Thank you for standing by, and welcome to the CoinShares Q1 earnings broadcast. All participants dialing in are in a listen-only mode. After the speaker's presentation, there'll be a question- and- answer 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, Jeri-Lea Brown. Thank you.
Thank you, operator. I would like to welcome you all to CoinShares' 2023 Q1 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 to download from the investor relations section of the 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 in the allotted time. Lastly, our safe harbor statement. CoinShares would like to remind everyone that except for historical information contained herein, statements made on today's call and webcast that 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 point you to the risk factors associated with our business, which are detailed in our prospectus. At this time, I will turn the call over to Jean-Marie.
Thank you, Jeri-Lea. 2022 was a challenging year. Q1 2023 brought more difficulties with several U.S. banks, including crypto banks like Silvergate or Signature facing adversity. Regulators have stepped up their scrutiny and even accelerated after the FTX decline. We anticipated this regulatory over-swing of the pendulum in our Outlook 2023 report, and CoinShares has always advocated for a clear and fit for purpose regulatory landscape in the country we operate. We always increase activity one turn into a witch hunt. Despite recent banking failures, CoinShares remained unscathed thanks to our anti-fragile model. However, the closure of Silvergate's SEN network and Signature Signet protocol created obstacle for crypto players' banking operation and led to wider spreads and some market dislocation. All that with some low liquidity and low volume numbers.
The current banking situation reminds us of 2008 financial crisis and highlight Bitcoin's value as a decentralized and resilient asset. Bitcoin recently traded in a range between $26,000-$30,000 after exceeding $30,000 earlier in April. All these despite negative news flow and the highest interest rate since 2004-2006 period. Meanwhile, Ethereum Shanghai upgrade highlighted blockchain capabilities and unmatched adaptability to meet the industry changing needs with ongoing innovation. The activity in the cryptocurrency ecosystem has positively influenced our asset management and capital market businesses, and I will come back to that a bit later. In this Q1 earnings call, I will discuss our updated positioning and touch upon our passive asset management and capital market activities before offering some insights on our share price trend. Let's dive in and start with our strategy.
In our previous earnings call, I mentioned our work in 2022 to establish our fundamental identity and role in the market. In January 2023, CoinShares executive committee and board refined our positioning to become the premier alternative asset manager specializing in digital asset. Investors now start to ask more than just passive exposure to digital assets and demand alternative investment solutions.
We aim to be a comprehensive solution provider, enabling investors to build portfolio location models, mixing better and alpha exposures around digital asset. As a leading European alternative asset manager in this space, CoinShares plan to expand its offering in 2023 by establishing an active asset management business line with a number of curated investment strategies, which will be open to external allocators. We start in February 2023 to accelerate this mutation and transform our capital market prop trading environment into a best-in-class active asset management practice.
Our aim is very clear: use our track record since 2014 to deliver alpha to our clients while setting up standard, reference standards for digital asset management. This approach broadens our product offering, streamlines messaging internally and externally, and clarifies our strategic goals. For our passive asset management franchise, despite a competitive environment which we welcome, we will focus on increasing our European market share and global presence. I will share a few further updates in my second part, for now, over to Richard Nash, our CFO, to speak about our Q1 financials. Richard, over to you.
Thanks very much, Jean-Marie. With 2022 now behind us and 2023 already well underway, we're happy to report that the first quarter of the year has been positive. Our two core business units have both performed well, stabilizing in the wake of Q4 2022, which rocked the whole industry in a variety of ways. The financial performance we have seen in our view evidences the stability of the group's underlying business model, solid fee generating AUM within our asset management products, supported by a capital markets team able to leverage the group's balance sheet to generate further gains in income within the evolving market. Over the first quarter of the year, the group generated revenue gains and other income totaling GBP 15.3 million.
Approximately 60% of this figure came from our asset management business and 40% of this came from our capital markets business. This figure of GBP 15.3 million represents the group's strongest top-line performance since Q1 2022, which in turn has also led to the group's strongest adjusted EBITDA performance since that time last year. Adjusted EBITDA for the period stands at GBP 8.5 million with a margin of 55%. While we are not yet back to the levels of performance we saw over the course of 2021, we are busy diversifying both our product suites and activities to fully benefit from the market should it choose to rally. Direct costs of the group comprise custody fees, trading fees, and issuer expenses incurred by the two issuing entities of the group's ETPs.
These showed a quarter-on-quarter decrease in 2022, and this reduction has continued into 2023, despite seeing improved performance, thereby improving the group's margins. We do, however, expect these to increase in Q2, given increased AUM from digital asset prices also increases the quantum of custody fees that we will be incurring, albeit these increases are more than offset by the increase in management fees that also arise. Admin expenses of the group, which were relatively consistent throughout 2022 at an average of approximately GBP 1.8 million per month, have remained stable and at this level moving into 2023. We have managed to keep the level of the underlying cost of the business relatively consistent since mid-2021 against a backdrop of aggressive inflation and pricing pressures.
