DigitalX sees crypto assets plunge 27pc in one month

DigitalX sees crypto assets plunge 27pc in one month

Photo: Dmitry Demidko, via Unsplash

Perth-based blockchain technology and investment firm DigitalX (ASX: DCC) has today reported a 26.8 per cent fall in its eponymous digital assets fund in the month of November, with chief executive officer Lisa Wade blaming the fall on the contagion that flowed from the collapse of Bahamas-based cryptocurrency exchange FTX.

The value of the group's holdings of Bitcoin and other digital assets stood at $11.9 million as at 30 November, compared to $16.6 million a month prior.

This decline outpaced S&P Cryptocurrency Top 10 Equal Weight Index fall of 20.1 per cent, which DigitalX claimed was largely driven by a 4.5 per cent appreciation in the Australian dollar against the USD that impacted Australian dollar-denominated funds.

DigitalX's funds under management (FUM) also fell by almost a quarter to $12 million over the same period.

"As has been widely reported, November proved to be one of the most challenging months for digital assets to date as a result of the collapse of the FTX exchange," Wade said today.

"Although terrible from the perspective of FTX users losing their investment, it appears that this was a single organisation that misappropriated customer funds as opposed to a systemic issue.

"Undeniably there was contagion due to the interconnectivity of FTX’s sister company Alameda Research which on-lent funds to multiple parties in our industry, causing the overall underperformance of digital assets versus the broader equity market."

Wade said in the short term there was still a lot to play out in terms of contagion, with the gap between digital assets and traditional equity markets blowing out to around 58 per cent, compared to 47 per cent in October.

"We expect this spread to close over time as markets enter a new era of regulation and oversight. The veiled positive from all of this appears to be our industry more rapidly advancing towards the regulatory oversight we have been screaming for," she said.

"DigitalX did not have any funds on the FTX exchange and sold the small portfolio holding in FTT tokens prior to its price collapse.

"As professional investors that conduct deep and thorough research in this space, we have identified a new due diligence filter in our investment process that monitors cross ownerships and particularly insider selling, which led to our early decision to sell down our FTT tokens and continued refinement of our risk management process."

She noted the company also closely monitored counter-party risk in terms of how DigitalX executes trades, with funds spending minimal time on third-party exchanges.

"In addition, we only trade via trusted exchanges that meet our strict due diligence requirements. Outside of when we are trading, we hold 100 per cent of our assets in cold storage."

DCC shares however remained unchanged today at 2.7cps, representing a market capitalisation of $20.1 million. The group's share price has fallen 32.5 per cent in the past six months, and dropped 73 per cent since this time last year.

DigitalX ran at a consolidated loss of $2.8 million in FY22, down from a net profit after tax of $6.8 million the previous year although that had included a one-off revenue recognition item of $8.3 million for human protocol advisory. 

At the group's annual general meeting on 24 November, non-executive chair Toby Hicks was upbeat about the impact of DigitalX's acquisition of the Sell My Share platform completed in October 2021 - a business that has become a new revenue stream alongside product revenue.

"Whilst the ecosystem in which the Company operates remains in its very early stages, few companies, if any, have achieved the longevity that the Company has achieved operating and evolving within an ever-changing framework as traditional markets try to understand the opportunities presented by the evolution of digital finance," Hicks said at the AGM.

"It is for this reason that the Board, despite a disappointing financial result for the last financial year, remain optimistic about the possibilities heading into the next 12 months.

"The appointment of Lisa Wade as the Company’s new CEO in late 2021 is the highlight of the last financial year, with her extensive experience in both traditional finance and digital asset markets, enabling her to stand out from a pool of exceptional candidates for the role of CEO of DigitalX."

Today's announcement comes shortly after cryptocurrency exchange Swyftx announced earlier this week it would be letting go of 90 staff, representing more than a third of the group's employees.

"This was an incredibly difficult decision, but it was a decision we had to make as we prepare our organisation for a deeper and longer Crypto winter in the wake of the FTX fallout," Swyftx CEO Alex Harper, who co-founded the business with Angus Goldman, said in a LinkedIn post.

"Swyftx has no direct exposure to FTX, holds crypto assets 1:1, does not have any client assets lent out, has audited financials, and utilises Fireblocks for our secure custody solution. 

"We must now expect a longer road to recovery for the broader industry as we all work to rebuild. FTX was not a failing of the industry, but that of poor governance and bad business operations."

The redundancies came after the group let go of 70 staff in August, although the group still has almost 40 per cent more than the number of employees it had at the end of FY21.

"We have always been positioned as the trusted local Australian exchange, with a key focus on security, compliance, user experience and customer support. Swyftx will continue to lead the way in this space retaining one of the largest Crypto Exchange teams in Australia," said Harper, who along with Goldman was Brisbane Young Entrepreneur of the Year 2022 and won the Finance category in the Australian Young Entrepreneur Awards 2022.

"We will also continue to work with industry bodies as well as government and regulators to help shape the bright long term future for our Australian Blockchain & Cryptocurrency sector," he said.

"We wish the very best for our departing team members, and will do everything we can to support them in finding new roles. These people are the best of the best, we hope to see many of them again soon, whether that be as friends in social settings, around the local area, or welcomed back at a later point in the Swyftx journey."

In mid-2022 Swyftx announced a $1.5 billion merger with share trading app Superhero which is still in the integration phase.

Last month a spokesperson for the company confirmed the merger was still going ahead, and emphasised that plans to raise equity were not aimed at covering operational costs but rather for funding new product launches and international expansion.

"We’ve publicly discussed the potential to raise growth equity for expansion into new markets and products on many occasions. Nothing has changed. Any suggestion that the intention would be to use a potential raise to fund day-to-day operations is simply untrue," the spokesperson said at the time.

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