Ledger and Coinshare are taking a a second rule in that. And for that reason, we ask to be able to get some liquidity on this position when it is feasible for them. So we are working on that.

Thank you, Jean-Marie. Digital token lending appeared to be pretty consistent through last year. I know that you've addressed this in the past, but please remind us of how you're assessing counterparty risk. Are you willing to lend some more? And if and or assume higher levels of risk now that we're back in the bull market?

No, there's no more risk. We are kind of like thinking about it from a risk management perspective and the risk management framework we design is very, very much not linked to the euphoria of the market. So on the reverse, we become even more risk averse with the market becoming more and more euphoric. Our team is constantly rebalancing and reassessing the risk of our counterparty. For the reminder, the number of this counterparty is very limited to under 10 and they are made up of non-crypto native firm and only effectively can offer traditional finance firm with some kind of crypto activity. So we are selecting these people based on the strength of the balance sheet and the strength of their parental support.

Thank you. A new question now from Ericsson and Partners. The net current assets stand at a considerable amount, circa 300 million GBP. The accrued fees from the XBT platform are part of this, we suppose. Can you say how much of the net current assets are represented by accrued fees and if they are exposed to crypto prices or if they are hedged?

Sure. So as of end of December, the quantum of the accrued fee of an XBT provider stood at approximately £178 million and all of that balance is hedged. So they are not exposed to movements in crypto prices whatsoever.

Thank you, Richard. A question from ABG. Is the reallocation of Valkyrie costs a one-off item?

Yes, the reallocation of Valkyrie costs was a one-off item. As we were integrating Valkyrie into the group and making the necessary steps needed to do so from an accounting perspective, there was some tidying up to be done moving into the second half of the year to make sure the costs were hitting the right lines in the group accounts, but that has now stabilised.

Thank you. We have seen some positive buzz surrounding coin shares applying for spot ETF listings of XRP and Litecoin in the US. Does this mean that you have a very positive outlook on net flows into Valkyrie for 2025? That's for me, Jerry.

I think so, yeah. The positive buzz is very much of a Twitter buzz. So I'm not really sure the Twitter buzz is related to the investment thesis. So we shall see, you know, like Litecoin and XRP are the speculative, you know, it's a speculative application in terms of like, we don't know what the SEC is going to say about it yet. And so we are waiting to hear their feedback. uh as our all the other issuer uh now in terms of like what we can list uh is sure that we're gonna try to list something which are part of the top 10 market cap rather than something which is top 100 uh just because you know we know that uh from experience uh allocation of capital follow the market cap so we will not get a lot of success by listing the 100 coin in terms of market cap so xrp and litecoin were some kind of natural next uh in that sense

Thank you very much. Richard, can you please clarify if you saw inflows or outflows for Valkyrie during Q4 2024?

In Q4, we saw a small amount of net outflow across the four products of approximately $17 million or £13.5 million, despite the overall AUM growing within due to price appreciation, but we did see a small amount of outflow.

Thank you. Jean-Marie, could you please give an indication of your belief regarding profit taking for XPT provider and whether you believe the outflows will subside now that a lot of the profit taking is done or do you see this continuing?

Yeah, I think, you know, for the time being, January and February has been quite muted. It's a public information, so we can say that. you know, it tends to happen all in one go. It doesn't tend to happen like in a regular manner. So, you know, price action, view on price action, you know, in general, trigger some sell pressure on the upside. At the same time, if you get some view on price action on the upside, our AUM will go up as well. you know we we have some very very loyal customers and xbt providers some of them that we thanks a lot have been with us since 2015. uh so you know we'll be very happy to get them with us for many many more years but if they feel it's time to take some profit it's also understandable thank you jimray uh last couple of questions i think are for you richard from esconda associates when did you start using treasury to accumulate bitcoin and ethereum and what is your prompt basis

So, we commenced the accumulation of that Treasury position in the second half of 2024. And the way that we are tending to build that is taking a large portion of our Ethereum yield and converting it into BTC as we go. And so the Treasury position is, while there's a little bit of Ethereum in there, it's only temporary. We're building that position in BTC. And as of the end of the financial year, the Treasury position balance of Bitcoin was 169 BTC, so approximately $15, $15.5 million at year end.

Thank you very much. That brings us to the end of the questions. John-Marie, I'll hand over to you for closing comments.

Yeah, I just want to say thank you for joining us. That's the first time we also extend this broadcast through Twitter and AXX and LinkedIn. We have, I would say, 15 faithful followers on LinkedIn, but we have 1,400 people listening live on AXX. So thank you for joining this first session, which I think is probably the first time an earning call happened on AXX. It's a great way to start and we will hope we can continue doing it this way in the future.