On the 3 December 2024, the investment managers of GAM Global Special Situations Fund issued an open letter calling for SBI Holdings Inc (8473:TYO) to enhance crypto transparency and actively maximise shareholder value. The letter highlights the significant, yet under recognised, value of SBI's investment in Ripple Labs and its vast XRP holdings—valued at JPY 1.6 trillion against SBI's market cap of JPY 1.2 trillion.

GAM Global Special Situations Fund urges SBI Holdings Inc to:

• Publish daily updates on the indirect value of its XRP holdings.
• Clearly outline its strategy in blockchain technology and cryptocurrencies.
• Provide regular, transparent calculations of its Net Asset Value (NAV).

GAM Global Special Situations investment managers also recommend SBI consider an XRP buyback program to further leverage its blockchain investments, similar to the strategy adopted by MicroStrategy in the US. By taking these steps, SBI can significantly close the gap between its market value and its NAV, estimated at JPY 3.9 trillion.

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Open Letter:

Yoshitaka Kitao
CEO
SBI Holdings
Izumi Garden Tower 19F
1-6-1 Roppongi, Minato-ku, Tokyo 106-6019
cc. Bloomberg, FT, WSJ

December 3, 2024

Dear Kitao San,

We are the managers of the GAM Global Special Situations fund, which is a shareholder in your company, and we take a keen interest in it. As such, we had the honor of visiting your Roppongi office last September 11 where we met with Mr Motoaki Shiino and Mr. Toshiki Aoyama.

Over the years, we noted how SBI became a key player in the Japanese banking and securities businesses but also a significant investor in blockchain technology, particularly through its investment and ownership in Ripple Labs and SBI Ripple Asia. Ripple Labs owns at last count 48bn XRP. SBI owns between 8 and 9% of Ripple Labs and is its largest outside shareholder. That stake is worth at least JPY 1.6tr (through its XRP holding, and this does not take into account the valuation of Ripple Labs itself) vs. SBI’s entire market capitalization of JPY 1.2tr. The value of this investment is little known by the market and SBI’s strategy around Ripple’s blockchain technology is not clear. In fact, your IR company presentations, while very long and detailed, are very confusing.

As a result, SBI is selling at a very significant discount to its Net Asset Value (NAV) and SBI’s board and management is implicitly destroying shareholder value by not having a pro-active stance when it comes to its blockchain/cryptocurrencies and Ripple investments. The following chart shows the implicit value of SBI ascribed by the market after simply deducting the indirect value of its XRP holdings:

Hence, while SBI’s share price may have gone up this year from about JPY3000 to JPY4000, this increase is in fact “illusory” as SBI’s implicit value excluding its indirect holdings of XRP has actually plunged into negative JPY357bn. The following chart clearly highlights that point: (the orange line is SBI’s market capitalization; white line is SBI’s market ascribed value ex-XRP value).

We believe that SBI shareholders would benefit greatly if:

1/ SBI would publish a daily “live” indirect value of its XRP holdings

2/ SBI would detail clearly its strategy in blockchain technology and cryptocurrencies businesses

3/ SBI would regularly provide a clear calculation of its NAV components and overall NAV. We would be happy to assist your IR department to develop an investor friendly webpage to communicate such information.

We also urge SBI to have an active and public XRP coin buying program. Rather than pay a cash dividend, SBI shareholders would benefit greatly if SBI had a XRP buyback program by recycling a part of its cash flow from its banking and securities business. We suggest that the company announces such a program and embarks on a XRP crypto strategy similar to the highly successful XBT strategy pursued by MicroStrategy in the US.

SBI’s board should aggressively work towards getting the company’s value closer to its NAV which we calculate to be around JPY 3.9tr (including XRP’s indirect holdings) or over 3x its current market capitalization. Having a transparent strategy and communication around your Ripple and blockchain/crypto strategies are key to reaching your fiduciary duty to increase shareholder value.

Looking forward to hearing from you,

Best regards,

Albert Saporta
Co-CIO GAM Alternatives
GAM Investment Management (Switzerland) AG

Randel Freeman
Co-CIO GAM Alternatives
GAM USA Inc.

About the GAM Global Special Situations Fund

The investment managers of the GAM Global Special Situations Fund have long held the fundamental belief that markets can be inefficient, and securities go through distinct periods of mispricing, especially in complex corporate situations and when related securities are traded across different markets.

We believe by incorporating these securities in a thoughtfully structured portfolio and employing sophisticated hedging strategies we can achieve superior uncorrelated risk-adjusted returns across all market cycles.

The GAM Global Special Situations Fund invests globally long and short in securities of companies, intra and across markets and within complex corporate capital structures, which are often undergoing significant corporate change. Rigorous quantitative modelling and screening is combined with fundamental analysis and our deep understanding of event-driven dynamics.

The investment strategy is co-managed by Albert Saporta and Randel Freeman − two of the pioneers in global event-driven and special situations investing with over 70 years combined experience.

