Thank you for standing by, and welcome to CoinShares Q4 earnings broadcast. All participants dialing in are in a listen only mode. After the speaker's presentation, there will be a Q&A session. You can submit your questions via the post box below the video on the platform. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host, Jerilee Brown. Thank you.
Thank you, operator. I would like to welcome you all CoinShares' 2022 Q4 earnings call and webcast. Speaking from management today will be Jean-Marie Mognetti, Chief Executive Officer, and Richard Nash, Chief Financial Officer. All those joining today are encouraged to log in to the live event, where you'll be able to view the accompanying presentation during today's call. Alternatively, the results and a copy of the presentation are available for download from the investor relations section of CoinShares website. A replay of the webcast will be available for 30 days following the live call, and a transcript will be posted on the company's website as soon as it is available. Following the presentation, we will host a short Q&A via the webcast platform. Should you wish to submit a question to the management team, please provide your name and company affiliation.
We will do our best to get to as many of these as we can within the allotted time. Lastly, our safe harbor CoinShares would like to remind everyone that except for historical information contained herein, statements made on today's call that would constitute forward-looking statements are based on currently available information. The company assumes no responsibility to update any such forward-looking statements, and I would like to appoint you to the risk factors associated with our business as detailed in our prospectus. At this time, I will turn the call over to Jean-Marie.
Good afternoon, and thanks for joining CoinShares Q4 2022 financial earnings call. After returning to profitability in CoinShares was impacted by the collapse of FTX in Q4. We remain financially robust and successfully graduated to Nasdaq Stockholm's main market. FTX unexpected fall from grace and subsequent collapse into bankruptcy took the entire digital asset space by surprise. At the time FTX halted withdrawal, GBP 26.6 million of our assets remained there. Asset recoverability remains uncertain and claims are trading around $0.15 on the dollar as we speak, up from $0.02 on the dollar the day after the bankruptcy. As a prudent and conservative measure, we wrote down the entire balance in our Q4 financials. While the group's financial health remains solid, providing for this amount in full as impacting our financial performance for both Q4 and 2022 as a whole.
2022 will be remembered as a turning point for the industry. We believe that companies capable of being publicly listed and regulated are best placed to emerge as the winners in our industry. Having graduated to Nasdaq Stockholm, we proudly count ourselves in this category. Let's take a quick look at the market. Post FTX, the value of digital asset has now stabilized, and the FTX gap has been filled. Forecasting the future of Bitcoin price remains an art more than a science, especially in the current uncertain macroeconomic climate. This being said, Bitcoin around 25000 with the most recent SEC declaration and two year Treasury just below 5% is a very strong sign of resilience. Despite these difficulties, Bitcoin is becoming a variable addition to investment portfolios.
Its volatility is no longer perceived as a drawback to some, but rather a feature and a benefit in a diversified strategy. Bitcoin is more than just a risk on asset. It is increasingly perceived as an interest rate sensitive asset like gold. Once the dollar soften, investors seeking a slightly more volatile option instead of gold will likely return to Bitcoin. Taking a quick look at Ethereum as well. Following Ethereum's shift to proof-of-stake in September, the Ethereum Foundation is set to unlock withdrawal capabilities from the staking nodes in H1 2023, a massive milestone for this protocol. As such, to maintain fairness and transparency towards product investors, we reduced management fees for CSDS Ethereum product to zero in anticipation of unstaking function becoming accessible. 2023 will be a year for structuring, consolidation, and development for the industry and consequently for CoinShares.
We anticipate the arrival of institutional players in the second half of 2024 as regulation in Europe, the U.S., and the U.K. start to come into force. Strangely, it will also coincide with the next Bitcoin halving cycle. I will share with you further updates in my second part. For now, over to Richard to speak about Q4 financials. Richard, over to you.
Thanks very much, Jean-Marie. As has already been made clear, the quarter has been somewhat overshadowed from a financial perspective by our exposure to FTX. This, coupled with the events of Q2, when we experienced a loss in respect of the collapse of UST, has in turn also impacted the year as a whole. I think the one point that is important to not lose sight of in amongst these two events is the health and robust nature of the underlying business of the group. Taking a look at Q4 on its own, we generated revenue gains and other income of GBP 14.5 million. Approximately 60% of this figure came from our asset management business, and about 38% of this came from our capital markets business.
