What changed in BTCS Inc.'s 10-K — 2022 vs 2023
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Paragraph-level year-over-year comparison of BTCS Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.
+328 added−220 removedSource: 10-K (2024-03-21) vs 10-K (2023-03-31)
Top changes in BTCS Inc.'s 2023 10-K
328 paragraphs added · 220 removed · 164 edited across 4 sections
- Item 7. Management's Discussion & Analysis+221 / −149 · 123 edited
- Item 1. Business+96 / −62 · 34 edited
- Item 5. Market for Registrant's Common Equity+10 / −8 · 6 edited
- Item 3. Legal Proceedings+1 / −1 · 1 edited
Item 1. Business
Business — how the company describes what it does
34 edited+62 added−28 removed25 unchanged
Item 1. Business
Business — how the company describes what it does
34 edited+62 added−28 removed25 unchanged
2022 filing
2023 filing
Biggest changeThese exchanges have more robust customer bases to attract integrated staking services and may have more resources to enhance either their custodial or non-custodial efforts in the future; ● Other crypto asset focused companies and node operators, such as Blockdaemon, Allnodes, Everstake, Staked (acquired by Kraken), Figment, P2P, Foundry, and Stakefish, that offer non-custodial crypto asset staking and run validator nodes; ● Other mobile applications, websites, niche aggregation sites, which offer similar analytic services, such as CoinTracker, Koinly, CoinLedger and Rotki; ● Providers of mobile applications and websites, that offer secure storage solutions for crypto assets; ● Existing financial service firms and data analytics firms serving traditional asset markets that choose to offer data analytic solutions for crypto assets; and ● Cryptocurrency focused companies that offer exchange, payment processing, and financial services for crypto assets.
Biggest changeThese competitors provide tools and insights that may overlap with StakeSeeker’s offerings. ● Secure Storage Solution Providers: Providers of mobile applications and websites that offer secure storage solutions for crypto assets represent another category of competition. ● Traditional Financial Service and Data Analytics Firms: Established financial service firms and data analytics companies serving traditional asset markets may choose to enter the market by offering data analytic solutions as well as their own custodial or non-custodial staking for crypto assets.
Recent actions taken by the SEC, including enforcement actions brought against crypto asset companies with a focus on custodial staking, as are more particularly described under certain “Risk Factors”, demonstrate the SEC’s position that many, if not most, crypto assets may be securities and therefore reflect the reality that we will likely face increased government regulation and oversight as our industry and government treatment of the crypto assets on which our operations are based continue to evolve.
Recent actions taken by the SEC, including enforcement actions brought against crypto asset companies with a focus on custodial staking, are more particularly described under certain “Risk Factors”, demonstrate the SEC’s position that many, if not most, crypto assets may be securities and therefore reflect the reality that we will likely face increased government regulation and oversight as our industry and government treatment of the crypto assets on which our operations are based continue to evolve.
The prices of crypto assets have experienced substantial volatility, which may reflect “bubble” type volatility, meaning that high or low prices may have little or no merit, are subject to rapidly changing investor sentiment, and may be influenced by factors such as technology, regulatory void or changes, fraudulent actors, manipulation, and media reporting. 5 Government Oversight Blockchain networks are a relatively new technological innovation and the regulatory schemes to which crypto assets and their blockchain networks are or may be subject, including both the interpretation and applicability of existing laws and regulations and the potential establishment of new laws and regulations, have not been fully explored or developed.
The prices of crypto assets have experienced substantial volatility, which may reflect “bubble” type volatility, meaning that high or low prices may have little or no merit, are subject to rapidly changing investor sentiment, and may be influenced by factors such as technology, regulatory void or changes, fraudulent actors, manipulation, and media reporting. 6 Government Oversight Blockchain networks are a relatively new technological innovation and the regulatory schemes to which crypto assets and their blockchain networks are or may be subject, including both the interpretation and applicability of existing laws and regulations and the potential establishment of new laws and regulations, have not been fully explored or developed.
