Thank you for standing by, and welcome to the CoinShares Q4 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'd 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 the CoinShares 2023 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 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.
Good afternoon, everyone, and thank you for taking the time today to join us and hear about CoinShares' activity during Q4 2023. As we look back at the final quarter of 2023 and the dawn of 2024, we stand witness to a monumental shift in the digital asset industry. The approval of spot Bitcoin ETF by the SEC marks a significant milestone, one that solidifies our longstanding conviction in the institutional potential of Bitcoin and digital assets as part of a new portfolio allocation theory. Think about it as a form of Markowitz 3.0.
This milestone, recognized by industry leaders like BlackRock, Fidelity, underscores Bitcoin's intrinsic value with the global financial framework. Larry Fink, the CEO of BlackRock, compared Bitcoin to gold during a live CNBC segment, acknowledging its role as a protective asset class and the harbinger of asset tokenization - a perspective that resonates deeply with our ethos and conviction.
Tracing our journey back to the launch of the first digital asset ETP/XBT Provider in 2015, we have witnessed the European crypto ETP category burgeoning, reaching over $9 billion AUM by the end of December 2023. Yet, the path to broader acceptance of regulated crypto products has been incremental, with noticeable and still present hesitance from traditional financial institutions, especially in Southern Europe and the U.K. The SEC's recent approval is set to catalyze a shift, urging European institutions to revisit their sense of crypto exposure. This catalyst will be boosted by MiCA adoption commencing later this year. The transition is palpable. For instance, in France, where an increasing openness to embracing crypto exposure through regulated channels like ETPs is evident. Our strategy, refined at the end of 2022, positioned CoinShares at the crossroads of two pivotal trends: the securitization of digital assets and the tokenization of real-world assets.
This strategic alignment underscores our commitment to transitioning digital assets from decentralized infrastructures to regulated mainstream financial instruments, effectively bridging two distinct financial realms. Our ambition goes beyond maintaining our position as a premier European investment company in digital assets. We are focused on transitioning to a global footprint. This ambition was a driving force beyond our decision to acquire Valkyrie Funds, a strategic move we anticipate to complete in early Q2 2024. This acquisition is poised to mark a significant leap in our global growth trajectory. I'm conscious we can't say too much in our regulatory announcement, so let me use this forum to provide a bit more information. CoinShares and Valkyrie share a pioneering spirit and unwavering commitment to innovation in the digital asset ecosystem. Valkyrie's foray into the U.S. spot Bitcoin ETF market aligns with our vision and expertise.
This acquisition signals a new chapter for CoinShares, allowing us to offer a comprehensive investment experience that spans across Europe and the U.S., bolstered by a diverse and complete suite of products. Our existing portfolio, including passive products issued by XBT Provider and CoinShares Physical, would be enriched by the inclusion of the Valkyrie Bitcoin Spot ETF under the ticker BRRR, listed on Nasdaq in the U.S. In terms of exposure to the digital asset industry, our CoinShares Blockchain Global Equity Index would be complemented by the Valkyrie Bitcoin Miners ETF under the ticker WGMI, meaning "We're Going to Make It," an actively managed ETF focusing on public companies in the Bitcoin mining sectors and the top ETF performer in 2023 in the U.S.
Moreover, this partnership will empower us to leverage our expertise in quantitative investment strategies thanks to Valkyrie's actively managed ETF platform, offering a dynamic and comprehensive investment approach for our clients with a product coming out before the end of Q1. I had a lot of questions about the ticker choice, especially from European investors. BRRRR, what is it? It is a reference to the central bank money printer going out of control or going, as Americans say, BRRR. The ticker game in the U.S. is a big thing, as pointed out by Bloomberg expert Eric Balchunas. As a digital asset company deeply rooted in the cryptocurrency culture, it was essential for us to reflect our core identity by embracing iconic symbols of the crypto community. Hence, we strategically leverage popular memes to resonate and engage with our audience, effectively showcasing our connection to the digital asset landscape.
This culture movement is creating strong markers but also permeating through a lot of other cultures, such as music, sports, and lifestyle. In our pursuit of brand cohesion and consistency, and to amplify the strength of our corporate brand, we are in the final innings to define a roadmap to rebrand Valkyrie under the CoinShares umbrella post-closing. This move transcends a mere change in name. It's a deliberate strive towards unifying our product portfolio, enhancing brand recognition among American investors, and cultivating trust. We are confident that this rebranding will not only cement our position in the market but also project an augmented value onto CoinShares stock, again, subject to closing. But before we get moving further and keep digging into CoinShares' business, let's take a look at our financials for the quarter. I will provide more detailed insight afterward.
