Evolution or Revolution: Putting Crypto in Context

Evolution or Revolution Putting Crypto in Context July 2019 Meltem
Demirors | CoinShares @Melt_Dem

Evolution or Revolution? Putting Crypto in Context This document, which
is provided for informational purposes only, is intended to provide a high level overview of the CoinShares investment philosophy adopted by certain investment products promoted by the CoinShares Group only. Nothing in this document should be interpreted as constituting an offer of (or any solicitation in connection with) any investment products or services by any member of the CoinShares Group (and nothing herein constitutes, or should be construed as being, advice relating thereto). Access to any investment products or services of the CoinShares Group is in all cases subject to the applicable laws and regulations relating thereto. CoinShares General Partner Limited and CoinShares GP II Limited, who are the joint issuers of this document, have their offices at 28 Esplanade, St Helier, Jersey JE2 3QA. References in this document to ‘CS Strategies’ should be interpreted as being a reference to a common investment philosophy adopted by a family of investment products promoted by the CoinShares Group. ‘CS Strategies, CS1, or CS2’ is not a reference to any particular investment product or structure. The specific application of the ‘CS Strategies’ investment philosophy, and the actual investments held by products pursuing it, will differ on a product-by-product basis. Each ‘CS Strategies’ investment product may have a distinct structure, including (without limitation) in respect of fee arrangements applicable thereto, and regulatory treatment in the jurisdiction in which it is domiciled. The information presented in this document has been developed internally and / or obtained from sources believed to be reliable; however, no representation or warranty, express or implied, is made as to the accuracy, reliability, or completeness of such information. Predictions, opinions and other information contained in this document are subject to change continually and without notice of any kind and may no longer be true after the date indicated. Any forward-looking statements speak only as of the date they are made, and the CoinShares Group has no responsibility, and does not undertake, to update forward-looking statements. Forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. The CoinShares Astronaut is a trademark and service mark of CoinShares (Holdings) Limited. © 2019 CoinShares Group. All rights reserved. Note Ms. Demirors herself is an investor in cryptocurrencies and companies, some of which are referenced in this deck for informational purposes only. You can find her disclosures and investments at meltemdemirors.com under “disclosure” and “investments”. Important Disclaimer

CoinShares Group. All rights reserved. 5 The CoinShares Group The CoinShares Group manages approximately $1 billion of assets on behalf of a global investor base, with offices in London, Jersey, and New York. PASSIVE TRACKERS ACTIVE STRATEGIES EXECUTION / FICC XBT Provider issues publicly listed crypto exchange traded products (ETPs) Top quartile digital asset hedge fund; diversifying into new strategies continually Supports asset management and services clients, portfolio companies, and institutions $916M AUM(1) $11M AUM(2) $125M Monthly Volume(5) Ø Trade up to $40M per day in Europe Ø CS1 – actively traded crypto(3) Ø GABI Bitcoin Strategy(4) Ø Fixed income Ø Derivatives Ø OTC Notes: (1) AUM amounts as of 30 June 2019. (2) Conversion from ETH to USD (3) Closed to new investment. (4) GABI Bitcoin Strategy was closed in 2018. (5) FICC volume reported based on 2018 average volumes covering 24M individual orders filled. This information appears as a matter of record only and is not intended to be an offer or solicitation of an investment in any jurisdiction where it may be illegal to do so.

Evolution or Revolution? Putting Crypto in Context • A Brief
Walk through History • Macro Context: Economic, Political, and Social Drivers • Market Evolution or Financial Revolution? • What is “crypto”? • Exploring Allocation Strategies and Performance • Closing Thoughts Copyright © 2019 CoinShares Group. All rights reserved. 6 What We’ll Cover

Evolution or Revolution? Putting Crypto in Context Blast from the
Past A Long History of Trusted Intermediaries Copyright © 2019 CoinShares Group. All rights reserved. 7

CoinShares Group. All rights reserved. 11 Trust: Greasing the Capitalism Flywheel “Our financial lives trend towards convenience, and as a result, dependence on intermediaries. It unrealistic to expect that to change anytime soon.” - Ryan Radloff, CoinShares

Evolution or Revolution? Putting Crypto in Context Macro Context Economic,
Political, and Social Drivers Copyright © 2019 CoinShares Group. All rights reserved. 12