It is our intent to maintain a work environment that is free of harassment, discrimination, or retaliation because of age (40 and older), race, color, national origin, ancestry, religion, sex, sexual orientation (including transgender status, gender identity or expression), pregnancy (including childbirth, lactation, and related medical conditions), physical or mental disability, genetic information (including testing and characteristics), veteran status, uniformed servicemember status, or any other status protected by federal, state, or local laws.
It is our intent to maintain a work environment that is free of harassment, discrimination, or retaliation because of age, race, color, national origin, ancestry, religion, sex, sexual orientation (including transgender status, gender identity or expression), pregnancy (including childbirth, lactation, and related medical conditions), physical or mental disability, genetic information (including testing and characteristics), veteran status, uniformed servicemember status, or any other status protected by federal, state, or local laws.
Delegation is a non-custodial process that allows token holders (“Delegators”) to maintain control of their private keys and revoke their delegation at any time (subject to the rules of a particular blockchain). There is no transfer of ownership, often referred to as “private keys” of Delegator’s crypto assets as part of the Delegation process.
Delegation is a non-custodial process that allows token holders (“Delegators”, or “customers”) to maintain control of their private keys and revoke their delegation at any time (subject to the rules of a particular blockchain). There is no transfer of ownership, often referred to as “private keys”, of any Delegator’s crypto assets as part of the Delegation process.
Given the growing interest by regulators and other stakeholders, we anticipate that legislation and regulation of crypto assets is forthcoming in the future. Given the above developments, both our current and planned operations, and the cryptocurrency industry in general, continue to be subject to expanding, complex and uncertain government oversight.
Given the growing interest by regulators and other stakeholders, we anticipate that legislation and regulation of crypto assets is forthcoming and will intensify in the future. Given the above developments, both our current and planned operations, and the cryptocurrency industry in general, continue to be subject to expanding, complex and uncertain government oversight.
See “Risk Factors” beginning on page 17 and “Business” beginning on page 3 for more information. As both the regulatory landscape develops and journalistic familiarity with crypto assets increases, mainstream media’s understanding of them and the regulation thereof may improve. Regulation of crypto assets varies from country to country as well as within countries.
See “Risk Factors” beginning on page 12 and “Business” beginning on page 3 for more information. As both the regulatory landscape develops and journalistic familiarity with crypto assets increases, mainstream media’s understanding of them and the regulation thereof may improve. Regulation of crypto assets varies from country to country as well as within countries.
In addition, each state has its own securities laws and regulations with varying provisions and effect, any of which may require us to alter or reduce our current or planned operations in the future. We continue to monitor legislative matters related to our industry.
In addition, each state has its own securities laws and regulations with varying provisions and effects, any of which may require us to alter or reduce our current or planned operations in the future. We continue to monitor legislative matters related to our industry.
In order to avoid being classified as an inadvertent investment company under the 1940 Act, we actively focus, in consultation with legal counsel, on ensuring that our ownership of assets that are not considered securities under the Act always exceed 60% of our total assets, excluding cash items.
To avoid being inadvertently classified as an investment company under the 1940 Act, we actively focus, in consultation with legal counsel, on ensuring that our ownership of assets that are not considered securities under the 1940 Act always exceed 60% of our total assets, excluding cash items.
Further, while we believe our operations and platform are meaningfully different than Kraken’s custodial staking platform that was subject to SEC enforcement proceedings in early 2023, that development or future positions the SEC may take, including potentially against us and our business, may demonstrate a differing view and require us to adjust, reduce, limit or even cease some or all of our operations or business plans.
Further, while we believe our operations and platform are meaningfully different than Kraken’s and Coinbase’s custodial staking platforms that were subject to SEC enforcement proceedings in 2023, that development or future positions the SEC may take, including potentially against us and our business, may demonstrate a differing view and require us to adjust, reduce, limit or even cease some or all of our operations or business plans.
While we do not offer health benefits, we do offer 401(k) plans with 100% matching of employees’ contributions subject to IRS limitations. CAPITALIZATION The following table details the Company’s capitalization as of March 28, 2023.
