CoinShares Bleeds As Terra Drags Company To Its First Negative Quarter Since Going Public

The historic implosion of the algorithmic stablecoin, TerraUSD (UST), drained billions worth of investments. Among them was CoinShares, the London-based digital asset management firm, which reported a loss of around $21.57 million due to Terra exposure.

CoinShares shared its interim Q2 2022 results Tuesday, which compared to last year's quarter performance, saw a decline from around $23.89 million to $17.31 million. Its net income also nosedived from $32.42 million in $0.12 million in Q2 2022.

"While our Asset Management business continued to generate solid profit, the Capital Markets business experienced a one-off loss of £17.7 million following the de-pegging of Terra Luna. The financial impact of this episode, despite being relatively small when compared to the losses incurred by other players in our industry, had a material impact on our quarter," CoinShares explained, attributing the losses largely to its Terra exposure.

Last May, CoinShares CEO Jean-Marie Mognetti noted the digital asset management firm does not take directional positions, and was not directly exposed to the price collapse of LUNA, the native token of the first Terra blockchain. However, during the implosion, CoinShares was running a book with exposure to the algorithmic stablecoin UST.

"While this obviously impacts on the group’s performance for Q2, this loss has not had any impact on any of our additional capital markets activities, nor does it in any way impact upon the hedging and collateralization of any of the group’s ETPs," Mognetti wrote in the firm's annual report released in May.

The executive also described the Terra implosion as "a battle scar that I will personally never forget," noting CoinShares introduced more controls to anticipate and mitigate events. Mognetti said Tuesday the firm has learned its lessons and made necessary precautions.

"In light of the market turmoil we have reviewed our risk profile and moved into a more defensive mode. We have commenced taking steps to reduce both our cost base and various exposure across the group and this conservative approach will enable us to preserve our capital, ready to take advantage of opportunities in the digital asset space as they emerge," the CEO disclosed.

This is the first time CoinShares had a negative quarter performance since it went public in March 2021.