As has been the case consistently since we initially listed on Nasdaq First North back in March 2021, these are our core business units, it is here where we are reshift our focus moving forward now. Given the Q4 market conditions, the top line figure of GBP 14.5 million is solid. When looked at against our direct costs and our admin expenses, which were GBP 1.7 million and GBP 4.8 million respectively, the underlying business generated adjusted EBITDA of positive GBP 7.9 million. This is obviously prior to considering two significant figures, being a goodwill impairment and the FTX provision itself, which we'll talk about in a bit more detail shortly. The direct costs of the group comprise custody fees, trading fees, and issuer expenses incurred by the two issuing entities of the group ETPs.
These have shown a QoQ decrease in 2022, in line with a reduction in capital markets activities and reduced custody fees arising from a decreased AUM following digital asset price declines over the year. Admin expenses of the group have been relatively consistent throughout the year at an average of approximately GBP 1.8 million per month and GBP 21.2 million for the full year, with the key expenses being salaries, marketing costs, professional fees and rent. We've managed to keep the underlying cost of the business fairly consistent with 2021, despite our growth and the significant work undertaken to achieve the admission of the company's shares to trading on Nasdaq Stockholm's main market. Despite this underlying performance and the stable costs, our FTX provision and the goodwill impairment has resulted in an adjusted EBITDA loss for the quarter of GBP 23.5 million.
Unfortunately, this has negated our year-to-date performance using the same metric to an Adjusted EBITDA loss of GBP 6.5 million. Now a little bit more information on the goodwill impairment charge that we see in the quarter. In consultation with CoinShares France leadership team during the quarter, the difficult decision was taken to cease the group's consumer platform activities. While we saw positive steps being taken throughout the year, it became clear following the collapse of FTX that the landscape had changed significantly. The level of ongoing investment required to support HAL Trading and other consumer platform initiatives would be better directed into supporting the core business units of the group.
As a result of this, we have therefore recognized a sizable impairment charge against the goodwill held in respect of these activities, which were recognized on the acquisition of Napoleon back at the end of 2021. Now onto the FTX provision, which has already been touched upon by Jean-Marie earlier and announced back in November. We elected to provide against 100% of our FTX exposure, which is in total GBP 26 million. While we remain hopeful of a meaningful level of recovery, the quantum and the timing of such an event remains entirely unclear. Therefore, we deem our prudent approach regarding our provision to be the most suitable way forward at present.
Obviously, we will continue to monitor the situation closely along with the wider industry and keep the market up to speed with any meaningful developments that will have an impact on this balance and its recoverability. Of course, we're disappointed by the overall financial result, we've seen in 2022. Two of the most significant events that hit the industry during the year, which were felt by many, were also felt by us. We have felt these both directly through our own exposure and indirectly by virtue of their impact on the wider industry. These events both act as a stark reminder of the pitfalls of this continually evolving landscape within which we operate and the importance of ensuring our risk framework continues to evolve.
Now looking at our asset management platform in a little bit more detail, and as a reminder, the components of this business unit are the XBT Provider CoinShares Physical ETPs, and CoinShares Blockchain Global Equity Index or BLOCK Index. The platform generated combined management fees over the quarter of approximately GBP 8.5 million, and this is around a third of the comparative quarter back in 2021 due to the markedly different levels of pricing we've seen during 2022, particularly towards the end of the year. That being said, we've continued to capture inflows CoinShares Physical, and even despite such price declines, CoinShares Physical platform revenues are actually higher than those seen during Q4 2021. This also continues to represent a more material contribution to overall management fees QoQ.
In Q3 it was 6%, and in Q4 it is now 8%. We are continuing to diversify our product suite and management fee streams and this is shown by this, you know, the increase in this percentage that we're seeing QoQ. Onto XBT Provider. After August 2022 brought the first month of net inflows since early 2021, we have seen the outflows largely stem completely in the product as the number of underlying noteholders continues to increase. The net outflow for the entirety of Q4 for XBT Provider stood at just $48.1 million. The flows for both ETP product suites and also those of our key competitors is published in our weekly Digital Funds Flow report, which is available on our website. The overall gross profit margin of the group's asset management platform has remained largely consistent with 2021.