CoinShares Group. All rights reserved. 13 MISTRUST GENERATIONAL SHIFT DISRUPTION • Rising populist tendencies and trade wars • Increasing balkanization of society via the web • Constant revelations of abuses of power • Largest generational wealth transfer under way – or maybe not? • Failing entitlements • Millennials facing life- long indebtedness • Fundamental shift in trust models • Drastic reduction in friction and barriers • Fractional, tokenized ownership models The preference for crypto is driven by social, political, and economic factors The Backdrop for Crypto

CoinShares Group. All rights reserved. 16 A Paradigm Shift Evolution Early adoption fits the existing regulated structure Revolution Experimentation phase takes time… Decentralized Financial System Centralized Blockchain Applications DENIAL ANGER DEPRESSION BARGAINING ACCEPTANCE *The Kübler-Ross grief model serves as a good index of how incumbents and stakeholders alike will react as we progress through the parallel paths VALUE TO BE CAPTURED

CoinShares Group. All rights reserved. 17 A Paradigm Shift Physical World Digital World Price of Physical Things = pp Price of Digital Things = pd Today – the digital world is valued at nearly nothing In the Future – an increasingly digital world means pd > pp , creating massive arbitrage opportunities VALUE TO BE CAPTURED

Evolution or Revolution? Putting Crypto in Context Market Evolution or
Financial Revolution The Forces Driving Change Copyright © 2019 CoinShares Group. All rights reserved. 18

CoinShares Group. All rights reserved. 25 “Financial institutions make people feel safe by hiding risk behind layers of complexity. Crypto brings risk front and center and brags about it on the internet.” - Elaine Ou, Global Financial Access

CoinShares Group. All rights reserved. 27 Debt & Equities Gold Oil Real Estate Wine Bitcoin Digital Independent Physical Dependent “Tokenized" Equity “Tokenized" Debt Precious Metals Mutual Funds Bonds $80T $288B “Tokenized" Commodities But A New Model is Emerging Source: CoinShares Research

Evolution or Revolution? Putting Crypto in Context Categorizing “Crypto” The
Challenge of Categorically Breaking Down Assets Copyright © 2019 CoinShares Group. All rights reserved. 28

Evolution or Revolution? Putting Crypto in Context Time EMERGENCE FRENZY
SYNERGY MATURITY Big bang Crash Institutional Adjustment Next big bang Degree of Diffusion of the Technological Revolution INSTALLATION PERIOD DEPLOYMENT PERIOD Intense funding Decoupling of paper value and real value Rampant speculation Focus on production Recoupling of paper value and real value Decreasing growth opportunities Source: Carlota Perez, Technological Revolutions and Financial Capital. Bitcoin price sourced from Coinmetrics.io Bitcoin price Markets Operate in Cycles Copyright © 2019 CoinShares Group. All rights reserved. Apr-13 Apr-15 Apr-17

Evolution or Revolution? Putting Crypto in Context $0 $1,000 $2,000
May-97 May-02 May-07 May-12 May-17 BOOKSTORE EVERYTHING STORE COMMERCE ECOSYSTEM Source: Bloomberg Amazon daily ticker data. Logos sourced from Google images. Copyright © 2019 CoinShares Group. All rights reserved. Cyclical v Secular Trends

CoinShares Group. All rights reserved. 31 BITCOIN ETHEREUM XRP (FKA RIPPLE) $- $11 $21 1/1/17 1/1/18 1/1/19 Thousands $- $800 $1,600 1/1/17 1/1/18 1/1/19 $- $1.80 $3.60 1/1/17 1/1/18 1/1/19 As of 7/2019 Up 4780% As of 7/2019 Up 2488% As of 7/2019 Up 871% Cyclical v Secular Trends, Part Two Source: CoinMetrics.io The siren song of the secular trend is very seductive, indeed

