Arcane Crypto : Interim Financial Report

Interim Report

Q3 2021 | January - September

2 | Highlights

A pivotal quarter, positioning Arcane for future growth

Q3 has been an important quarter for Arcane. We have successfully launched our mining business, using renew-able energy, and are on track to become cash flow positive from the start of next year, given current market conditions. We have hired a new CFO and are now in the process of appointing new board members, including a very experienced chairman.

We see an increased upside in Pure Digital and LN Markets, two of our portfolio companies, and have made important progress on the new unified Arcane platform, launching the first iteration together with this report. While this first version mostly looks like a new design, a lot of the heavy lifting on the backend has already been done and new features and products will be rolled out efficiently on the platform over the coming quarters.

Torbjørn Bull Jenssen, CEO Arcane Crypto

The third quarter of 2021

(compared to the third quarter of 2020)

• • Group revenue increased to 81,166 kSEK (571)

• • EBITDA amounted to -6,059 kSEK (-3,085)

• • EBIT amounted to -8,105 kSEK (-3,133)

• • The result for the period amounted to -7,766 kSEK

  (-2,833)

• • Earnings per share before dilution amounted to

  -0,001 SEK (-0,005)

• • Earnings per share after dilution amounted to

  -0,001 SEK (-0,005)

Financial overview

kSEK

Revenue

The first nine months of 2021

(compared to the first nine months of 2020)

• • Group revenue increased to 183,695 kSEK (879)

• • EBITDA amounted to -18,586 kSEK (-7,454)

• • EBIT amounted to -21,731 kSEK (-7,505)

• • The result for the period amounted to -150,872 kSEK

  (-7,343)

• • Adjusted result for the period amounted to -23,919

  kSEK (-7,343)

• • Earnings per share before dilution amounted to

  -0,019 SEK (-0,014)

• • Earnings per share after dilution amounted to

  -0,018 SEK (-0,014)

Operating expenses EBITDA

Total assets Total liabilities Equity

Revenue by quarter

kSEK

Q3 2021	Jan-Sep 2021
81,166 -87,225 -6,059 187,217 22,793 164,424	183,695 -202,281 -18,586 187,217 22,793 164,424

Jan-Sep 2020

Full year 2020

879

2,103

-8,333 -19,915

-7,454 -17,812

42,462 41,243

10,748 9,042

31,714 32,202

125 000

100 000

75 000

Q2

50 000

25 000

0

Q3	Q4	Q1
2020	2021

Please note that neither LN Markets, Alphaplate nor Puremarkets are consolidated into Arcane's accounts. These associated companies are instead accounted for in accordance with the equity method and Arcane's share of ownership.

Q3

3 | Main events

Main events

Main events during Q3 2021

• • On July 2nd, Arcane Crypto completed the acquisition of Ijort Invest AB (Trijo).

• • On July 21st, Arcane Crypto's London based associated company Puremarkets Limited (trading as Pure Digital), in which Arcane has a 37.5% ownership, announced that Bank of New York Mellon has joined the consortium of banks working with the interbank wholesale marketplace to develop a platform to support the entire digital asset life cycle.

• • On July 29th, Arcane Crypto announced that the company will be included in CoinShares Elwood Global Blockchain Index as of August 2, 2021.

• • On July 30th, Arcane Crypto announced a collaboration between its wholly owned subsidiary Ijort Invest AB (Trijo) and the payment service provider Trustly.

• • On August 9th, Arcane Crypto informed that the company will be included in the Melanion BTC Equities Universe UCITS ETF.

• • On August 30th, Arcane Crypto carried out a directed issue of 300,925,294 units consisting of one share and one warrant, raising proceeds of approximately 61.1 MSEK before deduction of transaction costs. Upon full exercise of the warrants Arcane Crypto will receive proceeds amounting to approximately an additional 73.3 MSEK.

After the end of the period

• • On October 4th, Linus Jönsson was appointed as the new Group CFO of Arcane Crypto. Linus will assume his role on January 10th, 2022, replacing Interim CFO Per-Olov Östberg.

• • On October 19th, Arcane Green Data announced it had partnered with Luxor Technology Corporation and had gone live with current hosting capacity of miners.

• • On October 26th, Arcane Green Data announced that it has ordered a second batch of miners, due for delivery in January 2022.

• • On September 8th, Arcane Crypto ordered its first batch of bitcoin miners through its subsidiary Arcane Green Data Services, at a total cost of approximately 35 MSEK. The miners have become operational during the quarter.

• • On September 14th, Arcane Crypto's wholly owned subsidiary Kaupang Krypto AS launched a service for automatic saving in all cryptocurrencies available on the platform.

• • On September 14th, Arcane Crypto's London based associated company Puremarkets Limited (trading as Pure Digital), in which Arcane has a 37.5% ownership, announced the successful execution of a live test trade via Zodia Custody on its wholesale digital currency trading platform.

• • On September 14th, Arcane Crypto's wholly owned subsidiary Ijort Invest AB (Trijo) launched Trijo Autopilot, a service for automatic saving in Bitcoin, Ethereum and Litecoin - becoming the first Swedish player to do so.

• • Arcane Crypto was joined by Oisin Zimmerman as the new Chief Technology Officer.

• • Arcane Assets grew with the addition of Natalia Goldin Lundh, who joined as Head of Business Development.

• • Arcane Research was strengthened with the addition of Anders Helseth as a Senior Analyst.

• • On October 28th, the Nomination Committee proposed that Michael Jackson is elected as Chairman of the Board and that Sïmon Saneback is elected as new member of the Board. An Extraordinary General Meeting will be convened to decide on the proposal.

