The CoinShares business over the course of 2020 is best summarized across four key themes:
Profitable and growing amid global pandemic
- The first quarter of 2020 started out strong, but March hit everyone in the industry, hard. As global markets experienced mass selloffs, Bitcoin was not immune to the pressure. The silver lining to this disruption was the opportunity it gave us to show our partners that even under pressure, our trading infrastructure was resilient and reliable, with no downtime or outages, and to show our noteholders of the Group’s ETPs that even in such volatile markets, we could still provide the necessary liquidity to facilitate trading of our products. By summer, it became clear that the sentiment around Bitcoin was shifting dramatically. While Bitcoin may have been introduced to the world during the last financial crisis, it blossomed and came of age during this past year’s global economic crisis. With the unprecedented acceleration of quantitative easing raising concerns of a weaker dollar and justified fears of inflation, investors of all types continued to allocate capital to the digital asset ecosystem. Our weekly “Digital Asset Fund Flows Report” (https://coinshares.com/ research/digital-asset-fund-flows) confirmed this, with 2020 inflows into digital asset products reaching new highs of nearly $7B with global AUM reaching $45B, and Q1 2021 inflows to date hovering near $6B, with global AUM at $57B as of 30 March 2021.
Positively contributing to the digital asset sector
- Our team remains committed to the growth of the digital asset industry. In 2020, we added two full-time team members to our respected Research Team, who published over 500 pages of timely content and expanded our research portfolio to include investment strategy and portfolio construction. Over the summer, we published a widely read and cited research paper demonstrating that in a traditional 60/40 portfolio, a 4% allocation to Bitcoin was optimal (https://coinshares.com/research/a-little-bitcoin-goes-a-long-way). JP Morgan followed suit, but has arrived at a slightly different conclusion with a recommended 1% allocation. We believe ours is, of course, the better strategy. We announced in 2020 that a real-time attestation service, built in collaboration with Armanino LLP, will provide trust and transparency in our assets under management and liability positions on our platform. To the best of our knowledge, we are the world’s first investment house to introduce the ability for the noteholders of our products to review our net positions in real-time, and we encourage and expect our peers in the sector to follow our lead in providing this enhanced level of trust and transparency investors not only desire, but deserve. Our team remains deeply involved in advocacy and education initiatives with partners such as the World Economic Forum, Imperial College London and the MIT Digital Currency Initiative, which funds Bitcoin core development, but also in new efforts like the DeFi Alliance or Blockstream’s Liquid Network. We continue to look for opportunities to bring our credibility, capital, and capabilities to industry efforts like these.
Staying connected as a global team
- 2020 was an unexpected year for everyone, but at CoinShares, the entire team has adapted and thrived in this new environment. We found innovative ways to stay connected across time zones and continents. The team developed a renewed sense of purpose and solidarity amidst the chaos of the global macro landscape. Since the start of the pandemic, we have grown our team by nearly 40%, including strategic hires across key functions. Our team, while separated by screens, have in some ways actually felt a lot closer with the shift to remote work. In helping one another manage work and life commitments, we have had the opportunity to meet some adorable children, supportive spouses, and various four-legged friends!
Navigating the global regulatory landscape
- Regulation is always a central part of our business at CoinShares, with approximately 10% of our staff involved in legal and compliance activities. Our seven-year track record as a global, regulated digital investment house has become a core competitive advantage when engaging with global regulators. While we do not yet have consistent regulation of digital assets across the multiple jurisdictions in which we operate, we remain grateful to all of our regulators for their engagement, support and intellectual curiosity when it comes to digital assets. We continue to invest in technology that will improve our ability to manage and mitigate risk across our business lines. We remain committed to building solutions to solve key challenges around regulatory compliance. Our custodian joint venture with Nomura and Ledger, Komainu, is the perfect example of this approach.
Please refer to the Annual Report in the column parallel to this blurb for more info around our 2020 annual earnings.