Operational risks including cryptocurrency price volatility, market disruption and system failures

「Investment and operations in cryptoassets remained sluggish during the current interim consolidated accounting period, mainly because valuation losses on cryptoassets with active markets, such as Bitcoin, were reflected.」

「Cryptoasset investment and management were sluggish during the first quarter cumulative consolidated period, mainly because valuation losses were recorded on cryptoassets with active markets, such as bitcoin.」

「As a result of this accounting, cryptoassets with no active market currently held by the Company, excluding those of little significance, will have been written down to their memorandum values during the current consolidated fiscal year. Accordingly, no further valuation losses on cryptoassets are expected from the next fiscal year onward.」

「After considering the expected disposal value in light of economic and market conditions, accounting standards and other factors, the Company determined that it was appropriate to reduce the carrying value of カイカコイン to its memorandum value and recorded a ¥180 million valuation loss on cryptoassets.」

「Although the recording of valuation losses on cryptoassets as a reduction of net sales had an impact on the financial services business,」

「The Group has traded cryptoassets cautiously in its investment, financing and operating activities, after assessing price trends, but during the cumulative consolidated period for the third quarter it recorded valuation losses on cryptoassets held.」

「The Group has traded cryptoassets cautiously in its investment, financing and operating activities, after assessing price trends, but during the cumulative consolidated period for the second quarter it recorded valuation losses on cryptoassets held.」

「During the cumulative consolidated period for the first quarter, valuation losses on cryptoassets were recorded as a result of deterioration in gains and losses on cryptoasset trading due to falling cryptoasset prices and worsening market conditions for cryptoassets.」

「However, during the third-quarter consolidated accounting period, cryptoassets were heavily sold as risk assets, and their prices fell sharply, owing to the acceleration of monetary tightening in various countries and inflation resulting from the prolonged situation in Ukraine. Against this market backdrop, in addition to recording valuation losses on cryptoassets at Zaif, the cryptoasset exchange operated by カイカエクスチェンジ, net sales remained weak because the decline in cryptoasset prices reduced trading volume.」

「Although net sales increased compared with the first quarter of the consolidated fiscal year because the new services got off to a strong start, trading volume among customers using the existing services and the pace of acquiring new customers showed signs of slowing, and performance during the cumulative consolidated period for the second quarter remained below forecasts.」

「However, during the cumulative consolidated period for the first quarter, performance remained sluggish, partly because the pace of acquiring new customers slowed and trading volume among active customers was low.」

「The cryptoasset market was buoyant through April 2021, with Bitcoin setting new all-time highs each month, but market conditions changed sharply from May, and prices continued to decline from May through July. Trading volume on Zaif showed signs of recovery in August and September, but the recovery was insufficient to offset the decline from May through July, and net sales remained below expectations.」

「If the electronic wallets are subject to unauthorised access, cryptoassets stored in them could be lost through the actions of unauthorised third parties, and the Group may be unable to recover them. The loss of cryptoassets held by the Group or its customers could result in substantial compensation payments to customers.」

「株式会社Zaif holds cryptoassets deposited by customers in electronic wallets that it manages. The Group also invests in cryptoassets through electronic trading systems accessed via cryptoasset exchanges in Japan and overseas. If the electronic wallets are subject to unauthorised access, cryptoassets stored in them could be lost through the actions of unauthorised third parties.」

「As all of these cryptoassets were sold in February 2020, an additional ¥1 million was deducted from net sales as a loss on the sale of cryptoassets.」

「As all of these cryptoassets were sold in February 2020, an additional ¥1 million was deducted from net sales as a loss on the sale of cryptoassets.」

「In addition, ¥26 million was deducted from net sales as a valuation loss on cryptoassets with no active market that had been held previously.」

「In addition, ¥141 million was deducted from net sales as a valuation loss on cryptoassets with no active market that had been held previously.」

「In addition, ¥122 million was deducted from net sales as a valuation loss on cryptoassets with no active market that had been held previously.」

「During the nine months ended [current first quarter?]—the cumulative consolidated period for the first quarter—losses from operating cryptoassets at CCCT amounted to ¥4 million, as operations were kept at a modest level compared with the same period of the previous year. In addition, ¥122 million was recorded as a valuation loss on cryptoassets with no active market that had been held previously, as a reduction of net sales.」

「Following the cryptocurrency theft at the Zaif crypto asset exchange in September 2018, we have undertaken improvements to the Zaif system as technical support.」

「Cryptocurrency management conducted by us and CCCT to acquire expertise in building cryptocurrency-related systems generated a substantial operating profit of ¥747 million during the current third-quarter consolidated cumulative period. However, during the first quarter, the results of our cryptocurrency management were recorded as non-operating income and extraordinary income rather than revenue. In addition, because cryptocurrency management became loss-making due to the sharp decline in the prices of Bitcoin and other cryptocurrencies following the cryptocurrency theft incident at a deemed cryptocurrency exchange business operator in January 2018, the deficit was recorded in revenue. (Cryptocurrency management results for the current third-quarter consolidated accounting period included a profit of ¥78 million.)」

「Cryptocurrency management conducted to acquire expertise in building cryptocurrency-related systems had generated results overall. However, the sharp decline in the prices of Bitcoin and other cryptocurrencies following the cryptocurrency theft incident at a deemed cryptocurrency exchange business operator in January 2018 resulted in the recognition of a cryptocurrency management loss.」

「Cryptocurrency management, conducted to acquire expertise in building cryptocurrency-related systems, was intended to generate profit for our Group. However, as CCCT's cryptocurrency management results became negative, the deficit was recorded in revenue.」

「Risks associated with cryptocurrency management include the risk of losses resulting from price volatility, disruption in the cryptocurrency market causing trading to become impossible or forcing transactions on less favorable terms than usual, failures in cryptocurrency derivatives trading systems, failures or bankruptcy of cryptocurrency exchanges, and theft resulting from unauthorized access to servers.」