Walnut Capital Limited Issues 2025 Annual Report: Major Cryptocurrency Losses, Regulatory Warning, and Strategic Response

Key Financial Highlights

• Significant Turnaround from Profit to Loss: Walnut Capital Limited reported a loss attributable to shareholders of HK\$172.1 million for the year ended 31 December 2025, a stark reversal from the HK\$0.4 million profit recorded in 2024.
• Drivers of Losses: The loss was primarily attributed to:
  • Impairment losses on cryptocurrencies (HK\$142.9 million)
  • Loss on sale of cryptocurrencies (HK\$7.4 million)
  • Net loss on fair value changes of financial assets at fair value through profit or loss (FVTPL) (HK\$4.1 million, compared to a HK\$17.4 million gain last year)
• Dividend Policy: The Board does not recommend any dividend for 2025, mirroring 2024.

Portfolio Composition and Donations

• Major Investments as at 31 December 2025:
  • HK\$26.9 million in listed financial instruments
  • HK\$43.2 million in unlisted financial instruments
  • HK\$3.2 million in unlisted investment funds
  • HK\$52.2 million in cryptocurrencies, including a remarkable HK\$177.4 million in cryptocurrency donations from controlling shareholder Alan Mung during the year
• Investment Income: Dividend income from listed equities was HK\$48,000. Interest income from cryptocurrencies and financial instruments was HK\$1.93 million and HK\$16,000, respectively.

Major Crypto-Related Events

• Impairment of Donated Cryptocurrencies: Of the HK\$142.9 million impairment loss on cryptocurrencies, HK\$114.5 million originated from donated CP tokens held on CoinUp.io. The tokens’ fair value plummeted from HK\$122.3 million at donation to HK\$7.8 million by year-end—exposing the Group to extreme crypto market volatility.
• Regulatory Warning and Remediation:
  • On 19 November 2025, Walnut Capital received a formal warning from the Hong Kong Stock Exchange (HKEX) for:
    • Failure to comply with timely reporting, announcement, circular, and shareholder approval requirements under Chapter 14 of the Listing Rules for major cryptocurrency transactions
    • Breach of Rule 21.04(3)(b) for exceeding the 20% net asset value limit in a single investment
  • The company has since rectified the situation by seeking shareholder ratification and implementing new internal controls to prevent recurrence. Key measures include:
    • Enhanced internal control policies for crypto trading
    • Investment Committee review and pre-trade notifications to the Financial Controller
    • Threshold checks to ensure no breach of 20% NAV concentration for crypto acquisitions
    • Training and legal consultations for directors and senior management

Risk Management and Uncertainties

• Principal Risks Identified:
  • Business and market volatility
  • Counterparty and custody risk, especially with crypto platforms
  • Cybersecurity threats to digital asset holdings
  • Economic downturn and foreign exchange risk
  • Liquidity and market price risk (especially for crypto and listed equities)
  • Legal and regulatory compliance—especially with cryptocurrency regulations
• Risk Mitigation Actions:
  • Asset diversification across custodians, platforms, and asset types
  • Use of institutional-grade custody solutions and cold storage for private keys
  • Regular liquidity monitoring and prudent capital allocation
  • Close monitoring of regulatory changes and prompt implementation of compliance measures

Strategic Outlook and Future Plans

• Market Environment: The first half of 2025 saw historic highs in global crypto markets, but severe corrections and geopolitical instability in the second half led to significant volatility and impaired results.
• Investment Focus: The Group will continue to seek attractively valued businesses and maintain a disciplined investment approach, especially in sectors resilient to uncertainty. The Board believes combining digital innovation with fundamentally sound enterprises will position the Group for sustainable recovery.
• Capital Structure: No change during 2025. The company completed a rights issue in May 2024, raising net proceeds of HK\$55 million, with HK\$40 million earmarked for future investments and HK\$15 million for working capital.
• No Major Acquisitions/Disposals or Capex: No significant acquisitions, disposals, or major capital investments were made during the year or planned as at year-end.

Governance, Audit, and Internal Controls

• No Internal Audit Function: Given the Group’s size and complexity, the Board directly oversees internal controls, supported by annual reviews from an external consultant.
• Board and Shareholder Communication: Regular updates to shareholders and adherence to corporate governance best practices. No major compliance issues beyond the HKEX warning, which has been addressed.

Potentially Price-Sensitive Issues for Shareholders

• Massive Crypto Losses and Impairments: The unprecedented scale of impairment on crypto assets, especially those recently donated, directly impacts the Group’s net asset value and could be highly price sensitive.
• Regulatory Breach and Remediation: The formal warning from the HKEX and subsequent tightening of internal controls signal both governance risk and remedial action—investors should monitor ongoing regulatory compliance.
• Concentration Risk in Digital Assets: The heavy allocation to cryptocurrencies and the sharp decline in their value highlight the Group’s exposure to market and asset-specific risks, which may continue to affect share price volatility.

Conclusion

Walnut Capital Limited’s 2025 results reveal a year marked by dramatic swings in digital asset values, regulatory challenges, and substantial losses. The company’s rapid response in terms of remediation and risk controls may help restore investor confidence, but the sizeable impairment on crypto holdings and the regulatory breach constitute major, price-sensitive events. Shareholders and potential investors should remain vigilant to ongoing volatility in both digital assets and the company’s compliance standing.

Disclaimer: This article is for information purposes only and does not constitute investment advice. Investors should conduct their own research or consult a professional advisor before making investment decisions. Past performance is not indicative of future results. The author and publisher accept no liability for any actions taken based on the information herein.

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