Now, I hand over to Richard to discuss our Q4 2023 financials. Richard, over to you.
Thanks very much, Jean-Marie. As one would expect, given the price movements and the overall activity in the market towards the end of the year, we've had a very strong quarter in Q4. Performance across all the group's business units has been solid, and this has resulted in our highest quarterly adjusted EBITDA since the end of 2021. This performance, along with the rest of 2023, translates into the group's strongest year on record, with the exception of 2021. As can be seen from the overview slide here, our top-line performance for the quarter stands at GBP 33.3 million, with asset management and capital markets representing a combined GBP 25.7 million.
The difference is made up from gains within our principal investment portfolio, which we're happy to report have more than cancelled out the cumulative loss for the year to date within this business unit that we had at the end of Q3. So, this brought our year-to-date top-line performance to GBP 85.7 million, and with it, a level of consistency quarter on quarter that's becoming an established pattern as the business continues to grow. The stability of our top-line is also being echoed in the cost base of the group. The combined costs that bring us down to our adjusted EBITDA figure total GBP 7.6 million for the quarter, giving us an adjusted EBITDA figure of GBP 25.7 million at a margin of 77%.
This quarter has given the 2023 performance a real, real boost to the close at the end of the year, landing us at a full adjusted EBITDA for the year of GBP 56.9 million at a strong margin of 66%. As we've always stated, we aim to keep tight control over our costs to allow for beneficial price movements within the wider market to have as close to a direct impact as possible on our bottom-line performance. While we're still not yet back to the levels of performance we saw over the course of 2021, we remain busy diversifying both of our product suites and activities to fully benefit from the market. We're expecting our top-line performance to further diversify as we move into 2024, as our newly launched active funds begin to gather interest from both existing and prospective customers.
The track record that is now being evidenced by the strategies that drive these funds is, as expected, outperforming the underlying assets. So, we are now well underway in our goal, which is to pivot to allow external investors to benefit from the trading strategies that our own capital markets business has implemented, generating both ongoing fees for ourselves and returns for our clients. Looking a little bit more closely at our asset management platform now, and 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 BLOCK Index. Again, as we stated in Q3, the story here is very consistent with that of the overall group: quarter-on-quarter performance that's a reflection of the movements in the wider market, coupled with cost control and solid margins.
As can be seen from the table here, the overall gross profit margin of the group's asset management platform remains very healthy and very stable. Total management fees for the year are now in excess of GBP 43.3 million, having been boosted by Q4, which benefited from strong price appreciation. Looking at the level of flow activity in our main products for the quarter, the CoinShares Physical product suite generated inflows over Q4 of an impressive $159.4 million, bringing full-year net inflows to just over $213 million. Over Q4, the XBT products saw a minimal net outflow of $37.4 million, bringing those full-year outflows to $87.5 million. For 2023 as a whole, our CoinShares Physical inflows are well in excess of the outflows experienced on XBT.
So, it's worth taking a moment just to remind everyone of the background behind these products and why this is an important trend that we've been focused on delivering since early 2021. XBT is our legacy product, which we have operated for around eight years. Its structure and its management fees are from a time where the competitive landscape for such products was very, very different. It was for these reasons that we launched CS Physical in the first place in recent years: a collateralized product with a fee structure that can evolve to meet the requirements of the wider market, whether that be through zero-fee products that pass staking rewards to the holders, or through fee reductions such as the one that we recently implemented on the CS Physical Bitcoin product.
This product suite has been designed to grow alongside XBT Provider and, over time, represent a more significant portion of the group's overall AUM. And this is exactly what's happening. We started the year with CS Physical representing 10% of the group's AUM, and we're closing out the year with this figure representing 19%. We expect this to further increase as we enter 2024, and particularly as we have now implemented staking rewards for our zero-fee ETH product. Just as a reminder, the flows for both ETP products and also those of our key competitors are published in our weekly digital fund 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 reports by LedgerLens, an independent firm solution embedded into our own website designed to provide additional transparency and comfort to all our stakeholders. Just as a quick recap before we move on to capital markets, at the end of the quarter, the level of AUM across our two ETP platforms, XBT and CS Physical, stood at approximately GBP 2.4 billion, with an additional GBP 570 million of AUM within the Block Index. We've closed the year with AUM of just over GBP 3 billion. Now, just taking a quick look at capital markets. The performance of the group's capital markets business unit in Q4 and 2023 as a whole demonstrates the benefit that diversification of activities can bring, resulting in total other income or gains for the quarter of GBP 12.7 million.