The main cost for the business, representing approximately 70% of the total admin expense, is of course our staff base, which currently stands at 86 individuals. Now looking at our asset management platform a little bit more closely, and just as a reminder, the components of this business unit are our XBT Provider ETPs, our CoinShares Physical ETPs, and the CoinShares Blockchain Global Equity Index or the BLOCK Index. The price recovery seen in Q1 has obviously been beneficial to the various products of the group, leading to management fees arising from the asset management platform in Q1 of GBP 9.2 million, showing an increase on Q4 2022's figure of GBP 8.5 million.
Q4 2022 was the fourth consecutive quarter of declining management fees. It's really good to see this trend having reversed at the outset of 2023, and it's also continued into Q2. The CoinShares Physical product suite generated inflows over Q1 of just shy of $30 million and saw price appreciation increasing AUM by a further $85 million. On the XBT side, we've previously acknowledged the trend of the outflows being largely stemmed. Over Q1, the XBT products saw minimal net outflow of around $40 million. This was more than offset by significant price appreciation of $730 million, resulting in a net increase to AUM of $690 million.
The flows for both ETP product suites and those of our key competitors also is published in our weekly digital funds flow report, which is available on our website. Additionally, the level of AUM held within each of our products is disclosed and subject to daily attestation by LedgerLens, an independent firm solution which is actually embedded into our website, designed to provide additional transparency and comfort to all of our stakeholders. This is the solution that replaced Armanino, who previously provided the service last year. The overall gross profit margin of the group's asset management platform remains very healthy. While we have seen increased fees relating to the expansion of the product suite and the growth of the team, these have largely been offset by cost savings elsewhere within the business unit.
As a quick summary, as at the end of the quarter, the level of AUM across our two ETP platforms, XBT Provider and CoinShares Physical, stood at approximately GBP 1.6 billion, with an additional GBP 500 million of AUM within the BLOCK Index. This total figure of GBP 2.1 billion is up approximately 48% from the end of the year, and we've already started to see the impact of this on our management fees. Moving on to capital markets. The performance of the group's capital markets business unit over Q1 2023 demonstrates the benefit that the diversification of the activities within can bring and has resulted in total other income and gains of GBP 6.7 million.
With the turbulence of 2022 behind us and ongoing enhancements of the group's internal controls framework, we also achieved relatively consistent performance month-on-month and a stable gross profit margin for the quarter, which averages out in the mid-70s. Liquidity provisioning of GBP 0.7 million arising from supporting the group's ETPs are down on Q1 2022 due to decreased levels of flow on XBT due to outflows being heavily stemmed, as mentioned previously. delta-neutral trading strategies of GBP 1.4 million are up over 100 when compared to this time last year, as the group is taking advantage of opportunities arising from trading CME futures. Fixed income activities are also showing a market increase on 2022, rising from GBP 1.2 million for the quarter in 2022 up to GBP 2.2 million for Q1 2023.
These levels have been achieved against a backdrop of a far more selective approach to our lending counterparties following the turbulence that we saw over the latter half of 2022. This selective approach has also impacted our DeFi and our staking income, which has reduced moving into 2023, but still remains very strong with performance of GBP three million for the quarter. Now just as 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 quarter in context. Q1 performance has been solid, and this pattern has continued thus far into Q2.
We managed to navigate without any issue the banking turmoil that hit the sector in Q1, are making constant improvements to our internal controls and our risk framework to ensure that the two exceptional hits that we took during 2022 remain exactly that, exceptional. We have always been focused on ensuring that our range of products and our activities continues to evolve. With a product suite of now 19 ETPs and a capital markets team that's continually diversifying its reach and its partnerships, we believe we are placed to reap the benefits of what the remainder of 2023 may bring. Finally, I'd just like to remind everyone that the information we touched upon here is included within the full earnings report that we released earlier today.
Thank you, Richard. Let's dive into our passive asset management business. We started the year by reducing the management fee for our CoinShares Physical Ethereum ETP to 0%. We had a strong confidence level in the Ethereum dev timeline, thanks to our research teams. We went first to market ahead of the Shanghai upgrade. In March, in line with our internal roadmap, we launched two new indices with 0% management fees. The CoinShares Physical Top 10 Crypto Market, for cost-effective diversification, and the CoinShares Physical Smart Contract for exposure to the digital asset market infrastructure layer. These quarterly rebalance indices showcase our innovation and commitment to offering regulated premium product accessible to all, in contrast to competitors' 2% management fees.