CoinShares Group. All rights reserved. 32 US INVESTMENT RETURNS LAST 5 YRS CHANGING INVESTOR SENTIMENT STRATEGY RETURN Debt 6% Fund of Funds 11% Hedge Fund 11% Real Assets 11% Secondaries 13% VC 16% PE 18% IPO 21% ICO 179% • Global macro uncertainty and sky-high valuations across asset classes • Venture investors increasingly concerned with valuations, exit environment, and performance • Hedge fund performance has been subpar – in 2017, 43% of funds fell short of performance expectations • Exits less frequent – IPO valuation premium is low, staying private often better for juicing valuation • For investors who missed BTC and ETH 1,000x returns, ICO investing looks good Source: Majority of return data from PitchBook 2018 Global PE & VC Fund Performance Report. IPO data from Renaissance Capital research, referencing Fidelity Investments data. ICO data from Benedetti, Kostovetsky, “Digital Tulips? Returns to Investors in Initial Coin Offerings.” Placing Crypto in Context

CoinShares Group. All rights reserved. 33 Source: Global Alternatives Survey, CoinShares estimates. A New Investing Paradigm The Internet The Blockchain Innovation in Information Transfer Innovation in Value Transfer Application Universe: Data storage and distribution, streaming video and music, cloud computing, and information processing Store of value, smart contracts, asset digitization, distributed computing, verification, and data management Capital Deployed from 1995 to 2000 Capital Deployed from 2013 to July 2019 Network: ISPs Miners, Full Nodes, Staking Pools Protocols: TCP/IP, HTTP, DNS, FTP Bitcoin, Ethereum, many others Capital Deployed from 1995 to 2000 Capital Deployed from 2013 to 2018 $ 180 BILLION = $10B Invest Source: CoinShares Research $ 6.2 BILLION = $10B Invest <$ 1 BILLION = $10B Invest $ 30 BILLION = $10B Invest

CoinShares Group. All rights reserved. 34 Where Value Capture Will Happen Phase 1 Phase 2 Phase 3: Manage & Use Phase 4 CREATE DISTRIBUTE RETIRE SPECIALIZATION APPLICAITON INVESTING $212 B 10.5 Years $33 B 3.9 Years $5 B 2.0 Years $2 B 4.9 Years $25B+ in protocol investments SPECULATION SPECIFICATION Bitcoin Ethereum EOS Stellar $8 B 5 Years $10 B 4 Years $4 B 5 Years $5 B 2 Years • Power laws dictate a few protocols will capture the most value • Due to liquid markets, highly momentum and news driven • Market leaders will emerge by sector • First crypto “unicorns” across verticals

CoinShares Group. All rights reserved. 35 Going Beyond Cryptocurrency Initial Public Offering “Initial Coin Offerings” Tokenized Securities ??? THE EVOLUTION OF CAPITAL FORMATION Crypto - currency COIN Source: CoinShares Research

CoinShares Group. All rights reserved. 36 Debt & Equities Gold Oil Real Estate Wine Bitcoin Digital Independent Physical Dependent “Tokenized" Equity “Tokenized" Debt Precious Metals Mutual Funds Bonds $80T $288B “Tokenized" Commodities The Digitization of Everything Source: CoinShares Research

CoinShares Group. All rights reserved. 37 DISINTERMEDIATION AND DIGITIZATION Legacy Asset Market Size Blockchain Asset Expression Gold $7 trillion Store of Value (SOV) Bitcoin Oil (Commodities) $1.7 trillion Digital Utility Ethereum & “Smart Contracts” VC $60 billion New blockchain protocols and early stage ICOs HF / PE growth investing $1.2 trillion Securitizing equity for private companies Tokenized Securities Real Estate $1.4 trillion Fractional ownership and tokenized REITs Tokenized Ownership Source: Global Alternatives Survey, CoinShares estimates. Liquidity, exchangeability, and efficiency are primary features - can crypto capture that premium? Psychological Anchoring

Evolution or Revolution? Putting Crypto in Context We’re Still at
the Early Stages Copyright © 2019 CoinShares Group. All rights reserved. 38 Speculation Utilization Specification Create Distribute Manage Retire t = 0 t = 1 t = 2 t = 3 or Replace The market needs more robust infrastructure to manage the lifecycle of a crypto asset Source: CoinShares Research

Evolution or Revolution? Putting Crypto in Context But the Financial
Industry isn’t Waiting Copyright © 2019 CoinShares Group. All rights reserved. 39 COMPANY CRYPTO MOVE Buy and sell bitcoin in $cash app Bitcoin futures contracts Bitcoin custody, crypto mining Subsidiary backed for institutional trading, custody, and much more MARKET CAP $32B $63B n/a, $1.4T AUM $44B Source: CoinShares Research