The business unit's performance has resulted in a solid gross profit margin for the quarter, which averages out the year to date at 79%, bringing a level of stability to the business unit following numerous internal improvements and an enhanced approach to risk implemented in the year. The main driver for the business unit for both the quarter and the year to date is our staking income. This is up significantly on the previous quarter's result of GBP 4.8 million at GBP 8 million for Q4, and it's brought the total performance for the year to GBP 21.9 million. Liquidity provisioning of just shy of GBP 500,000, rising from supporting the group's ETPs, are pretty comparable to Q4 last year due to the levels of flow on XBT remaining relatively muted over the quarter now that we've largely stemmed those outflows.
The delta-neutral trading strategies of GBP 0.9 million remain driven by the same activities during the first half of the year, which is taking advantage of opportunities arising predominantly from trading CME futures. Additionally, the trading activities of the active funds are also beginning to contribute gains, which are manifesting within capital markets. These will be presented separately during 2024 as they continue to grow and become an activity within their own right to be measured every quarter. Finally, the fixed income activities that we generate relate to both digital asset lending and also yield on broker balances and treasury bills. While I provide a little bit of commentary just to close this section of the presentation off before I hand back to Jean-Marie, let's take a look at the quarterly performance of the group over the last couple of years, which we always do.
It helps us visualize the quarter in context. One thing to draw attention to here is the gains that we've seen in Q4 in relation to our principal investments portfolio, which can be seen in the graph on the right. Now, this is the result of numerous movements, which are covered in greater detail within our report released earlier today, inclusive also of some cash realizations we expect to see in Q1 2024 being reflected in the value at year-end. So, 2023 performance has been solid, our best year aside from 2021, and a return to stability and consistency following a very turbulent 2022. While the digital asset market is obviously a huge factor in this, it cannot be achieved without the combination of the diverse activities, cost control, and infrastructure improvements that we continue to work hard on every single quarter.
We're now ready to use this performance to go into 2024 on very strong footing, and we look forward to the year ahead. And finally, just again, remind everyone that everything we've touched upon today and much more information is included in the full earnings report, which is available on our website. Now, I'll just hand back over to Jean-Marie.
Thank you, Rich. As it is our custom, let's delve into our business line performance, and as usual, let's start with our asset management business. So, asset management. CoinShares participated strongly in Q4 progress in the European crypto market. CoinShares Digital Securities collected around $150 million worth of AUM out of the $884 million collected by the overall ecosystem, and remained the top three across BTC, Ethereum, and altcoin exposure ahead of WisdomTree, Invesco, Fidelity, and Global X. We also anticipate seeing our legacy competition suffering dearly post-U.S. ETF. Meanwhile, XBT Provider remained a healthy platform, attracting 10,000 new investments in Q4, with net outflows coming from legacy institutional and U.S.-based holdings. Turning quickly to the CoinShares Blockchain Global Equity Index, or Block Index, it had a very strong fourth quarter, returning 51%, which compares with 11.4% for the MSCI World and 11.7% for the S&P 500.
The strong performance was led by the surge in the Bitcoin price, which spiked a rally in Bitcoin miners, which considerably contributed to the fund performance. The index finished 2023 with around $764 million of AUM in the strategy, making it the second-largest product of its kind globally. With regard to our hedge fund solution and capital market activity, Q4 saw the rollout of our hedge fund solution division and the commencement of our marketing effort to an institutional investor. The first two strategies launched in our suite of solutions were the Bitcoin and Ethereum strategies that seek to outperform their respective underlying asset benchmark by 20% annualized. These products complement our ETPs and offer enhanced returns for a long-term investment horizon. We were a bit unfortunate with the launch date for volatility spikes the week we started, logging performance.
