Arcario : Interim Report Q3 2023 Report

Quarterly Report Q3

Q3 2023 JANUARY - SEPTEMBER

Arcario AB

556668-3933

INTRODUCTION

Improving market fundamentals

We have leveraged the recent market slump to sharpen our focus, build for the next wave of adoption and we have no intention of folding now as the sentiment is about to turn.

We anticipate shortly being able to release details of	"
the steps we will take to regain a solid capital base.
- Michael Jackson, Chair of Arcario
I'm really excited as I believe we are in a great position to	"

finally accelerate our growth and benefit from the positive shift in market sentiment.

- Torbjørn Bull Jenssen, CEO of Arcario & K33

Arcario AB | Quarterly Report | Q3 2023 January - September

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INTRODUCTION

Third quarter of 2023

Compared to third quarter 2022

• Group revenue decreased to 28,277 kSEK (52,186)
• EBITDA amounted to -6,489 kSEK (-7,336)
• Adjusted EBITDA amounted to -4,489(-7,336)
• EBIT amounted to -10,721 kSEK (-12,703)
• The result for the period amounted to -7,867 kSEK (-13,290)
• Earnings per share before dilution amounted to SEK -0.001(-0.002)

First nine months of 2023

Compared to first nine months of 2022

• Group revenue decreased to 97,875 kSEK (242,806)
• EBITDA amounted to -16,578 kSEK (-30,065)
• Adjusted EBITDA amounted to -14,578 kSEK (-19,166)
• EBIT amounted to -29,603 kSEK (-77,279)
• The result for the period amounted to -38,259 kSEK (-79,741)
• Earnings per share before dilution amounted to SEK -0.004(-0.009)

Financial overview kSEK

Revenue by quarter kSEK

Arcario AB | Quarterly Report | Q3 2023 January - September

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MAIN EVENTS

Main Events

Main events during Q3 2023

• On September 27, Arcario notified the market that it had less than three months of working capital.
• On August 22, Q2 interim results for the Arcario group were released.
• On August 21, it was announced that Arcario intends to renew its application for a US listing on the OTCQB.
• On July 28, it was announced that Arcario's K33 signed an investment agreement with Liquid Mercury.
• On July 5, it was announced that Arcario's Finpeers reached a significant milestone following regulatory approval of its first token.
• On July 5, it was announced that Arcario's LN Markets sustained its strong performance in Q2 2023.
• On July 4, it was announced that Arcario completed the acquisition of Shares in Finpeers.
• On July 3, it was announced that Arcario's K33 subsidiary explores a strategic investment from Chicago-based Liquid Mercury.

After the end of the period

• On October 11, it was announced that Arcario's K33 Markets were officially launched and ready to onboard new clients.

Arcario AB | Quarterly Report | Q3 2023 January - September

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Commentary

Michael Jackson

Chair of Arcario

Dear Shareholders,

On 27 September, and in accordance with Stock Exchange rules, we made an announcement that we no longer had working capital to support three months of operation. A combination of disappointing mining income and market sentiment had depressed our cash resources below required levels.

Fortunately, we have a solid and supportive shareholder base, who, as myself, my board colleagues and the people who work hard every day within the Arcario umbrella continue to believe in the future of the industry and the company. We are all committed to ensure that we secure the resources needed to position Arcario well for the future.

We anticipate being able to release details of the steps we will take to regain a solid capital base that can support ourselves, our investments and our liabilities very shortly.

I thank you all for your continued support.

Arcario AB | Quarterly Report | Q3 2023 January - September

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Commentary

Torbjørn Bull Jenssen

CEO of Arcario & K33

Dear Shareholders,

Looking forward, I am really excited as I believe we are in a great position to finally accelerate our growth and benefit from the positive shift in market sentiment.

K33 is now fully launched, our portfolio company LN markets is experiencing explosive growth, and we are close to securing the financing of Arcario. There has been substantial investor interest in both Arcario and K33, and we are working hard to secure the best possible deal for the company and our existing shareholders.