While we do not offer health benefits, we do offer 401(k) plans with 100% matching of employees’ contributions subject to IRS limitations. CAPITALIZATION The following table details the Company’s capitalization as of March 19, 2024.
More recently, the SEC Enforcement Division has taken action against crypto asset focused enterprises, and if the interpretations of federal securities laws are further expanded to apply to the Company, it would adversely affect the Company’s future acquisition of crypto assets by limiting the amount of crypto asset securities (“Digital Securities”) it may acquire, potentially limiting or precluding the use of its staking-as-a-service platform, and creating increased compliance and legal costs.
More recently, the SEC Enforcement Division has taken action against crypto asset focused enterprises, and if the interpretations of federal securities laws are further expanded to apply to the Company, it would adversely affect the Company’s future acquisition of crypto assets by limiting the amount of crypto asset securities (“Digital Securities”) it may acquire, potentially limiting or precluding the use of its blockchain infrastructure and other operations, and creating increased compliance and legal costs.
We hire consultants on an as-needed basis. We are a remote-first Company. We believe that allowing our employees to work in the location that best suits them provides us access to a large talent pool and a sustained advantage in hiring and retaining employees and consultants in the United States and worldwide.
We engage third-party contractors and consultants on an as-needed basis. We are a remote-first Company. We believe that allowing our employees to work in the location that best suits them provides us access to a larger talent pool and a sustained advantage in hiring and retaining employees and consultants in the United States and worldwide.
In PoW, miners use energy-consuming computers to do “work,” and they are rewarded with crypto assets for validating transactions on the blockchain. The reward is comprised of transaction fees and crypto assets. Bitcoin is an example of a PoW blockchain, and it is the largest and most secure PoW blockchain.
In PoW, miners use energy-consuming computers to do “work,” and they are rewarded with crypto assets for validating transactions on the blockchain. The reward is comprised of transaction fees and crypto assets.
PoS is a consensus mechanism that requires validator nodes (or “nodes”) to dedicate financial resources, such as staking holdings of a crypto asset, to participate in the consensus algorithm. Validators, the equivalent of miners in PoW networks, operate nodes and validate transactions on the blockchain. Validators are rewarded in crypto assets for aligning behavior with the rules of the algorithm.
Conversely, PoS is a consensus mechanism that requires validator nodes to dedicate financial resources in the form of crypto assets, which are staked to participate in the consensus algorithm. Validators, the equivalent of miners in PoW networks, operate nodes and validate transactions on the blockchain. Validators are rewarded in crypto assets for aligning behavior with the rules of the algorithm.
The Company believes that StaaS provides a more accessible and cost-effective way for crypto asset holders to participate in blockchain network consensus mechanisms, thereby promoting the growth and adoption of blockchain technology. Details of the Company’s crypto asset held can be found under “Item 7.
The Company believes that StaaS provides a more accessible and cost-effective way for crypto asset holders to participate in blockchain network consensus, thereby promoting the growth and adoption of blockchain technology.
INTELLECTUAL PROPERTY AND TRADE SECRETS Our business depends in large part on our proprietary technology, particularly with regards to our Digital Asset Platform and operation of validator nodes as part of our blockchain infrastructure, and our brand.
INTELLECTUAL PROPERTY AND TRADE SECRETS Our business depends in large part on our proprietary technology, particularly with regards to StakeSeeker, the operation of validator nodes as part of our blockchain infrastructure, our efforts and development with respect to our initiatives, and our brand.
The Company intends to acquire additional crypto assets and to continue to develop and expand upon its Digital Asset Platform to enable it to offer a wider range of functions and availability for use with a greater variety of crypto assets.
The Company may acquire additional crypto assets and continues to develop and expand upon its StakeSeeker, Builder+, and ChainQ platforms to enable it to offer a wider range of functions and availability for use with a greater variety of crypto assets.
Our small team and relative lack of capital is a competitive disadvantage. ASSETS The Company’s primary assets consist of its crypto assets and cash as well as its human capital and intellectual property noted below.
Given our small team and relative lack of capital to many peers, we acknowledge that we face a competitive disadvantage in this landscape. ASSETS The Company’s primary assets consist of its crypto assets and cash as well as its human capital and intellectual property noted below.