4 | Letter from the CEO

Letter from the CEO

Dear shareholders,

Q3 has been an important quarter, as Arcane has made meaningful progress in the following important areas:

• 1. We have started Bitcoin mining

• 2. We have hired a great CFO

• 3. We have started building a unified Arcane customer experience

Our mining operation, based on the use of renewable energy, went live just after the end of the quarter. We have ordered a second batch of machines with delivery in Q1 next year, which will double the capacity of our operation. The mining business is currently highly profitable, and we expect substantial revenues from this business unit going forward. With the support of the mining operation, the Arcane Group as a whole is now on track to become cashflow positive from the start of next year, given current market conditions.

Looking at the financials, our gross profit increased by 35% in Q3 2021 compared to the previous quarter, from 5.5 MSEK to 7.4 MSEK. We expect to grow our gross profit substantially over the coming quarters.

During the quarter, we have also hired an experienced CFO to the management team who will help us strengthen the finance function within the company and we are now in the process of appointing new board members, includ-ing a very experienced chairman.

Finally, we have begun the process of consolidating our portfolio of companies into a cohesive whole, building a unified Arcane customer experience. In the future, people will be able to create one Arcane account to learn about the crypto market through our industry leading research and analysis, execute trades, and invest for the long term through various investment products.

The first iteration of a unified customer experience can be seen today by visitingwww.arcane.no. This new web-site represents the first step in a multi-quarter effort to build a unified backend using cutting edge Google Cloud Platform technology. A unified backend will enable us to deliver a superior customer experience on the web, Android and iOS.

While giving our customers an improved experience, this unified approach will also help improve the bottom line. A user reading our research today will be seamlessly able to trade on our platform tomorrow. Customer acquisi-tion costs should fall, while our customers' lifetime value should increase.

Our goal with the new platform is to enable you to learn, trade and invest in crypto with confidence and ease. We start with research, asset management and trading, and expect to expand to payments and other complimentary services over time. This work will be carried out through a combination of organic and acquired growth.

By adding mining, solidifying the balance sheet, hiring a new CFO and making real tangible progress on the prod-uct and engineering front, we see Q3 2021 as a pivotal quarter, positioning us incredibly well for the future.

Torbjørn Bull Jenssen

CEO, ARCANE CRYPTO

5 | Sector Development

Sector Development

A quarter of accumulating activity and bullish news flows, priming the bitcoin market for solid momentum going into the last few months of the year.

Bitcoin showed impressive strength this quarter, seeing quarterly gains of 25%. Bitcoin's steady growth this quar-ter is particularly impressive when taking into account the uncertainty in the global financial markets and Bitcoin itself seeing near half its hashrate evaporate following the Chi-nese mining ban. This quarter once again reminded us that bitcoin is resilient and will continue to come out stronger.

In September, bitcoin further matured as an asset, with El Salvador becoming the first nation to adopt bitcoin as legal tender, seeking to utilize bitcoin and the Light-ning Network to vastly improve the remittance flows and attract more investment into the country. Additionally, Twitter launched a payment solution enabling users to send funds to other users using bitcoin both on-chain and through the Lightning Network. This news has led the Lightning Network to prosper, with the public BTC capac-ity of the Lightning Network seeing a growth of 181% from January 1st until September 30th 2021.

The quarter was also massive on the institutional side. Institutions such as Bank of New York Mellon, State Street, Bank of America, JP Morgan, Wells Fargo, Citi, Morgan Stanley and Visa all became more involved in building crypto-related infrastructure and offering digital asset products.

Further, Q3 saw positive developments in the everlasting U.S. bitcoin ETF discussion. Since 2013 several funds have tried launching bitcoin ETFs, to no avail. The SEC has rejected all applications, citing concerns over risks of market manipulation within the bitcoin market due to the high concentration of the trading activity in bitcoin occurring on unregulated markets. However, in August, SEC Chairman Gary Gensler publicly stated that the SEC was looking forward to reviewing the bitcoin ETF applica-tions, particularly those limited to the CME-traded bitcoin futures. In the following days and weeks, household ETF providers such as ProShares, Invesco and VanEck filed for a futures-based ETF, along with several others. On Octo-ber 18th, 2021, after more than eight years of unsuccess-ful attempts, ProShares' bitcoin ETF, BITO, was approved and began trading the day after. This approval from the SEC signals that the bitcoin market has matured, while also indicating that the SEC views the risks of market manipulation in bitcoin as decreasingly relevant.

The ETF approval provided easy access to bitcoin for a new group of institutional investors and the demand for such exposure was clear from day one of the ETF launch. On its first trading day, the ETF reached a trading volumeof USD 1 billion, and after two days, the fund surpassed USD 1 billion in assets. No other ETF has exceeded the USD 1 billion AUM milestone faster. The previous record was held by SPDR Gold Shares, which hit the milestone three days after its debut in November 2004.

In the upcoming months, we could see further develop-ments within the ETF landscape as there currently are 12 spot-based ETF filings awaiting a response from the SEC from entities such as Fidelity, ARK and VanEck.

The ETF launch has led the institutional trading activity in bitcoin to blossom. The Chicago Mercantile Exchange has now become the dominating entity in the bitcoin futures market after its open interest recently surpassed the open interest on Binance. Meanwhile, the futures premiums on the CME have climbed up towards 10% annualized, indicating that the institutional demand to allocate capital to bitcoin is currently high.

CME Bitcoin Futures: Open interest (OI) and share of total OI in the BTC futures market

%

Billion USD

Q1 2021

Q2

CME's market share (left)

Q3

Q4

CME (right)