For K33, our recent launch of K33 Markets has been a major milestone. Our clients are appreciating the new trading platform and we see a fast uptick in volume. We have by far the best pricing in the Nordics, offer full FX-flexibility, so that our users can deposit trade against and withdraw in their preferred national currency and let clients choose how to trade whether it is over chat, voice, web interface or our FIX API. Addressing the private wealth market, these features are important and will help us secure strong growth going forward.

K33 Research continues to make headlines, with sustained coverage by tier 1 financial media, including Bloomberg TV. With the subscription model fully launched, the focus is now on growth and marketing, and we expect to grow the revenue substantially both from direct distribution to clients and through partnerships. This way we can leverage our research to not only serve as a great brand builder and marketing tool, but also as a revenue generator, establishing a base of recurring revenue through subscriptions.

Lastly for K33, our fund for professional investors has continued to deliver strong returns. With a great track record, K33 fully launched and the market sentiment turning positive, we are now engaging with wealth managers and private banks to act as distributors of the fund. The lead time on such relationships is substantial, but so too is the size of expected allocations.

The crypto market is turbulent and it can be tough to ride the swings. Many fall off and many projects die. Personally I have been through three cycles already and it is exciting to see how the pattern repeats. Those who hold steady and build during the downturns, regardless of how rough it gets, collect the largest rewards as the market sentiment turns. We have leveraged the recent market slump to sharpen our focus, build for the next wave of adoption and we have no intention of folding now as the sentiment is about to turn.

Furthermore, as an investment firm with a portfolio of companies in the digital assets	from the value of
diversification, and is only dependent on a few successes to itself become a great	K33 and LN
Markets are racing ahead at full speed, painting an exciting picture for Arcario in

Arcario AB | Quarterly Report | Q3 2023 January - September

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Sector development

In Q3, market fundamentals improved following a landslide Grayscale victory vs. the SEC in U.S. courts. Performance-wise, the quarter was slow, with a substantial decline in trading volumes and diminishing volatility.

Odds in favor of BTC ETF approvals in the U.S. improved in Q3 after the SEC lost Grayscale's lawsuit, with the court judging that the SEC had acted arbitrary and capricious by denying Grayscale's BTC ETF while approving futures-based BTC ETFs. Following the court verdict, the SEC either must deny spot ETF filings on different grounds than in the past, discontinue 33- act futures-based ETFs, or approve current pending filings. Following the court loss, the SEC has engaged actively with BTC ETF filers, leading filers to update their prospectus'. This has not happened in any of the past BTC ETF attempts and points towards an enhanced likelihood of BTC ETF approvals prior to the January 10, 2024, deadline.

BlackRock's ETF filing geared the market higher in June and reignited BTC momentum in October 2023. BlackRock has prepared to seed its ETF in October per its latest prospectus update, further signaling that approval is near. U.S. BTC ETFs will simplify advisors' ability to provide access to BTC exposure and reduce regulatory barriers to entering the market. The SEC is expected to accept multiple ETFs at once from BlackRock, ARK, Invesco, Fidelity, VanEck, and more, with the market anticipating frantic competition to secure market leadership. In turn, the market speculates that this competition amidst a potential launch may spark significant buy-side demand.

Despite solid ETF prospects, the quarter was slow in crypto markets. Spot volumes declined by 30%, with Q3, 2023 seeing the lowest quarterly BTC spot volume since Q3, 2020. The diminishing activity was accompanied by slow volatility, with BTC remaining heavily range bound throughout most of the quarter.

The slow-paced environment swayed market participants to add leveraged directional risk to the market, leading to a significant liquidation event on August 17. BTC consolidated at $29,000 throughout the entirety of July until the middle of August, when a series of liquidations pushed prices toward $26,000, where they remained throughout the remainder of the quarter. The liquidation event flushed leverage in the market to 15-month lows and impacted risk aversion in offshore derivatives, with open interest having yet to recover.

