Kryptonite 1 (KR1)- Cryptocurrency Investment Trust?

Just put a small weight in the somewhat oddly named Kryptonite 1.

This is a very small (£3.4m) market cap company.  It invests in the blockchain ecosystem.

I am investing in this as tracking the current value of their holdings on http://www.coinmarketcap.com you can see that they are worth about double the existing market cap.

Take care trading this – its on the NEX exchange which is AIM’s less regulated, riskier cousin – so this one is not for the widows and orphans amongst you.  I bought at 3.75, there is a huge spread 2.75-3.75.

They hold 73m worth of funfair tokens worth £1.5m, 365k Omsego worth £2.6m, £1m of Insurex – to say nothing of other holdings and cash.  You can see this information on their various filings posted here.  Note that this is not exact – I could be mistaken if they have traded without a notification – it is my best guess based on the information available to me.  I should add this isnt literally an investment trust – but the balance sheet appears set up so in effect that is what this is.

Totalling what I think everything is worth and trying to track the transactions back to the position as at 31/12/2016 and I get to a figure of about £7m – roughly double the current market cap.

Further I think this should actually be trading at a premium to a theoretical NAV – not a substantial discount.  The management have been able to add quite substantial value.  They have taken £440k at 31/12 plus £750k from a placement and turned it into c£7m, in under a year, a very healthy rate of return.  I’m not overly impressed by a discounted placement to management, also with them being newly listed information is rather tough to find.

There are few other companies I know of holding cryptocurrency and still fewer trading at a material discount to NAV.  There are lots of investors out there who would love to get into something like this and would be happy to pay a premium to NAV.  The simple bitcoin investment trust trades at a 50% premium to NAV.  If we apply the same principle here we get to about 10-11p a share.  Even if we dont assume a premium we have 7p a share.  This assumes no change in the value of their holdings – which are currently riding something of a wave.

In the abscence of an upsurge in investor interest – possibly triggered by me I would expect it to rerate when half year results are announced / when the upsurge in the value of the company is noticed by the market.

Downside risks are a collapse in crypto valuations / bad investment decisions – though they seem to have done well so far and have put their own money in.  Looking atwhat they bought to me there is logic there although how this will ultimately pan out is anyones guess..  Crypto is near impossible to value, it could be worth nothing and therefore go to 0 – taking the value of this with it.  I believe they can exit their holdings without crashing the price from looking at volume information – but I could be mistaken and liquidity could evaporate.

I should also warn that this is likely to be highly illiquid – I post after I buy my shares (for obvious reasons) if the price of this thing spikes I may well get out.  Others may be happy to hold at substantial a premium to NAV, I will think twice….  I can just buy the underlying crypto whereas others may not be able to.

This is a small portfolio weight of 2.5%.