An increase in the regulation of crypto assets may affect our proposed business by increasing compliance costs or prohibiting certain or all of our proposed activities. 6 COMPETITION The Company’s current and future competition for our Digital Asset Platform is centered on the following areas: ● Exchange based companies which offer custodial and/or non-custodial staking solutions.
An increase in the regulation of crypto assets may affect our proposed business by increasing compliance costs or prohibiting certain or all of our proposed activities. 8 COMPETITION The Company’s current and future competition is centered on the following areas: ● Exchange-Based Companies: Companies in the exchange industry that offer both custodial and non-custodial staking solutions as well as other blockchain infrastructure and data analytics pose a significant competitive challenge.
Delegation provides a method for token holders to designate to a validator node operator the ministerial task of running a validator node while still participating in the network consensus mechanism and earning rewards. The crypto asset reward is determined by the blockchain networks consensus algorithm, can change over time, and varies from blockchain to blockchain.
Delegation provides a method for token holders to designate to a validator node operator the ministerial task of running a validator node while still participating in the network consensus mechanism and earning rewards.
Gary Gensler, the current SEC Chairman, has continued to voice his concerns about and continued intention to regulate crypto assets, referring to decentralized finance, or DeFi, platforms that focus on crypto assets as well as the crypto assets themselves, and concluding by stating that the SEC would “continue to take our authorities as far as they go.” There has not been any definitive guidance provided as of the date of this Report, however a number of regulatory proceedings and enforcement actions have been brought against crypto assets developers and their proponents.
Gary Gensler, the current SEC Chairman, has continued to voice his concerns about and continued intention to regulate crypto assets, referring to decentralized finance, or DeFi, platforms that focus on crypto assets as well as the crypto assets themselves, and concluding by stating that the SEC would “continue to take our authorities as far as they go.” In late 2023, Mr.
OUR BUSINESS BTCS is committed to operating blockchain infrastructure as a Validator that is secure, efficient, and scalable. We specialize in operating validator nodes on various DPoS and PoS-based blockchain networks, including Ethereum, Cosmos, Kava, Tezos, Avalanche, Kusama, Mina, Akash, Cardano, Oasis, and NEAR Protocol.
We also specialize in operating validator nodes on various PoS and dPoS-based blockchain networks, including Ethereum, Cosmos, Kava, Tezos, Avalanche, Kusama, Mina, Akash, Evmos, Oasis, and NEAR Protocol. BTCS utilizes cloud infrastructure to operate and run its validator nodes and does not operate a data center or own physical assets such as servers.
The internally-developed dashboard utilizes application programming interfaces (APIs) to read user data from digital wallets and crypto exchanges and does not allow for the trading of crypto assets. The delegation process central to DPoS blockchains and our StaaS strategy revolves around the non-custodial nature of these networks.
The StakeSeeker dashboard reads user data from digital wallets and utilizes application programming interfaces (APIs) to read data from crypto exchanges and is non-custodial, meaning it does not allow for the trading or custody of crypto assets.
The blockchain network calculates rewards earned, which are then distributed directly to the Delegator’s wallet. At no point does the Validator take custody of the staked crypto assets or rewards earned through Staking. Therefore, BTCS does not obtain custody or facilitate transfers of any third-party assets in its role as a Validator or StaaS provider.
Therefore, BTCS does not obtain custody or facilitate transfers of any third-party crypto assets in its role as a Validator or StaaS provider.
The key definition is the term “investment contract” and what is an investment contract. In addition to the securities laws and investment company considerations, as our business model and operations continue to evolve, including our Digital Asset Platform and its functionality, we may become subject to additional laws and regulations.
Any such action may adversely affect an investment in us. 7 In addition to the securities laws and investment company considerations, as our business model and operations continue to evolve, including StakeSeeker, Builder+, and ChainQ we may become subject to additional laws and regulations.
ITEM 1. BUSINESS BTCS Inc. (“BTCS” or the “Company”) is an early entrant in the crypto asset (also referred to “cryptocurrencies”, “crypto”, or “tokens”) market and one of the first U.S. publicly-traded companies with a primary focus on blockchain infrastructure and staking.