Since then, Bitcoin is on track to do as anticipated, and Ethereum, despite being more difficult, is also finding its cruising regime. The performance of the product with hedge fund solution is a clear testament to the proficiency and dedication of our trading and quantitative teams. Our capital market division continued to perform strongly, capturing volatility into the spot Bitcoin ETF approval. Throughout Q4, the team made significant advancements in reducing both the counterparty risk and market risk per dollar of revenue. Now, let's take a quick look at our principal investment book. Our portfolio faced some challenges in Q3, but as the year concluded, we observed notable improvement in key holding, specifically our 80% disinvestment in 3iQ and a partial disinvestment in SBG post-merger, which has been significant.
Interesting data point on 3iQ. Monex, the buyer, paid almost nine times top line for this business, which allowed to put things in perspective with CoinShares' very own price discovery. These developments have started to yield realization within the portfolio, generating free cash flow. This liquidity is now being strategically redirected into our diverse business activity, aiming to foster further gain and strengthen our financial foundation. This movement is a testament to our adaptive investment strategy and our commitment to maximize returns for our shareholders. Before we conclude, let's discuss our dividend policy. As a publicly traded company, our aim is to use our listing to foster trust and transparency and to effectively utilize our equity both as a currency for growth and an asset that's appreciating value for our shareholders, especially in a non-zero-rate environment.
Upon recommendation from the executive committee, the board of directors has agreed to adopt a new dividend policy for the fiscal year 2023. This decision is rooted in our commitment to enhance shareholder value. It is a significant indicator of CoinShares' distinctive capability to achieve growth, pursue strategic acquisitions, and expand our global reach, all while maintaining an impressive level of profitability. Our report provides further detail on this topic. All right, time to conclude this review with our strategy of 2024. As we venture into 2024, our sights are set on fortifying our position in Europe while expanding our foothold in the U.S. market, leveraging the synergy of our partnership with Valkyrie. This expansion is accompanied by a strategic enhancement of our hedge fund solution, introducing innovative strategies to meet the evolving demand of our clientele.
Additionally, we are harnessing the potential of our asset manager in the EU, CoinShares Asset Management , to broaden our European outreach. A concerted focus on distribution and marketing, especially in pivotal regions like the U.S. or the U.K. and other eligible markets, is crucial for augmenting the fund asset under management. Our goal is clear: to establish CoinShares as the definitive destination for digital asset investments, offering a diverse and sophisticated array of options. We are committed to this path of innovation and leadership, ready to navigate the unfolding opportunities in the maturing digital asset industry and sharing unparalleled value and state-of-the-art investment opportunities for our clients and stakeholders. Thank you all for being with us on this journey. This is closing CoinShares Management Q4 2023 remark. Operator, you can now open the call for questions, please.
Hello everyone. Our first question comes from HCW, and it's for you, Jean-Marie. Please discuss the Valkyrie fund purchase, the type and size of each ETF, the fee revenue, the ETF performance versus other ETFs, and marketing plans in the U.S. and the AUM outlook.
Thanks, Jeri-Lea. Kevin, first off, with this question, I think we announced earlier in January that we were exercising the option to our core Valkyrie. We didn't complete this transaction yet, and as such, we will come back with a full suite of answers and explanation to the market once the transaction is closed to completion, so as we don't oversell something which is not completed yet.
Okay. Another one from Kevin at HCW. Please offer some more detail on the staking income, how staking rewards split between ETP owners and CoinShares, and how you expect this ratio to change over time. How should investors evaluate and correlate ETP AUM and the staking income?
That's a cheeky question. We've got 21Shares listening and ETC Group listening today. So we are going to be able to share our latest one, which is Ethereum, as an example. Ethereum benefits from zero management fees. So the management fee is zero. And we are sharing in full transparency the reward from the staking reward with our investors, which we are getting over time on a daily basis through a reverse fee formula. So there is 1.5% paid back to investors over the course of the year as well. So that's basically for an example, which is the ETH staking product.
Okay. Thank you very much. One more from Kevin at HCW. Please discuss the hedge fund solutions, in particular, AUM growth licensing in all 50 states, marketing plans in the U.S., and the outlook for 2024. How do you expect these to rank in terms of CoinShares' list of priorities against other initiatives as AUM growth in Europe and ETF growth in the U.S.?