Evolution or Revolution? Putting Crypto in Context And Some Are
Issuing Their Own “Crypto” Copyright © 2019 CoinShares Group. All rights reserved. 41 Source: CoinShares Research Corporate Coin Type & Peg Description # Users 1 Libra = 1 unit of stable basket Details are scarce, but assume in-app payments are first to be rolled out 2,700M 1 JPMCoin = 1 USD Internal use only, for now – used to settle “smart contract” bonds 30,000 middle market, 1,700 corporate 1 Rakuten Coin = TBD The online giant’s $9B loyalty program will be rolled out on a blockchain 102.6M 1 S Coin = TBD Will allow for mobile phone payments, and also allows others to mint their own tokens Unknown 1 TON = 1 TON Telegram’s TON token allows in application use 250M

Evolution or Revolution? Putting Crypto in Context But the Results
are Mixed Copyright © 2019 CoinShares Group. All rights reserved. 42 Source: CNBC Coverage

Evolution or Revolution? Putting Crypto in Context Allocation Strategies &
Performance An Emerging Asset Management Landscape Copyright © 2019 CoinShares Group. All rights reserved. 43

CoinShares Group. All rights reserved. 44 0 10 20 1/1/17 1/1/18 1/1/19 Bitcoin S&P 500 GLD MSCI EM Source: Yahoo! Finance Absolutely Speaking, Bitcoin Outperforms = Market rate pure Performance indexed to 1/1/2017

CoinShares Group. All rights reserved. 45 The Rise of the “Crypto Fund” 0% 30% 60% < 10 10 - 50 50 - 100 > 100 AUM, Millions of USD Source: Blue Sky Capital Management, April 2019 Post titled “Alpha for Beta”

CoinShares Group. All rights reserved. 47 Smart Beta Fundamental Venture Opportunistic Quantitative Strategy Active Indexing Passive Indexing Long Only Long/ Short Hybrid Seed / Early Stage Growth Credit Mining / Staking (Network Dilution) Direction- al Market Neutral Long Vol Fee 2.5 – 3% per annum 2% management + 20% performance, but as high as 4 + 40 2 + 20 2 + 20 or higher 2 + 20 but often higher Duration Exchange traded, or monthly or quarterly liquidity 12 months minimum, + side pockets for illiquid investments 10 year lock up + 1 to 2 year roll 24 to 36 months, sometimes longer 24 to 36 months, sometimes longer Bench mark? None None in most cases – some use BTC, ETH, or index None None in most cases – some may use rf None in most cases – some use BTC, ETH, or index Source: Vision Hill Research, Crypto Hedge Fund Benchmark Report A Variety of Approaches…

CoinShares Group. All rights reserved. 48 Performance Statistics Crypto Hedge Funds Bitcoin Mean Annual Return 148% 146% Vol Annual Return 184% 202% Sharpe Ratio 0.8 0.7 Min Monthly Return -34% -37% Max Monthly Return 405% 453% Skewness 6.06 6.42 Kurtosis 44.1 48.3 Source: Blue Sky Capital Management, April 2019 Post titled “Alpha for Beta” The Upside Down - is and is

CoinShares Group. All rights reserved. 49 Q3 ’18 Q4 ‘18 Q1 ‘19 Hedge Funds No. of Data Points 43 48 60 Aggregate (All) - Average -8.5% -19.0% 7.7% Aggregate (All) – Median -9.2% -18.8% 6.0% Sub Strategies Fundamental – Median -14.5% -25.6% 9.6% Quantitative – Median 2.5% -2.9% 1.6% Opportunistic - Median -7.8% -24.6% 3.5% Smart Beta - Median -9.4% -45.5% 11.5% Market Bitcoin -9.9% -43.5% 9.7% Bitwise 10 Large Cap -2.5% -45.9% 10.6% Bitwise 20 Mid Cap -12.2% -49.8% 16.1% Bitwise 70 Small Cap 48.7% Bitwise 100 Total Cap 11.5% Bletchley 10 -5.4% -41.6% 4.7% Bletchley 20 -21.6% -48.2% 40.8% Bloomberg Galaxy Index n/a -11.1% 8.0% Alpha Alpha (Hedge Funds vs. Bitcoin) +5.6% -12.6% -3.7% Performance is Art and Science Source: Vision Hill Research, Crypto Hedge Fund Benchmark Report