While we have seen increased fees relating to the expansion of the product suite and the growth of the team, these have been offset marginally by cost saving elsewhere within the business unit. As a quick recap and summary for the end of the year, the level of AUM across the two ETP platforms, XBT Provider CoinShares Physical, stood at approximately GBP 1 billion, with an additional GBP 440 million of AUM within the BLOCK Index. This total figure is down approximately 25% from the end of Q3, although we have already begun to see signs of recovery moving into 2023. Now on to capital markets. 2022 was a, you know, challenging year within the market and Q4 was no exception.
The overall performance of Q4 was, as we've already stated, impacted by the FTX provision and the performance for the year also impacted by the UST loss, which are both classed as exceptional items in the, in the table that we're looking at now. These events, coupled with the conditions of Q4, have resulted in an operating loss of GBP 22.2 million, bringing the operating loss for the full year to GBP 28 million. To put that in context, the full year 2021 saw an operating profit of GBP 50 million. Looking at the performance of the quarter independently of the FTX provision allows us to shine a little bit of light on the business unit.
Liquidity provisioning gains of GBP 500,000 million for the quarter arose from supporting the XBT Provider ETPs, and this is down a little bit when compared to previous quarters as the level of flow, as previously mentioned, we're seeing on XBT is getting lower and lower as we're stemming the outflows. The delta-neutral trading strategies performed well in the quarter as we commenced exploring futures trading on the CME at the beginning of the quarter, and this contributed toward gains of GBP 3 million for the quarter. This is an activity that has also continued moving into the new year.
Fixed income activities also generated positive returns through a combination of interest generated on USD amounts posted as margin in respect of our CME activities and a small amount of digital asset lending, bringing the results for the quarter to GBP 1.8 million. As we move into the new year, we have a limited exposure to exchange and lending counterparties, and as the capital markets team looks to explore more opportunities in Q1 2023 and onwards, it will be doing so in conjunction with a revised risk framework that will focus on minimizing counterparty risk to safeguard the balance sheet of the group.
Now while I provide some closing comments, we can take a look at the quarterly performance of the group since the start of 2020, which helps visualize the most recent year and the impact of the Q2 UST loss and the Q4 FTX provision. I would also like to take this opportunity to remind everyone that all of the information we've touched upon here is included within the earnings report that we released earlier today. To summarize 2022, the core business unit of asset management by virtue of the legacy product, XBT Provider, and the ongoing product launches and diversification provided CoinShares Physical and the BLOCK Index, managed to generate management fees in excess of the entirety of the group's costs in a very, very turbulent year with a lot of downward pricing pressure.
This was again complemented by the capital markets team, who have continued to seek out new opportunities in order to generate gains from our sizable balance sheet. These core components of the business operated well, and we also achieved the heavy lift of completing admission of the company shares to trading on Nasdaq Stockholm's main market. The financial benefit of these activities was, however, effectively negated in full by the Terra Luna incident and the FTX incident, which has in turn brought our focus back onto our core businesses and importantly, how we approach risk and exposure moving forward while being cognizant that such frameworks have to evolve at the pace of the wider industry.
While the financial performance of the year, inclusive of two material hits, has effectively resulted in a small total comprehensive income gain of GBP 3 million, we remain at the helm of an underlying business whose revenue and gains are comfortably in excess of its costs. The simplistic view of 2022 is therefore a profitable performance that has been negated by two significant events that hit the wider industry. This view is also illustrated by the lack of any material movement in the net asset position of the group between the start of the year and the end of the year. The start of the year is GBP 200 million and at the end of the year is GBP 203 million.
We continue to build and evolve alongside an industry and look forward to returning to hopefully the consistent profitability that we have historically evidenced. Now back over to Jean-Marie.
Thanks, Richard. 2022 marked a pivotal moment CoinShares, despite the overall adversity. Crisis management is not something I shy away from, which is also a time when we rediscovered our identity and what set us apart from the rest. With a reviewed sense of purpose, we refocused on our strengths and aspirations, streamlining them for greater impact. This has consequences for some of our operations and our value proposition. This will be outlined in our upcoming annual report and will give the occasion to offer a comprehensive update on our long-term strategy. Despite the challenges faced in the fourth quarter, we proved our leadership in the European digital asset management business. We have also used the second half of the fourth quarter to review and strengthen our risk policy in capital market. Let's dive in. First, our business asset management activity.