First rebalancing went in at the end of March. I'm glad to say that our ops team ran that pretty efficiently as if they were doing it for GSCI 20 years ago. Number wise, Q1 saw positive European crypto ETP inflow of $109 million, with $93 million invested in Bitcoin tracking products due to short-term institutional interest to play the CME spread arbitrage, long ETP, short CME future. CS Physical Bitcoin attracted $10 million of net investments, ranking third in flows. In all the single coin segment, CoinShares Physical top net flows with $8.7 million, outperforming the likes of 21S hares, WisdomTree or VanEck. Regarding the BLOCK Index, our joint venture with Invesco, it remains the number one crypto equity strategy worldwide.
During the quarter, the portfolio saw a strong run in semiconductor stocks and was further helped by the good performance of cryptocurrency prices, which drove pure-play stocks higher. The portfolio did suffer from the banking situation in the US, but still outperformed the benchmark MSCI World and the S&P 500. Finally, the Invesco CoinShares Global Blockchain ETF saw net inflows of $20.8 million in the period, which contrast with most competitors' net outflow during the same period. Overall, our passive asset management business generated GBP 9.2 million revenue during the quarter, matching the revenue level achieved in Q3 2022. I stop there. Richard already spoke about it. We maintain a positive outlook in the coming months, and our marketing team is now working hand in hand with products and distribution.
The team at CoinShares is executing an ambitious plan in collaboration with our partners to increase our market share as open flows across our products with ambitious targets. Let's talk about capital market activity. As mentioned in our previous letter, we have implemented three strategic action to reduce risk and increase due diligence. First, we strengthen our counterparty control and processes by using our internal expertise, improving counterparty quality and reducing risk. Second, we are professionalizing the sector by working on proof of concept with exchanges and custodians for trading without keeping assets at risk on platforms, reducing our overall counterparty risk. Our assets remain with custodians with daily net settlement, considerably reducing risk. This is a work in progress, high on our list, and the bedrock of our active asset management future offering.
In response to bank bankruptcies and regulatory crackdown on US crypto players, we reevaluated our USD payment rails, secured a new banking relationship, and found our investment thesis in FlowBank validated by the entire ecosystem rushing for banking solutions. With regard to principal investments, first, Komainu, our regulated custodian, completed the final tranche of a substantial funding round in Q1 2023. This significant step reflects their value to the group as evidenced in our year-end and Q1 valuation. Second, FlowBank, in which we hold a significant stake, has made impressive progress, boasting a consistent 30%-40% quarterly growth rate in new clients since Q1 2021. Top-line revenue reached CHF 27.7 million in 2022, a 73% increase from 2021. We anticipate FlowBank's progress to continue in 2023, with consecutive months of growth leading to a consistent profitability path.
Before concluding, let's touch quickly on our stock. Last year, we initiated a share buyback program, which has significantly contributed to support our share price since the start of the year. Also, we continue to trade at a discount to our net asset value. We believe purchasing our stock currently continue to be one of the best use of our capital. We have done it on screen, via blocks, and also by reducing the numbers of outstanding options. Despite limited stock distribution on various platforms in Europe due to compliance policies, we are confident that our strong performance, our status as a second crypto company on a regulated exchange, and unique positioning are increasingly attracting investors. In conclusion, we are excited about our strategic decision to position CoinShares as a specialized alternative asset manager in the digital asset space.
We have the expertise to lead the industry, and by embracing a distinct identity allowing for strength, we can generate optimal returns for our shareholder.
We are committed to developing new asset management products that will help increase our asset under management and earnings potential. We eagerly anticipate the future of digital assets and the opportunities it represents for CoinShares. This is closing CoinShares management Q1 2023 remarks. Operator, you can now open the call for question, please.
That opens our Q&A section of the earnings call. Jean-Marie, first question for you comes from Milosz from Edison, he asks, "What capacity do you have to deploy third-party capital without diluting returns for the active investment strategies that you want to offer in the near term?
Thank you, Jeri-Lea. I think that's something we're gonna cover a bit more in-depth in Q2 call. The first strategy we're launching will be announced in Q2 to the public, so I don't want to talk too much right now about it. You know, I think without too much problem, this first strategy can take $200 million of external capital.
Perfect. Thank you. One for you, Richard, from Milosz as well. Can you comment on the primary sources of the DeFi income that you have reported in the first quarter?
Sure. Yeah. Thank you, Jeri. The DeFi and staking gains generated within the capital markets infrastructure for the quarter were approximately GBP three million. That's down quite a bit on last year, which is around GBP six million for the first quarter. The source of that is predominantly from Ethereum staking. We've lowered the number of kind of protocols in which we're interacting and counter parties which we deal and tighten things up there, which has reduced DeFi and staking opportunities for us. However, with, you know, the Ethereum upgrade having gone ahead and the ability to now stake there without sacrificing liquidity, that's something that we will continue to explore probably throughout the remainder of the year also. It predominantly comes from one source for Q1.