CoinShares Group. All rights reserved. 50 IDIOSYNCRATIC RISK ”Asset” level risk SYSTEMIC RISK “Market” level risk STRATEGY RISK ”Manager” level risk • Operating strategy • Investment strategy • Financial policies and practices (i.e. “treasury” management) • Dependence on “benevolent dictator” founders • Lack of liquidity in most markets • Limited selection of assets (convergence on beta = 1) • Regulatory changes and tax reform risks • Failure of technology creates “bank runs” • Scalability (AUM growth) • Style drift (chasing every shiny new thing) • Benchmark selection and portfolio valuation practices • Risk management policies and limits on overall position exposure The most relevant risk today is really strategy or manager risk Understanding Risk

CoinShares Group. All rights reserved. 51 $0 $10 $20 $30 Pensions Family Office Endowments Foundations Crypto Market Cap Trillions There is $28 trillion of US institutional capital searching for an investment thesis and value It will take (a long) time to flow to bitcoin… Source: Global Family Office Report, Foundation Center, NCES, Willis Towers Watson. About Those Herds

CoinShares Group. All rights reserved. 52 Private Equity 10% Hedge Fund 20% Venture 5% Real Estate 30% Equities 20% Bonds, MM 15% SAMPLE ALLOCATION STRATEGY Crypto Asset Example Exchange Traded Product (passive beta) Venture Fund “Crypto Fund” Direct Investing IPOs Equities HOW THEY’RE PLAYING CRYPTO Source: Global Alternatives Survey, CoinShares estimates. For Now, Play the Old Way

CoinShares Group. All rights reserved. 53 Buy Side: Build Your Own Book? Key Function Competence Overview Capital Raising Fundraising Ability to raise capital for investments from aligned investors Banking and Custody Banking Services Strong relationships with transactional banks across multiple regions Storage and Custody Robust crypto custody opsec and infosec Risk Management Trade Execution Relationships with OTC desks and market makers, secondary buyers Portfolio Management Tracking positions across platforms and assets, potentially liquidity Re-balancing Programmatic trading, liquidating illiquid assets or investments Liquidity Management Ensuring positions can be sold over time and managing cash float Governance Network Participation Staking, bonding, delegation, and other types of governance activity – can be performance in-house but more likely outsourced Financial Planning and Reporting Allocation Strategy Quantitative and qualitative analysis of investment opportunities Performance Reporting Robust performance data and tracking Cash Management and Budgeting Accounts payable and receivables Accounting and Tax Valuation and NAV Marking positions, especially in PoS networks or after forks AUM Calculation Need to mark position values for fee calculation, must be defensible Tax and Audit Managing any and all tax and audit liabilities across operating regions Compliance and Legal Legal Review Ensuring full rights and covenants exercised, lawsuits where applicable Filings Regulatory filings and licenses where applicable

CoinShares Group. All rights reserved. 54 A FUTURE PORTFOLIO SO HOW DO WE MAKE THIS HAPPEN • Data Driven Research – Publishing rigorous, data-driven research reports and establishing frameworks for analysis • Products – Creating a broader range of products and services that feel more familiar (ie safe) to investors, with issuers they trust • Reporting Standards - Implementing more robust, descriptive, and specific metrics and reporting practices • Regulatory Clarity – Developing a more nuanced perspective on legality, tax implications, and liabilities Private Equity 9% Hedge Fund 18% Venture 5% Crypto Assets 5% Real Estate 28% Equities 20% Bonds, MM 15% Source: CoinShares research Exposure without an Intermediary?

CoinShares Group. All rights reserved. 57 Debt & Equities Gold Oil Real Estate Wine Bitcoin Digital Independent Physical Dependent “Tokenized" Equity “Tokenized" Debt Precious Metals Mutual Funds Bonds $80T $288B “Tokenized" Commodities The Digitization of Everything Source: CoinShares Research

CoinShares Group. All rights reserved. 58 Futures, Derivatives, and Synthetics Ahoy! Source: CoinShares Research 0 10 20 30 1997 2001 2005 2009 2013 2017 Futures Physical Gold Trade Volume Growth (normalized, 1997 = 1)

Evolution or Revolution: Putting Crypto in Context

Evolution or Revolution: Putting Crypto in Context

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