About GAM

GAM is an independent investment manager that is listed in Switzerland. It is an active, independent global asset manager that divers distinctive and differentiated investment solutions for its clients across its Investment and Wealth Management Businesses. Its purpose is to protect and enhance its clients’ financial future. It attracts and empowers the brightest minds to provide investment leadership, innovation and a positive impact on society and the environment. Total assets under management were CHF 19.0 billion as of 30 June 2024. GAM has global distribution with offices in 14 countries and is geographically diverse with clients in almost every continent. Headquartered in Zurich, GAM Investments was founded in 1983 and its registered office is at Hardstrasse 201 Zurich, 8037 Switzerland. For more information about GAM Investments, please visit www.gam.com.

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Other important information

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Any such statements in this release speak only as of the date hereof and are based on assumptions and contingencies subject to change without notice, as are statements about market and industry trends, projections, guidance, and estimates. Any forward-looking statements in this release are not indications, guarantees, assurances or predictions of future performance and involve known and unknown risks, uncertainties and other factors, many of which are beyond the control of the person making such statements, its affiliates and its and their directors, officers, employees, agents and advisors and may involve significant elements of subjective judgement and assumptions as to future events which may or may not be correct and may cause actual results to differ materially from those expressed or implied in any such statements. You are strongly cautioned not to place undue reliance on forward-looking statements and no person accepts or assumes any liability in connection therewith.

This release is not a financial product or investment advice, a recommendation to acquire, exchange or dispose of securities or accounting, legal or tax advice. It has been prepared without taking into account the objectives, legal, financial or tax situation and needs of individuals. Before making an investment decision, individuals should consider the appropriateness of the information having regard to their own objectives, legal, financial and tax situation and needs and seek legal, tax and other advice as appropriate for their individual needs and jurisdiction.

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Germany’s DekaBank has received a bank crypto custody license from German regulator BaFin and the European Central Bank (ECB). We believe Commerzbank was the first German bank licensed last year. However, other major banks have not received licenses, including DZ Bank.

BaFin has issued another 11 crypto custody licenses, mainly for crypto firms. One of them is the digital asset custody subsidiary of Hauck Aufhäuser Lampe Privatbank.

The difference with DekaBank and Commerzbank versus the crypto firms is they are licensed under the Banking Act (KWG).

This is DekaBank’s second new license this year. In July it received a license as a crypto securities registrar for the German issuance of DLT-based digital securities. These crypto securities don’t require a central securities depository (CSD) for issuance.

DekaBank is very active in the digital asset space. It is the founder of SWIAT, the blockchain platform for digital securities in which Standard Chartered and LBBW are also investors. In September Siemens used the platform to issue a €300 million digital bond.

Our understanding is that a crypto custody license is not needed for crypto securities, but is required for cryptocurrencies.

As part of the announcement, DekaBank said this allows the bank to operate throughout Europe under the EU’s MiCAR crypto legislation.

A MiCAR holdup?

We’ve previously reported that there’s a bit of a challenge with MiCAR for German institutions. In October 2023 a draft version of the Supervision of Crypto Markets Act (KMAG) was introduced. It’s the piece of legislation that supplants Germany’s old crypto rules with MiCAR. The problem is this legislation has not been passed and with the collapse of the German ruling coalition, it’s not likely soon.

Hence, while in theory DekaBank’s license will allow it to operate in the EU, we believe that may be subject to the passage of the KMAG law. We contacted DekaBank to confirm, but didn’t receive a response in time for publication.

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Atom Accelerator (AADAO), a decentralized autonomous organization (DAO) on Cosmos Hub (ATOM), and Neutron, Cosmos’ integrated application network, have each pledged $250,000 to support the development and maintenance of Confio’s CosmWasm in 2025, as reported to Finbold on Tuesday, December 17.

With early funding, AADAO and Neutron aim to secure priority consideration in Confio’s future endeavors and encourage other stakeholders to follow suit. 

CosmWasm adoption and funding

Confio has been working on CosmWasm since 2020, and so far, the smart contract framework has been adopted by nearly 100 blockchain networks. 

CosmWasm lets developers build decentralized applications (dApps) that interact across the Cosmos interchain. 

Over the last year, CosmWasm dApps generated more than $5.7 million in fees within the Cosmos ecosystem.  

Despite the broad adoption, the funding for CosmWasm has mostly come from the Interchain Foundation (ICF). 

However, following the recent ICF restructuring, Confio’s budget for 2025 has been significantly reduced, resulting in a lot of doubt in regard to the future of the platform.

CosmWasm Coalition

Atom and Neutron investments are part of the newly launched CosmWasm Coalition, which builds on previous support from the Cosmos Hub, including a $1.25 million allocation under Proposal #103 in March 2023. 

The coalition aims to raise the $2 million necessary to keep CosmWasm growing in 2025 and allow Confio to focus on security, performance optimization, feature development, source development kit (SDK) compatibility, and the overall developer experience.  

Relying on CosmWasm for permissioned smart contract capabilities, Cosmos Hub sees Confio’s framework as an essential component of its network. 

A number of consumer chains leveraging Cosmos Hub’s Interchain Security also depend on CosmWasm, meaning that fresh funds will affect an entire ecosystem.

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