Our commitment to launching properly structured and innovative ETPs, as well as our expertise in distributing these products, paid off in 2022. Our combined asset management businesses generated GBP 8.3 million top line in Q4, solidifying our position as a leader in the industry. Let's look a bit more closer to our product family. First, CS Physical. In Q4, 2022, CoinShares Physical product line demonstrated its strength by capturing 48% of the market shares of net inflows in Europe, serving as a true testament to our success. Let's look at our legacy product, XBT Provider. As previously stated in our Q3 earnings, XBT Provider observed small inflow during August of Q3. Moving into Q4, we have seen net outflow return. The decline was modest in light of Q4 market overall sentiment.
XBT Provider continues to be a recurring source of revenue for our company and has maintained its position despite the increase of new competitors in 2022. Moving on to the BLOCK strategy, our joint venture with Invesco is the number one crypto equity strategy worldwide. We experienced a negative return of 8.5% in Q4, outperforming Bitcoin by 6.4%, and we suffered net outflows of $25 million via the Invesco UCITS ETF. Comparison is not reason, but to put things in perspective, our largest American competitor was down 18% and suffered outflows around $60 million in the same period. The higher diversification of our index from a geographical and sector point of view, coupled with a concentration and higher quality name in the last rebalances, gave us a better protection on the downside.
Second, let's look at our capital market business division. Despite a significant drop in trading liquidity and activity, capital markets business generated GBP 4.6 million in gains and income in Q4. The sizable provision relating to our asset held on FTX has overshadowed this figure, resulting in a negative performance for the quarter of GBP 20.6 million. The FTX event underlines the inherent level of counterparty risk that continues to exist across the entire digital asset space. Given the ongoing and rapid evolution of the industry as a whole, we recognize the importance of having a risk framework that must evolve and improve alongside these changes. Acting on the first principle basis, we have significantly reduced all our counterparty exposure. Consequently, at the end of Q4 2022, over 80% of our entire digital asset holdings were with regulated custodian.
To be clear, we are talking about company's holding, not client's holding. These holdings are at all time in third-party custody, such as Komainu, our joint venture with Ledger and Nomura. We will also continue to strengthen our culture and processes around cybersecurity risks. Human error will always be a key risk. To that degree, HAL expansion is focused on risk, pre and post-trade governance, in addition to its original best execution mission. Let's look at our consumer solution. The FTX event was a setback and had a significant impact on our capacity to deploy algo trading in Europe. FTX was controlling 75% of the market after Binance future offer shut down. In light of these events, we took the necessary decision in consultation with the local senior management to CoinShares consumer activity.
We also realized CoinShares DNA was not fit for the significant and upfront marketing investment needed to support a starting consumer activity. Fourth, let's take a quick look at our principal investment. Our principal investment portfolio was negatively affected by market movement in Q4 2022. As a reminder, we stopped all principal activities as early as the end of Q1. On the more positive side in our portfolio, it's our strategic investments. Komainu completed a sizable funding round and showed a positive impact on our year-end valuation. FlowBank showed continued growth. They experienced an average 35% growth rate in new clients per quarter since Q1 2021. Their 2022 revenue is up 73%, reaching CHF 27.7 million , and we now hope to see FlowBank continue to progress and reach a rolling breakeven position in 2023.
Few other item to mention before we conclude. We executed a comprehensive rebranding in December. This rebranding was driven by the marketing team we hired in Q2 2022. As many of you realize, it's a direct reference to the Conway's Game of Life. On a different topic, and with regard to buyback, we continue to review the most prudent use of our capital. CoinShares stock is still trading below net asset value, we continue to believe that buying back our shares remains an excellent investment, and we have resumed our buyback in Q1 2023, coupled with the capacity to execute block trade off-market. To wrap up these remarks, alternatives to the poorly regulated native crypto platforms are needed.
The collapse and fraud that plagued the industry in 2022 have brought a newfound sense of caution to the market, with investors now seeking trusted, regulated institutional players. As a solution to these CoinShares offer a familiar risk policy to traditional financial players and a commitment to providing a secured and regulated investment experience for the long term. As the CEO CoinShares, I'm enthusiastic about the future of our company. Whilst not minimizing the amount of work ahead, there are opportunities on the road in 2023. We will endeavor to solidify our position as one of the leaders in the industry, both in Europe and globally. To achieve this, we will be introducing innovative products that meet the evolving needs of our investors, We will also actively explore strategic measure and acquisition to drive our global growth.
