K33 AB (publ) ($K33)

Good morning, and welcome to this Q1 presentation for K33. My name is Torbjørn Bull Jenssen, and I'm the CEO of K33. Most of you probably know a lot about K33 already. But for those who don't, K33 is a crypto exchange optimized for investors and corporate clients. We let clients trade against exactly the fee and currency they choose. We give them access to a named account manager and we offer deep liquidity, market research and superior custody solutions. And now new from Q1 this year, we're also offering lending, enabling clients to borrow money against their crypto as collateral. That way, they can free up liquidity to invest in other instruments, buy more crypto or pay taxes or use the funds exactly how they see fit. This is an important milestone for K33 and marks our broadening of our product offering from an execution and custody product complemented with research to a more full spectrum offering catering to more than just buying, selling and holding, but also now liquidity provision and lending and in the future, more asset management and broader services. Taking a step back and looking at the market, it's been a volatile quarter, and it's been pretty quiet and dampened mood in the crypto sector actually since the start of the year. Bitcoin saw a sharp downturn and volumes fell generally in the industry. During Q1, market activity fell with 15%. And we see defensive positioning in the derivatives market with the longest period this decade with negative funding rates, meaning that participants are betting on fall in Bitcoin price. We see ETF outflows, and we see general risk aversion. However, we also see extremely strong news flow, especially on the institutional side. We see the biggest financial institutions continuing at full pace, rolling out new services. Giants like Morgan Stanley and Schwab rolling out not only ETF trading in Bitcoin but also spot crypto trading, validating our hypothesis that the future of finance does not only need Bitcoin wrapped up in ETF as a stock, but also need real access to spot crypto. This means that now is the time to build. Now is the time to prepare. The smart money, the long money uses this opportunity to be ready for the next bull market. In K33, however, we did not see a fall in activity, rather the opposite. When the market fell 15% in terms of trading volume, we grew 73%. This volume means that we are continuing to win market share. We're continuing to win clients from the private wealth segment from institutional counterparties that rely on us for their execution. And this gives me confidence on the trajectory that we are on in K33, that this will continue on the long term. Volatility should be expected from quarter-to-quarter but as you can see from our trading volumes, the trend is very much intact. Back to the financials and looking more at the result. The result of period ended negatively mainly due to the fall of Bitcoin and Bitcoin mark-to-market. In addition, we have invested heavily in preparing for MICA, the licensing which will enable us to continue to scale and grow the business once we obtain it, expected now in Q2. And these 2 effects together is what brought the end result slightly down. But as an investor, what you should really pay attention to is the growth of activity. The growth of K33 as a brand and a trusted platform. And there, we are very much on track and where we want to be. And as I mentioned, we reached a key milestone by launching crypto collateralized lending now in Q1. This is a way for us to deepen the relationship with our clients and add a recurring revenue stream together with the transaction-based margins from trading. So of course, when clients decide to borrow on the 1 side, it's a great value add for them where they can free up liquidity without being forced to sell their crypto. But on the other side, it means that we are going to start making an interest type of revenue on the outstanding loan book. Right now, we're offering this to corporate clients only, and we're building this out step-by-step with a measured approach and disciplined approach to risk. Over time, we expect the lending business to grow substantially and complement the revenue stream and profitability of K33 in an important way over the coming quarters and years. But we didn't only launch lending. We also acquired a large stake in a Canadian Bitcoin treasury company, Sixty Six Capital, where we bought a 46% stake. A lot of you may ask, why would you do that? Isn't K33 mainly about building its own business and holding its own business -- Bitcoin to leverage that in the operation? Well, that's true. But by acquiring this stake in Sixty Six, we've actually done something very exciting. We've secured access to Sixty Six in a way where we can deploy the full balance sheet of Sixty Six. They have around 144 Bitcoin of exposure in the operation of K33. So right now, we're sitting on the Board. I am the CEO of Sixty Six Capital as well. This puts us in a great position to unlock the synergies from the balance sheet of Sixty Six and operation of K33 and this will enable us to scale our lending business, our match principal trading, more efficiently looking ahead. It also puts us in a great position to potentially should the terms be right and opportunity present itself to acquire the rest and scale our Bitcoin exposure even further. So to summarize, through this acquisition, we increased our net exposure by 20% to Bitcoin, which in itself is an important achievement. But more importantly, we scale the balance sheet that K33 has access to and that K33 can leverage in the operational business, which is the core focus and where the true value potential really lies. And in addition, we also launched a major update to the platform, not something that's visible to the end client, but something that really is important from a compliance, automation and scaling perspective. We have now fully integrated automation with the banks in a way where we can switch to any Norwegian bank without changing technology. This enable us to do automatic accounting, crediting of balances, deposits from clients 3 times a day. This gives us important flexibility and our direct bank integration is a key strength in K33. Most of our international competitors rely on payment intermediaries. Those payment intermediaries are expensive and a higher risk factor. Should they shut down the partnership, the platform is without fiat rails. For us, on the other hand, we save on cost, this is a benefit for the clients. It means they're going to rely on direct bank transfers. We can switch to any Norwegian bank without changing integration, and it removes the single point of failure from a payment provider. In addition, we launched several of the automations, which puts us in a great position to really deal with and live with the implications of MICA and regulation in a scalable way where we can meet the requirements without putting tons and tons of people dealing with, following up on the different procedures, et cetera. And I think this is very key. People need to realize that across Europe, there's been around 2,500 different crypto asset service providers. As it looks right now, about 10% of those will obtain a MICA license. There's going to be a massive washout of competitors. I'm confident that K33 will be one of those who obtain a MICA license. Right now, we're waiting for the Norwegian FSA to come back to us. We have answered all the questions. Of course, I cannot give any guarantees. It's a new regulation. It's new to us. It's new to the market, and it's new to the regulator. But from the dialogue we've had from the process we've had with FSA and from the systems, routines and processes we have in place internally, I'm very confident that we will meet the requirements and get the license. And this license will not only be a license to continue as is. This will be a key enabler for K33 to scale with its institutional partnerships because when we are licensed with the same type of regime as traditional finance then the wealth managers, the asset managers, the private banks they're to play with us and they're to work together. And that's where we see long term very exciting scaling possibility. So to summarize on MICA, we are ready. We expect to get approval now by end of Q2. MICA itself is reducing competition in the industry. It's going to force a ton of companies to shut down or sell and this gives a great competitive moat to K33 and the other providers that are -- have taken the heavy lift of preparing. It comes with a cost, but that cost is going to pay back over time. So to summarize, Q1 has really been a quarter that delivered. We saw strong growth in a flat and falling market. We showed resilience in our activity and reached SEK 2.7 billion in annualized or 12-month rolling trading volume from our clients. We launched crypto collateralized lending, and we started to issue the first loans to corporate counterparties or corporate clients. We expect this to scale over time and become a very important revenue stream, not next quarter, maybe not the one after, but something we build up systematically through the coming quarters and years. We are now well, fully ready for MICA, not only from an application and procedure perspective, but also operationally in the automations we've invested in and launched on our platform. We increased our Bitcoin exposure through the acquisition of shares in Sixty Six Capital, scaled our access to capital that can be deployed operationally to unlock synergies with K33's operational business. And we are in a better position than ever to continue to build during this weak market sentiment and we're ready to really kind of rise to the occasion as the market comes back. Underlying news flow is crystal clear. Bitcoin is here to stay, the crypto industry is here to stay and K33 is here to stay. Thank you, and have a great day.