Throughout the quarter, BTC dominance strengthened, with ETH momentum reigning weak. ETF prospects and the upcoming halving are cyclical beneficial factors for BTC, leading traders to rotate from ETH to BTC. Nonetheless, structurally, the quarter was positive for ETH, as futures-based ETH ETFs were approved, improving access to ETH through traditional investment vehicles.

Momentum and activity strengthened as we entered Q4. BTC has pushed towards yearly highs of $35,000, driven by an influx of activity from institutional traders on the CME. The market seems geared towards building exposure ahead of the ultimate ETF verdict, with a verdict being expected within the coming three months.

Arcario AB | Quarterly Report | Q3 2023 January - September

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Portfolio development

K33

K33 generated 23,757 kSEK of revenue in the third quarter of the year.

Revenue is made up of 23,396 kSEK from K33 Markets, compared to 41,871 kSEK generated by Kaupang Krypto in Q3 2022. K33 Assets generated 312 kSEK in Q3 2023 compared to 370 kSEK generated by Arcane Assets in Q3 2022. K33 Research generated 48 kSEK revenue this quarter compared to 1,604 kSEK revenue from Arcane Research for the same period last year.

Total assets under management amounted to 3.7 MUSD compared to 9.3 MUSD for the previous quarter.

Gross trading volume kSEK

Assets Under Management, kSEK

Green Data

Green Data operates bitcoin mining in northern Norway through a hosting agreement with Exanorth. Revenue was stable at 4,309 kSEK for the third quarter compared to 4,348 kSEK for the prior quarter.

LN Markets

The Company owns 16% of LN Markets, a trading platform built on the Bitcoin Lightning Network, that uses bitcoin, paid and settled over the Lightning Network, as collateral for derivatives trading.

During Q3, the total volume traded on the LN Markets platform was 142 MUSD, up 33% vs. prior quarter and an all-time high quarterly volume for LN Markets. The user base continues to grow, up 7% from the previous quarter.

LN Markets continues to demonstrate outstanding performance, total volume traded for the first nine months of the year was 354 MUSD compared to 175 MUSD for the same period last year.

LN Markets

Gross trading volume, MUSD

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Portfolio development

Pure Digital

At the end of the period there were 7 LOIs in place with Tier 1 investment banks, two of which have already been announced (State Street and Bank of New York Mellon):

The Company owns 37.5% of Puremarkets. Puremarkets is building an interbank marketplace for cryptocurrency price discovery and exchange of wholesale risk via the Pure Digital Platform. Pure Digital will provide a best-in class primary wholesale marketplace, with a consortium of banks as liquidity providers, custodian and clearers. The management team brings many years of experience at top-tier banks and have successfully delivered a similar platform for the FX market.

Pure Digital continue to work closely with banks and regulators to prepare for launch.

As major investment banks expand their digital asset services and secure crypto-related approvals, Pure Digital's unique development of an interbank market provides a distinct advantage in the swiftly changing landscape.

The prolonged duration of Pure Digital's critical financing process makes it entirely reliant on the successful completion of this process for its continued survival.

Finpeers

In Q2, the Swiss startup Finpeers was integrated into Arcario's growing roster, epitomising the calibre and potential of future investments.

Venturing into the burgeoning domain of tokenizing real-world assets, they've established a unique position, cementing robust partnerships both in Europe and the UAE. As they navigate the complex regulatory terrain, an endorsement from FINMA for their utility token sale was attained, and their Security Token Offering (STO) infrastructure has been readied.

Finpeers have been approved by SO-FIT as a self regulating organisation qualifying it as a financial intermediary in Switzerland. Launch is planned for early January 2024, preparations are in full swing, encompassing a formidable go-to-market strategy for the utility token.

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Organization as of September 30, 2023

Arcario owns 37.5% of Puremarkets, 16% of LN Markets and 3% of Finpeers, all other legal entities are wholly owned.

Arcario AB | Quarterly

- September

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