It's now up to our team to CoinShares leadership and deliver on our promise to provide a safe and transparent investment solution in the digital asset space. This is closing our Q4 2022 remarks. Operator, you can now open the call for questions.
Thanks everyone for joining. We've got a number of questions received from Edison. The first being: What measures do you think are necessary across the digital asset markets to avoid another FTX-like collapse? Will regular publication of Proof of Reserves be sufficient?
I'll take this one, Jean-Marie. Will regular publication of Proof of Reserves be sufficient? The short answer to that question is no. Proof of Reserves is a very useful tool in this industry. It, you know, it provides a lot of transparency and comfort to stakeholders, but it's not completely infallible. It doesn't give the full picture of a company or its financial position. It doesn't deal with any liabilities that company may have. It doesn't go into a great amount of detail about the location of various assets. While it's a very useful tool, it's not the be all and end all, and it should be viewed alongside other things such as, you know, a financial audit and other transparency measures that a company may take.
You know, we've been involved with some Proof of Reserves work since middle of, 2020, and it's been a very useful tool for us. We view it as another piece of ammunition alongside our audit and our listed status to try and give comfort to our shareholders and our stakeholders. In terms of avoiding another FTX-like collapse, you know, You can never fully mitigate the risk of something such as that. You know, and traditional financial markets are no exception. You know, the these kind of events can occur, regardless of whether we're talking about digital assets or traditional finance.
I think items and activities such as Proof of Reserves can go a long way in shining a lot of light on a lot of operators within the space to help reduce that risk, but you can never mitigate that fully.
Thank you very much. Next question. How will the move away from unregulated trading venues impact market opportunities for your capital markets infrastructure segment?
I'll take this one, Rich. I think that the key point here is first to say that our traditional source of alpha is not driven by the fact that the marketplace is unregulated. Whether the marketplace is regulated or unregulated, we shouldn't see degradation in our capacity to generate alpha. What is more interesting, however, is our capacity to move from pre-trade to post-trade financing marketplace. If anything, since FTX event happened, we have been able CoinShares to renegotiate and redeploy our capital with counterparties which are favorizing post-trade settlement more than anything else. We are favoring this kind of counterparty first when it comes to who do we want to trade with.
Great. Thank you. Next question. Will you consider selling your FTX bankruptcy claim? It seems that some investors are willing to buy these for around $0.15-$0.20 on the dollar.
Oh, that's a rich question. That's definitely following the Galois settlement yesterday. Rich.
Sure. again, short answer, would we consider selling the FTX bankruptcy claim? Yes, we would consider this. I think the levels mentioned there around $0.15 million -$0.20 million on the dollar are fairly consistent with what we're seeing. We're, you know, we're in a position currently, fortunately, where we're not in any rush to sell that. We're financially sound, and we are, you know, monitoring the recoverability of that balance as we move forward. It's an ever-evolving situation.
I think the one thing to note is in the event that we do recover some of that balance, whether that be through recoverability or through, you know, selling the bankruptcy claim, any upside that we do see from that will now directly go to the P&L, given the fact we've already provided for the balance in full. In short, we would consider it, not at the current levels and not in the current environment, but it's something that we monitor on an ongoing basis.
Thank you. Final question from Edison. How do you plan to leverage staking Ethereum following the Shanghai upgrade for CoinShares Physical ETP, your XBT Provider, Ethereum trackers, and your capital markets infrastructure strategies?
I can take this one, Rich. I think we're gonna answer that specifically CoinShares Physical. You know, first of all, we have been doing staking with a number CoinShares Physical listing in the past. This listing has been staked via different staking provider. We have a very, I would say, severe due diligence when it comes to that. Our two favourite partners and vendors at that point are Blockdaemon and Twinstake, which we are working with with regard to Ethereum staking as well.
We put our fees down to 0% management fees already on Ethereum Physical, and we are looking forward to be able to bring to CoinShares Physical investors a part of the reward of the staking, as soon as this become available. We are definitely very, very focused on that.
Great. Thank you, Jean-Marie. That wraps up our questions for today. We'd like to thank everyone on the call for joining, and wish you all a good rest of the day. Thank you very much.