Yeah, sure. So the hedge fund solution, our two hedge funds, the Bitcoin one and the ETH one, cumulatively have around $30 million of AUM. They have six months track record so far of live track record. They are performing exactly how we're expecting them to perform and are effectively getting to the cruising speed in terms of risk management and timing of the market. So the idea there is to deliver 20% on an annual basis over the rate of Bitcoin or ETH, depending on which one you're investing in. So far, these products are on track. In terms of marketing, both of these funds, especially in the U.S., which is Kevin's question, both of these funds are eligible for general solicitation, so we can set that to a very wide audience. And our broker-dealer in the U.S. would be used for that.
At the end of the year, the broker-dealer was registered, as you mentioned, Kevin, in, I think, pretty much every single state in the U.S. to accelerate distribution. In terms of priorities, one, we know that hedge fund, in general, is a long-term business. You need to establish track record. You need to establish audits and a few other kind of milestones, which investors or at least institutional investors will look at as a function of their to determine if they want to invest or not. So we know it's not something we're going to build in five seconds. However, we are building it, and we're building it for the foreseeable future. So there is no priority of one versus the others.
We are building a different number of vertical CoinShares, and they both are complementary and allow investors to look at CoinShares as a one-stop shop where you can allocate your alpha and your beta and move your cursor depending on your risk capital. So that's CoinShares.
Thank you, Jean-Marie. One for you, Richard, from Milosz at Edison. Bankruptcy lawyers for the FTX estate said recently that they expect to pay back all customers and creditors. Do you still hold your FTX claim and expect it to be repaid?
Thanks, Jeri-Lea. Yes, so we do still hold our FTX claim, 100% of it. As you may remember, that was circa GBP 27 million, which was recognized and provided for in full at the end of 2022. Now, since providing for that, obviously, we've had a number of offers come through the door to purchase that claim. We've rejected all of them. You're quite right. There is kind of more positive news coming out recently as to the recoverability of that amount. Now, I'd say we expect some, if not all of it, to be repaid. At the moment, we're not recognizing any reversal of that provision in regards to that amount.
I'm sure as 2024 continues and more news comes out and things progress, it may well be the case that we're either actually receiving some of those assets directly or we're having grounds for reversing some of that provision and recognizing a receivable on our balance sheet.
Thank you very much. Jean-Marie, one for you from Milosz. Will you consider further buyback programs beyond the current one, or will you focus on distributions in the form of dividends going forwards?
The buyback program is currently open until the next AGM. We will look at that. We will revisit that with the board, effectively communicating a buyback within the state harb or. The dividend policy is a bit too much and probably going to focus on our more certainly focus on our dividend policy and certainly close our buyback program when our dividend policy is fully in place.
Great. Thank you. We have a question here from Viktor Pråg, one of our investors. There seems to be a fairly low interest in the stock in Sweden, judging by the volume. How has it lost the correlation with Bitcoin prices? Are there any plans to invest in the U.S.?
Well, first of all, thank you, Victor, for being an investor in Sweden. We would love to get more investors in Sweden. As you say very fairly, there is a low interest in the stock right now in Sweden. This low interest is manifested by two things, mainly. A, there is a muted appetite for crypto in Sweden after the failure of a number of Swedish-focused crypto companies, which has scared a number of investors. And second of all, Nasdaq has listed an incredible amount of company between 2020 and 2023. And I would say available income for investment from the retail market has been kind of scarce as a result because it's divided in much more opportunities. So our idea is how do we revive and reboost interest? And with that idea comes the dividend policy.
We are in a non-zero interest rate environment and being able to offer a dividend to our shareholder to translate what is a very strong value creation capacity from CoinShares into investor value is very appealing to us. And we're going to express that for the time being with the dividend policy, which will certainly appeal to a lot of retail investors as well. So we hope that as a first step, we will be able to boost the interest of the Swedish market, of the Swedish retail market. And when it comes to the U.S. plan, at the moment, the U.S. is a complicated place. The S1 for a few companies is still blocked with the SEC. So until we see the SEC being a bit more amenable to crypto listing or crypto company listing, we probably won't make ourselves a guinea pig of this experience.
Thank you very much, Jean-Marie. We've got a question from Michael Petch. Has the investment in 3iQ been completely divested?
So that's a Canadian investor, Michael Petch, former employee of CoinShares. So Michael, to answer your question, we divested 80% of our investment in 3iQ. We tender all our shares, and we get filled on 80%.
Great. Thank you, Jean-Marie. With that, we have no more questions remaining, and we'd like to close the call. Thank you all for joining.