Checkpoint '23 @ Change
'bull runs are earned in the bear'
(The opinions shared here are solely those of the author and should not be relied upon as the basis for investment decisions nor should they be interpreted as suggestions or advice for participating in investment transactions. In addition, views expressed by the author should not be considered as views of the company highlighted in the article.)
Another year gone past. So fast.
Here’s an odd thing about spending your waking hours in the startup fog of war. There’s so much stuff going on that weeks feel like months, months feel like years and a decade feels like a lifetime. And yet, the past seven years at Change have passed in the blink of an eye. Such a paradox.
Distance lends perspective. This piece of writing attempts to escape the battlefield and pick a position higher on the hill.
First, what’s Change?
Change is on a mission to simplify wealth creation for all. We encourage everyone to find a wealth creation path of their own. Whether it’s lower or higher risk, shorter or longer timeframe, diversified or concentrated - the investor picks the path and our job is to help along the way.
We launched back in 2017 on a quest to build a great cryptocurrency investing experience. The breakaway success of the crypto offering lead to expanding into more traditional investment opportunities including exposure to stocks, indices, commodities and currencies. Today, Change offers over 350 instruments across various asset classes and positions as a multi-asset investing app, albeit with a crypto flavour. All accessible via the Change mobile app.
Change has over 130,000 users spanning across 30 countries in the European Economic Area. Our key markets are Estonia and Czech Republic - in recognition, our app and services are available in English, Estonian and Czech.
By the end of this year, we estimate our product to have generated all-time revenues of ≈ €10M with trading volume exceeding €1.5B. We’ve experienced moderate success in diversifying the revenue streams as derivatives pick up steam. In terms of profitability, we’re not there yet. We grind.
The subsidiaries of Change Group are proud to be licensed in the Netherlands as an investment firm and in Estonia as a virtual asset service provider. We’ve worked and continue to work hard for our licenses. Licenses and audits go hand-in-hand - our business and operations are audited by Grant Thornton, which is one of the largest auditing firms in the world. Running the business by the book, which largely revolves around licensing and audits, has slowed product development quite a bit. But as recent industry news indicate - this might be for a good reason.
Done with the intro, let’s reflect 👇.
The last jedi
2022 was a shocker year for many in the investing and trading space, especially for companies with strong ties to crypto and stocks. The Federal Reserve raised interest rates so aggressively that the 75 bps moves caught on as “jumbo hikes” - here’s an A380 jumbo jet attempting to get off the ground to illustrate.
The tightening of monetary policy is considered bad for risk asset prices. And what’s the riskiest asset class on planet earth? That’s right - crypto. Goes without saying, it’s also the asset class with the highest potential for returns and losses. As our users tell us - not all wealth creation paths are created equal. But crypto isn’t the only risky asset class out there - on the risk spectrum, stocks are a close second.
The risk asset price collapses were severe throughout ‘22. One could feel them to the bone. The wild successes of ‘21 Robinhood, Coinbase and Change, though at a smaller scale, were remorselessly countered by the agony of ‘22. Revenues and valuations fell sharply. The tourists left. Bitcoin got declared dead again. All of a sudden the outlook for ‘23 wasn’t about revenue growth, but profitability - the fancier word for survival.
We recognized that the competitive landscape, especially in the crypto space, was about to drastically change. And indeed it did - we experienced the fall of crypto giants FTX, BlockFi, Celsius and many others. Just recently, we learned more on the developing situation with Binance.
Perhaps most importantly, we realized that whoever was left standing at the end, would likely be handsomely rewarded in the next cycle. Bull or bear, we just kept showing up every day to build.
The force awakens
2023. Flicking the survival switch didn’t feel great at all. The survival switch is a tale of two stories - cutting costs and restructuring revenues.
The toughest part of all was letting go of the great people we were fortunate enough to have join our team over the years. For what’s its worth, its encouraging to see that many who left found a great career opportunity elsewhere and Change played its part, however big or small, in helping to make this happen.
Throughout the history of the company, it has been and always will be paramount that Change offers its services in a secure and compliant manner. A shock ≈ 50% workforce drop presented a challenge to the team that remained, especially in light of the decision to keep all product lines operational. Now with the dust settled and the team in its rhythm, I believe we can assess and be proud of the level of service we are able to provide to our customers across all products. Team 300.
The thing with bear markets is that customers are less active - they hold and rarely ever trade. Revenues drop, while costs to offer a secure and compliant service grow. Customers who hold crypto for the long term expect their assets to be held in a safe, secure and compliant manner - we are heavily committed to this. In order to meet this commitment, we also needed to embrace a realistic ratio between revenue and costs. Looking back, I believe we’ve reached a fair balance between (1) providing a low-cost service to users with reasonable activity in the app and (2) operating costs.
The ‘23 survival pill we swallowed was extraordinarily bitter. Didn’t feel great during the process, doesn’t feel great today. However, in return, we not only survived, but set ourselves up for a resurgence.
A new hope
As I look towards ‘24, what do I see?
Carrying no illusions regarding my expertise as an armchair economist, I still possess the audacity to believe it will be a better year for risk assets. The elephant in the room, the Fed Funds Rate, is expected to slowly reverse. Global liquidity has already or is close to bottoming. Inflation cools. One would argue that sitting on such fundamentals, cryptocurrencies and stocks would feel… unbothered. Moisturized. Happy. In their lane. Focused. Flourishing. A good year for risk assets is great for Change. A bad year for risk assets, not so great for Change.
With our macro expectations locked in, let’s tackle the next big question - when crypto bull? Each run needs the following: (1) supporting/neutral macro, (2) a catalyst and (3) a preacher. The last bull run was set up by the printer, catalyzed by NFTs and Ethereum-killers and preached by Michael Saylor. With the upcoming run, things might look a bit different. A touch more institutionnel. There’s our leading catalyst candidate - the spot bitcoin ETF together with its potentially significant inflows. Larry will do the preaching. As for macro, I expect it to show up neutral at worst - it’s going to be weird, but it won’t ruin the party. Sooner or later, the pump will come. But, as always, don’t take my word for it. This is my research. Do yours.
At Change, bull or bear market, our job is to keep our eyes on the ball - giving our users the tools to build wealth regardless of the path they choose. From the business perspective, it’s important to further diversify the revenue streams, be careful with costs and continue building a strong team. We’re on our way, one candle at a time.
LFG