Three cryptocurrency funds for the adventurous investor

Three cryptocurrency funds for the adventurous investor

I have tended to avoid commenting too much on the issue of cryptocurrencies, because frankly I don’t know enough about them. However, I am no miscreant and accept that cryptocurrencies have multiple uses and, despite my reservations, it is clear that they are not going away.

We’re in a crypto winter right now, but prices haven’t fallen to zero — it just feels like a particularly wild tech sell-off. When the tech enthusiasm returns, cryptocurrencies will be back in business.

With that in mind, adventurous investors might want to take a look at the listed cryptocurrency venture capital (VC) funds that trade on the Aquis Exchange. Aquis isn’t the London Stock Exchange, but it’s a viable venue for all kinds of esoteric action.

I invested in KR1 (AQSE: KR1), AQRU (AQSE: AQRU)and NFT Investments (AQSE: NFT). To varying degrees, they all share the same business model and raise capital to invest in other digital assets, decentralized finance startups or start-ups.

You could lose it all – but the upside could be huge

If, like me, you believe there is something in cryptocurrencies and other digital assets, it makes sense to put a small amount of money into early-stage venture capital funds. Always assume you could lose it all if the VC proves useless – but the upside could be huge.

KR1, the largest of the three funds, had a spectacular roller coaster ride. Until the end of 2021 the shares traded below 20p but then exploded to 220p before falling back to 25p a few weeks ago. In recent weeks, its share price has doubled again.

There is another reason why I focus on these funds – the relationship between net asset value (NAV)share price and cash flow.

The easiest to explain is NFT Investments, which invests in non-fungible tokens (NFT) and the broader market for digital assets. I invested at launch in April 2021 and it has been an absolutely terrible investment, crashing in value from 5p to just under 1p. It currently trades at a market cap of around £9.7m, but in the last set of accounts as of December 31, it had net assets of £34m. A good chunk of that net asset value is made up of investments that could be worth close to zero, but there was £21.9 million in cash. Administrative expenses amount to around £1.2m a year, so there is a good chance that by the end of this year the fund will still be worth less than 50% of its net cash – and some of those investments might actually be worth something.

It’s less clear with AQRU, where the market capitalization is £13.63 million. Net asset value at the end of October last year was £12.5 million, of which approximately £10 million at group level was cash and cash equivalents (these may include stablecoins). Administrative cash consumption appears to be around £1.1m per annum.

KR1 isn’t a cash game as it doesn’t have too much – around £3.5m according to late December accounts. He might actually need the money, given his burn rate. But the net asset value is £185m compared to the current market cap of £104m. Ether and bitcoin are down around 43% in value since December 2021, so it’s not unreasonable to reduce the value of KR1’s NAV by 45%, which would bring us to around £101m. sterling, roughly where the stock price currently stands.

Cryptocurrency funds are a risky bet on the future

If you believe crypto is here to stay and accept that it will be an extremely volatile asset class but at some point will come back strong, then KR1, with its mature and diverse portfolio of ‘digital assets, will be in demand.

Regarding NFT Investments, the cynic in me says that someone will surely be tempted to buy it for around 2.5 pa, pocket the money and sit with the portfolio of investments hoping that the The tide will turn for digital art and collectibles.

Still, I would be remiss if I did not issue a number of stark warnings to any adventurous soul thinking about this slot. Keep in mind liquidity (unlikely to be material), wide bid-offer spreads, ultra-low stock prices, and the rest of the foreseeable litany of risks associated with investing in small-cap digital assets.


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