Great. Thank you, Richard. Jean-Marie, one to you from Kevin from H.C. Wainwright & Co. How have the MiCA regulations in Europe changed ETP thinking? What type of regulation follows, and how do you think that they will affect the CoinShares business in Europe?
That's a good one. Great. The MiCA regulation, which is being implemented as we speak, will, if anything, bring much further clarity to the European landscape about crypto investment and allow a lot of investors which are now on the sideline to enter the market. Our sales team is having a lot of discussion with investors or potential investors which are still on the sideline, I was having one myself actually last week or the week before with a big insurance life insurance company about the very same thing where until the clarity is there, they will not step in. I think that MiCA from that perspective is very good for ETP business because it will clarify the rule of engagement for a lot of people.
It is not really affecting in the structure of ETP because ETPs are securities, and we will be ready, when MiCA comes out.
Great. Thank you. Again from Kevin, what is your take on the U.S. regulatory development?
The US regulatory development is like, I think, pushing everybody out of the US. You know, CoinShares being contrarian, you know, it's always a wonder if it's not the right time to get into the US when everybody's leaving. You know, it's. You know, until there is like a clear decision-making happening between the SEC and CFTC, it's gonna be a bit complicated. You know, that's an understatement, I guess. Until Gary Gensler's terms come to an end, I think we're not gonna see any clarity there. I would guess, you know, it's an uneducated guess there that we need a new election and a new terms and new SEC chair to see a change in direction or clear change in direction there.
Great. Thank you. Richard, going back to Milosz's questions, what is the amount of fees that you have collected from XBT Provider redemptions in the first quarter?
I think what's being meant here is what amount of cash is being released by the redemption. The fees are generated in terms of management fees are disclosed within the, within the report itself, at least to date. I think what Milosz Papst is getting at is the quantum of cash that is released following redemptions of XBT Provider, which happens due to the way in which we hedge that product. The, the quantum of outflow that we saw in XBT, which has been decreasing fairly significantly over time, over Q1 was only $40 million or around GBP 32-33 million. Roughly 8%-9% of that represents accrued fees that's being released as cash. It was round about $3 million for the quarter.
At the moment, given where prices are, whenever we have a redemption XBT, it's approximately 9.5% of that figure, in terms of the quantum of the redemption of roughly 9.5% of that figure represents the release of free cash flow for us.
Great. Thank you. Jean-Marie, from Milosz again. Can you share some details on your sales team responsible for the active strategies?
Yeah, sure. The way we approach active strategies is really, actually it was coming from our passive asset management team who was seeing that they were having a lot of requests from their traditional client asking for new ways to invest. We will rely a lot on cross-selling and upselling, and we are most of the people based in the US and people based in Europe can help with that. We have a good setup from a sales team coming from our traditional ETP business, which can be, you know, it's used to actually live in New York as well, so yep.
Great. Thank you. We have a couple of questions from one of our investors, Benjamin. Richard, how is FlowBank valued for the CS accounts?
Okay. FlowBank, which is within our principal investments portfolio, is slightly different from the majority of the other investments due to the quantum of the shareholding that we have in that entity. So we own approximately 30% of FlowBank. So under IFRS, it is therefore classified as an associate, and we account for it using the equity method. So largely speaking, what that means is the initial cost that we have in the accounts, which is included within the report, is kind of adjusted on a quarterly basis, depending on the performance of that associate. Any movement that we see over the quarter in terms of gain or loss is effectively our percentage ownership of their profit or loss for that period.
That's what drives the change in the valuation of that, of that investment.
Thank you very much. Jean-Marie, one for you from Benjamin. Will the buyback program be increased in capacity, and will the size bought back change?
We have a share buyback program which is taking us to the next AGM, which is already approved by the AGM and by the board, the size of that is fixed now. The quantity we can buy back on the market on a daily basis is constrained on the Nasdaq rule book, it's a function of the liquidity over the last, I think 30 days, and maximum of that and the day we are now to buy back. That's 1.80%, our quantum of how much we can buy back on a daily basis. Forward-looking statements on are we gonna do more buyback, we publish in our annual report, the AGM notice, for I think it's 28th, so 31st of May.
We will be asking our shareholder to vote for an extension of this or continuation of the share buyback program, and at that point, we'll be able to make a decision how we want to keep going.
Thank you very much. With that closes off all of our questions. We'd just like to thank everyone for joining us today and wish you all a lovely rest of the afternoon.