ITEM 1. BUSINESS BTCS Inc. (“BTCS” or the “Company”) is a Nasdaq listed company operating in the blockchain technology sector since 2014 and is one of the only U.S. publicly traded companies with a primary focus on proof-of-stake blockchain infrastructure.
As a non-custodial Validator operator, BTCS receives a percentage of token holders’ staking rewards generated as a validator node fee, creating the opportunity for potential scalable revenue and business growth with limited additional costs.
As a non-custodial Validator operator, BTCS may charge a validator node fee, typically determined as a percent of the crypto asset rewards earned on crypto assets delegated to its node, creating the opportunity for potential scalable revenue and business growth with limited additional costs. This fee is broadcast by the Validator to the network and publicly available.
BTCS ensures that substantially all of its crypto assets are held in secure digital wallets, with less than 0.1% of its crypto assets on crypto exchanges. Our exposure to companies such as FTX, Blockfi, and Celsius is limited to the negative impact these platforms had on the value of our assets in the crypto markets.
As a result of our prioritizing the self-custody of our crypto assets, our exposure to crypto related companies that have declared bankruptcy such as FTX, BlockFi, and Celsius has been limited to the negative impact these platforms had on the value of our assets in the crypto markets.
StakeSeeker is a comprehensive crypto dashboard and education center for crypto asset holders to learn how to earn crypto rewards by Staking through its non-custodial Stake Hub and evaluate their crypto portfolios across exchanges and wallets in a single analytics platform.
StakeSeeker Platform The Company’s internally developed “StakeSeeker” platform is a personal finance software and education center with a comprehensive crypto dashboard for crypto asset holders to connect, monitor, track, and analyze their crypto portfolios across exchanges and wallets in a single analytics platform.
The Company stakes the crypto assets native to these blockchains on the validator nodes it operates to earn rewards in connection with the validation of transactions occurring on those blockchain networks. BTCS’s blockchain infrastructure operations form the core growth for its Digital Asset Platform, StakeSeeker.
OUR BUSINESS Blockchain Infrastructure BTCS’s blockchain infrastructure entails operating validator nodes (or “nodes”) on various proof-of-stake (“PoS”) and delegated proof-of-stake (“dPoS”)-based blockchain networks. In connection with the validation of transactions occurring on those blockchain networks, BTCS stakes (or “delegates”) blockchain-based crypto assets native to those blockchains networks (“native crypto assets”) to earn staking rewards.
By doing so, we can avoid being subject to the regulatory requirements and oversight that apply to investment companies. The ownership of crypto assets including Digital Securities may change based on the definition of a security under the Securities Act of 1933 (the “Securities Act”) and applicable court decisions.
Therefore, to the extent the SEC identified all other crypto assets held by the Company excluding Ethereum as securities, the Company would still not meet the definition of an “investment company” under Section 3(a)(1)(C) of the 1940 Act. By doing so, we can avoid being subject to the regulatory requirements and oversight that apply to investment companies.
Class of Security Shares of Common Stock as Converted Common Stock Issued and Outstanding 13,766,321 Restricted Stock Units Issued (Not Vested) 1,631,399 Options to purchase Common Stock (weighted average exercise price of $2.12) 1,170,000 Warrants to purchase Common Stock (weighted average exercise price of $11.50) 712,500 Total Shares Diluted 17,280,220 The table above describes the shares of Common Stock which are outstanding and/or are issuable under outstanding securities. 8 Cautionary Note Regarding Forward Looking Statements This report contains forward-looking statements, including our liquidity, our belief that our blockchain infrastructure efforts will form the core growth for our Digital Asset Platform, our plans and development of our Digital Asset Platform and the integration of Staking-as-a-Service, our belief regarding blockchain, and future business plans.
