DeFi Technologies Inc.: Still A Defi Call Option

Summary Despite a volatile journey, DeFi Technologies Inc. remains a speculative buy due to its growing assets under management (AUM). Moreover, the Company has significantly improved its financial performance, turning large losses into net income over the past three years. Year-end results will be reported in April 2025; I anticipate that those results, which will reflect the Trump crypto rally, should serve as a catalyst to propel the stock higher. Introduction When I last covered Defi Technologies Inc. ( OTCQB:DEFTF ) (the " Company ") for Seeking Alpha on December 7, 2021, the crypto market, including the Company, was in a bubbly bull market. The Company`s stock price was $2.87 then compared to $3.08 today (1/16/25). While on the surface it might look like the stock price has been largely range bound over the period, the reality is that the ride from then to now has been an epic roller coaster as shown in the chart below. Seeking Alpha Indeed, the Company would go on to lose more than 95% of its value at its nadir during the course of the crypto bear market of 2022-2023. It is more than three years later, and for the reasons described herein, I still believe the Company remains a BUY and I include the Company in the speculative bucket of my Model Asset Allocation . A Growing Business Business Segments Per it most recent Management Discussion & Analysis (" MD&A "), the Company generates revenue via a half dozen business segments: 1. Valour Asset Management (" Valour "). Valour is the Company`s key business segment, offering Exchange Traded Products (“ ETPs ”) that "synthetically track the value of a single DeFi protocol or a basket of protocols." See MD&A linked above. Valour`s products are mainly offered in Europe. As of September 30, 2024, such products offer exposure to the following, among other protocols: Bitcoin ( BTC-USD ); Ethereum ( ETH-USD ); Solana ( SOL-USD ); Polkadot ( DOT-USD ); Cardano ( ADA-USD ); Uniswap ( UNI-USD ); Cosmos ( ATOM-USD ); Avalanche ( AVAX-USD ); Chainlink ( LINK-USD ) and Enjin Coin ( ENJ-USD ). See MD&A above for further details (Note 12, page 23). 2. The Company`s DeFi Alpha segment operates an arbitrage trading desk (the " Trading Desk "). The Trading Desk seeks to "identify low-risk arbitrage opportunities within the crypto ecosystem." Per the Company`s website : With a primary focus on both centralized and decentralized markets, the trading desk ensures minimal exposure to market and protocol risks, effectively mitigating revenue volatility. Since its inception, DeFi Alpha has delivered significant results, generating over C$133.1 million (US$97.5 million) in cash and digital asset equivalents in 2024." 3. The Stillman Digital segment is, according to the MD&A, "a leading digital asset liquidity provider that offers limitless liquidity solutions for businesses, focusing on industry-leading trade execution, settlement and technology." The Company acquired Stillman Digital in October 2024, issuing Company shares to finance the acquisition. The Company`s year-end financials should provide investors with initial insights into this segment`s performance. 4. The Company`s DeFi Ventures segment invests in decentralized finance businesses, seeking to maintain a diversified portfolio of companies. The portfolio companies of Defi Ventures are described here . 5. Per the MD&A, the Company`s DeFi Infrastructure segment offers "governance services and products within the DeFi ecosystem." For more information regarding services and the Company`s partners, see this link . 6. Finally, the Reflexivity LLC business segment is a provider of boutique crypto industry research. Co-founded by Anthony Pompliano and Will Clemente, the Company acquired Reflexivity LLC in the first quarter of 2024. *** Notably, in my prior articles concerning the Company, including my original article linked here , I noted that the Company retained an interest in crypto miner, Hive Digital Technologies Inc. ( HIVE ). Today, however, that investment no longer appears to be on the books of the Company. Certain Recent Developments After the close of the third quarter of 2024, the Company has made some positive announcements that demonstrate positive momentum for Valour. Per the MD&A, those developments include: In October 2024, Valour listed the Valour Sui ( SUI-USD ) ETP on the Spotlight Stock Market in Stockholm, Sweden (the " Spotlight Stock Market "). SUI, a protocol that I own, is a Layer 1 blockchain with a high quality management team (previously part of the Diem project of Facebook/Meta Platforms, Inc. ( META )). Also in October 2024, Valour listed the first-ever Valour Bittensor ( TAO-USD ) ETP on the Spotlight Stock Market, providing investors with access to Bittensor`s "decentralized machine learning protocol." [The Author is unfamiliar with this protocol.] A month later, in November 2024, the Company announced that Valour and affiliates had introduced a new physically backed, high-yield Bitcoin ETP for German investors in collaboration with Core Foundation . Net Income The Company has grown revenues and net income materially over the last three years. (Canadian Dollars) September 30, 2021 September 30, 2024 Total Revenues 9,967,376 152,436,040 Total Expenses 25,376,938 55,199,666 Net Income (21,454,530) 95,145,316 Indeed, the Company has turned large losses into profits. Keep in mind too that the bull market in crypto accelerated in the fourth quarter of 2024 in anticipation of (and following) the Trump victory. The Company is estimated to report 2024 year-end earnings on April 2, 2024. I am anticipating that the Company will have a solid quarter as its assets under management (" AUM ") more than doubled year over year (and exceeded $1 billion (Canadian)). This could be a big catalyst for the stock price, particularly if the Company can continue to show overall growth in AUM and net inflows into its ETPs. Balance Sheet (Canadian Dollars) September 20, 2021 September 20, 2024 Current Assets 264,598,501 832,070,950 Current Liabilities 246,809,926 789,761,126 Current Ratio ** 1.07 1.05 Total Assets 372,062,311 928,959,248 Total Liabilities 246,831,974 789,761,126 Shareholder Equity 125,230,337 139,198,122 Shares Outstanding (Diluted) 189,037,949 339,793,738 ** Not included in the linked balance sheets included above. Added by Author. The balance sheet has grown over the last three years, but liquidity has not necessarily improved as the Current Ratio has actually declined. Shareholder Equity has slightly improved, but there has been significant shareholder dilution along the way. With profits and AUM growing, however, it is important for the Company to begin to improve its liquidity profile. I will be looking at year-end results closely in this regard. A risk I see is that management is possibly doing too much and making investments in too many verticals. Other risks are noted or referenced below. Risks Key risks are enumerated in the MD&A linked above. Notably, however, the decline in the Canadian dollar is having an adverse effect on the Company. The chart below shows the performance of the Canadian dollar via the Invesco CurrencyShares® Canadian Dollar Trust ETF ( FXC ) and the US Dollar Index ( DXY ) over the last three years. Seeking Alpha Moreover, a large number of the Company`s ETPs are listed on European exchanges, and the recent trend for the Euro has been downward as well. The chart below shows the performance of the Euro via the Invesco CurrencyShares® Euro Currency Trust ETF ( FXE ) and the US Dollar Index ( DXY ) over the last three years. Seeking Alpha Needless to say, ownership of the Company includes material foreign currency risk associated with the Canadian dollar , the Euro and certain other European currencies. Further, due to the Company`s size (under $1 billion market cap) and it being domiciled in Canada, it is not included in any large stock indexes (at least as far as I can tell) and, as such, the Company is not the beneficiary of material passive flows. This could prove to be a competitive disadvantage. Lastly, with significant exposure to alt-coins, the Company is very volatile. Since it began trading on public markets (in or about March 2020), it makes Bitcoin look very dull by comparison as shown in the chart below. Seeking Alpha In short, this kind of volatility is not for everyone. Conclusion With its fast growing asset management business, the Company is a speculative BUY . Moreover, it continues to hold promise as a call option on the crypto/DeFi space. Consequently, it holds a place in the speculative bucket of my Model Asset Allocation .

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