The Big whale: It's been over a year since the crypto markets have been at their best. The results of CoinShares have been impacted. How is the company doing?
Jean-Marie Mognetti: Honestly, things aren't that bad. We have managed the negative effects of the Bear Market quite well. We have reviewed our costs and the structure we have put in place allows us to absorb the shocks.
What are the specific features of your structure?
Since our launch in 2014, we have chosen not to finance ourselves via venture capital companies (VCs). CoinShares was launched with the equity of its partners and then grew from its existing revenues and conditioned its expansion on the growth of those revenues.
The danger for a company that is fuelled by venture capital funds is that you are forced to spend their money, no matter what. That's what happened with the previous Bull Run, and we're seeing the consequences today. You have to manage your growth and not go off in all directions, especially when the markets are rising.
How have you avoided going off in all directions?
CoinShares has concentrated on its original expertise, asset management. We began by strengthening our crypto ETP business (a type of ETF in Europe) . We also moved away from our Capital Market business to launch Hedge Fund Solutions, our hedge fund business.
You already had a crypto hedge fund business that you stopped in the past. Why relaunch it now?
Firstly, because we have consolidated and perfected our model on our other activities such as proprietary trading, which now accounts for almost 50% of our revenues.
Then, because the market has matured. In 2014, we actually launched a regulated private fund on bitcoin (Global Advisor Bitcoin Investment Fund). We stopped it in 2017 because the market was not yet mature enough in terms of infrastructure, regulation or liquidity.
At the time, interest rates were also very low. Launching a hedge fund business was less relevant at the time. Offering structured products like ETPs in a volatile asset class like cryptos was enough for investors. With interest rates at 5%, deploying allocation strategies via hedge funds becomes much more relevant. The playing field is wide open.
What resources does your hedge fund have?
Over time, we aim to raise several hundred million euros from institutional investors. Around twenty people will be responsible for managing and developing this activity.
What is the strategy?
We can't communicate precisely on this, as the funds are not available in Europe. But for the moment there are two funds, Bitcoin and Ethereum, which aim to outperform the underlying asset.
As well as launching your crypto hedge fund, you have also announced that you want to expand into the US. Isn't that a bit risky with the current regulatory environment?
When regulation is put in place, it naturally creates friction. But wanting to leave the United States because of regulatory uncertainty is an error of analysis. Some players choose to retreat to offshore jurisdictions. That's not what we want to do.
At CoinShares, we have always put regulation at the heart of our strategy and we will continue to do so. Regulation makes all the more sense as we believe we have the weapons to play a key role in the United States.
Your first two hedge funds, based on Bitcoin and Ethereum, have been launched in the United States and the United Kingdom. Why not in the European Union?
Globally, Europe does not have the same appetite for risk. This trend can also be seen via structured products such as ETPs. Germany and Sweden are perhaps the exceptions. In this context, it was therefore rather logical to start deploying our hedge funds in the UK and the US.
In terms of investment products, how are cryptos perceived in Europe compared with the US?
Contrary to what we hear just about everywhere in Europe, there is much more appetite for cryptos in the US 🇺🇸. It's regrettable, but that's the way it is. In fact, it's a shame because Europe is ahead of the rest of the world on the subject.
Very early on, Europe succeeded in creating clear legal structures that enabled products like ETPs to be marketed. But unfortunately, as I always say, we let our lead slip...
How do you explain this reticence in Europe?
There are several explanations, but I would say that the main one lies in the relationship to innovation. In the United States, innovation comes naturally.
Even though some people criticise cryptocurrencies, you're going to see giants like BlackRock working with crypto companies like Coinbase or Circle. Can you imagine a European player of that size doing the same thing? The US is clearly better at seizing new opportunities.
In Europe, we like to talk about innovation, but in reality it doesn't always follow. Whether it's companies, banks or funds, everyone remains sceptical overall. It's once things get going in the US that we react... France has some of the biggest banks in Europe, but none of them provide easy access to crypto products.
Cryptos are a new asset class. Isn't it a good thing to want to be somewhat cautious?
Of course, we shouldn't rush into anything. But the irony is that by wanting to over-protect consumers, we're pushing them to invest via crypto exchange platforms with fewer regulatory obligations overall and sometimes located in rather exotic jurisdictions...
Will your US activities overtake those in Europe?
I don't know if they'll be bigger in the US, but they'll be different, that's for sure. We are also looking at Asia.
Over time, our ambition is to become a global player by offering a complete range worthy of a traditional asset manager, but applied to crypto. The FTX scandal came as a shock to everyone. Investors need to have reassuring investment policies with processes that are close to the traditional financial world.
Isn't it a bit risky to focus solely on cryptos?
CoinShares was launched by commodity traders with a simple objective: to focus on assets that are thought to be undervalued.
In the beginning, we bet on commodities and oil in particular. We think exactly the same thing with cryptos and bitcoin, whose supply is restricted to 21 million units.
More generally, the players who have started to develop skills to apprehend the volatility of cryptos have a head start.
Beyond the limited supply, what do you think makes bitcoin so valuable?
Bitcoin is not under the control of any central entity, which protects it from currency crises, inflationary crises and political manipulation. Its system also allows resistance to censorship since transactions are peer-to-peer.
Bitcoin's other great advantage is that it can be transported easily and securely unlike other assets such as gold and simply requires a private key storage device.
These characteristics make it possible to combine both opportunities for substantial returns and robust mechanisms for preserving value.
What would be likely to get the market going again?
Personally, I don't have a crystal ball but several elements could play to the upside. I'm thinking in particular of the approval of a Bitcoin Spot ETF in the United States.
Such news could be a trigger by allowing retail and institutional investors to gain exposure to bitcoin via conventional financial vehicles.
Today, we can clearly see that bitcoin and ether are starting to be considered as assets in their own right. There is still a lot of interest from institutions in the traditional financial world in understanding the subject, but very few dare to take the plunge fully. In the long term, the more regulation moves forward, the more people will enter this market.
