CoinShares bounced back.
The London-based digital asset investment and trading firm returned to profitability in the third quarter after a disappointing second quarter that was, well, disappointing for many and the fault of few: Terras UST stablecoin and its governance token LUNA collapsed, erasing billions of dollars in value throughout the sector.
By comparison, losing about $21 million doesnt seem that bad. Still, it resulted in CoinShares only negative quarter since the company went public. Even before Terra blew up, CEO Jean-Marie Mognetti said he counted himself among the skeptics. Investors were promised 20% returns. How was that possible?
You know, I was scratching my head in January, February of last year, talking with my trading team like, What are we doing? What if theres something were missing? Mognetti said in a recent interview at Fortunes New York office. We keep seeing this extraordinary return promised to us, and, you know, they have to make some margin, so that means the return theyre making is much higher?
Why couldnt CoinSharesor a similar firm packed with smart, experienced traders and researchersfind that alpha itself?
We didnt really seem to be finding a way to deploy our capital to achieve this kind of high, high number. Are we doing something wrong? Mognetti continued. And then you realize, well, actually, the number of real players delivering real returns werent that many.
Cleaning up the industry
With the help of internet sleuths, including FatManTerra, what actually happened at Terra was exposed soon enough, leading authorities to pursue its founder, Do Kwon, whos now drowning in legal issues.
Mognetti said hes never met Kwon and couldnt say much about him as a person, but Terras failure, however devastating, should benefit crypto in the long run.
It serves a massive purpose in cleaning up the industry, Mognetti told Fortune. Its not unlike the lasting effects of a widespread forest fire. Ultimately, the forest grows back strong, absolutely.
That hard reset will allow CoinShares and its peers, as well as newer entrants to crypto, to start building stronger and stronger things, he added.
Governments also could lend a hand with that. U.S. voters want leaders who understand crypto, those in charge of making the rules for crypto have openly admitted they need better ones, and just last week the head of the Commodity Futures Trading Commission said of an alleged turf war over crypto enforcement with the Securities and Exchange Commission: Its pretty cynical to suggest two agencies cant figure it out and work together. But they still havent.
Theres a lot less debate these days over whether the industry needs clear guidelines. But there is debate over how to prioritize such measures.
I think regulatory clarity is critical for anyone who wants to be able to innovate, Mognetti said. But there are many, many other issues right now in the world. What are the top priorities for government? Right now in the U.S., probably crypto is not on the top of that list. Similarly, in the U.K., where CoinShares still operates with more than $2 billion in assets under management, any plans of turning London into the next great global crypto hub were stalled as the country stumbled into selecting its third prime minister in nearly as many months.
Vanilla or strawberry?
So whats next for CoinShares? Mognetti was a bit cagey on the question of a U.S. expansion, although he did mention how a lack of federal policy standards could lead to state-by-state regulatory battles reminiscent of the nation-by-nation regulatory battles hes seen in Europe or Asia. Will President Joe Bidens executive order on crypto end up being a watershed moment or stifle innovation? Who can say.
In the meantime, those in the space will continue to innovate. Crypto financial instruments arent biscuits or protein shakes, where they can do a focus group and say, Okay, do you prefer the vanilla or the strawberry? Mognetti continued. When it comes to crypto in general, people dont really know what they want yet.
The trick, he added, will be for CoinShares to build a few products that help propel the company through the next market cycle, when Crypto Winter finally, finally ends. But he doesnt know exactly what those are yet. And hes not going to speculate.
If Apple is talking to you about a new car they will launch, Tim Cook will talk to you about it six months before he knows its coming, and its ready to go, Mognetti said. If Elon Musk is talking to you about a new car, hell talk to you before hes even started drawing it. Its not an arrogant approach, dont get me wrong, but were much closer to an Apple model, where we do what we say, and we say what we do.
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