Class of Security Shares of Common Stock as Converted Common Stock Issued and Outstanding 15,691,209 Restricted Stock Units Issued (Not Vested) 1,806,373 Options to Purchase Common Stock (weighted average exercise price of $2.04) 1,200,000 Warrants to Purchase Common Stock (weighted average exercise price of $11.50) 712,500 Total Common Shares Diluted 19,410,082 Series V Preferred Stock (non-convertible) 14,567,829 The table above describes the shares of Common Stock and Preferred Stock which are outstanding and/or are issuable under outstanding securities.
BLOCKCHAIN INFRASTRUCTURE OVERVIEW The primary objective of blockchain infrastructure operations is to secure blockchains by validating transactions and earning rewards for doing so. Two main consensus mechanisms are currently used to secure blockchains: proof-of-work (“PoW”) and proof-of-stake (“PoS”). PoW is a consensus mechanism that requires nodes to dedicate computational resources to validate transactions on a blockchain.
In addition to staking our crypto assets to our nodes, we also stake certain crypto assets to nodes operated by third-parties. PoS blockchain infrastructure is akin to Bitcoin’s proof-of-work (“PoW”) mining consensus mechanism but differs in a few key ways. PoW is a consensus mechanism that requires nodes to dedicate computational resources to validate transactions on a blockchain.
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Through our blockchain-infrastructure operations, we secure and operate validator nodes on disruptive next-generation blockchain networks that power Web3, earning native token rewards by staking our proof-of-stake crypto assets.
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Our core focus is on driving scalable growth through a diverse range of business streams leveraging and built on top of our core and proven blockchain infrastructure operations.
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Our Digital Asset Platform, StakeSeeker, is designed to empower users to better understand and grow their crypto holdings with innovative portfolio analytics and a non-custodial process to earn staking rewards through the direct participation in blockchain consensus algorithms.
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BTCS secures and operates validator nodes on cutting-edge blockchain networks that power Web 3, earning native token rewards by staking our proof-of-stake crypto assets (also referred to “cryptocurrencies”, “crypto”, “crypto assets”, “digital assets”, or “tokens”), with an emphasis on Ethereum. Our innovative “StakeSeeker” platform empowers crypto holders with an analytics-focused cryptocurrency dashboard.
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Bad behavior can be penalized by slashing the validator’s holdings and/or rewards. Validators can also be removed from the network for breaking the network rules. Ill-intentioned behavior among validators is discouraged, allowing for the blockchain to be properly maintained and secured. PoS blockchains consume over 99% less energy than PoW blockchains, according to the Ethereum Foundation.
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We also offer a non-custodial Staking-as-a-Service solution, enabling users to earn staking rewards, while we earn a percentage of token holders’ rewards, creating the potential for scalable revenue with limited additional costs. We recently introduced “Builder+”, an Ethereum block builder. Builder+ leverages advanced algorithms to maximize profit through optimized block construction and creates opportunities for new scalable revenue streams.
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Delegated proof-of-stake (“DPoS”) is a PoS variant blockchain consensus mechanism where token holders can participate in a blockchain network by either running their own validator node (“Validator”) or delegating their holdings to existing validator nodes and earning rewards for securing the network (“Delegation”, “Delegating” or “Staking”).
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We primarily earn crypto assets through the operation of our non-custodial validator nodes, with the intention of enhancing our production of crypto assets in various blockchain networks.
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A Validator broadcasts to the network its fee, typically as a percent of the crypto asset reward, which is publicly available. Both the reward paid to the Delegator and the fee paid to the Validator are distributed by the blockchain network. The Validator never takes possession of either the Delegators staked crypto assets or crypto asset rewards.
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While we have no formal policy, our primary objective is to hold and re-stake these earned crypto assets for network security and additional production opportunities, we may, on occasion, sell a portion for cash to meet operational needs. Our primary cryptocurrency exchange is Kraken; however, we also have basic accounts with multiple alternative cryptocurrency exchanges and OTC desks.
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BTCS utilizes cloud infrastructure to operate and run its validator nodes and does not operate a data center or own physical assets such as servers. BTCS plans to expand its PoS operations to secure other disruptive blockchain protocols that allow for Delegating. Staking-as-a-service (“StaaS”) is a central component of BTCS’s strategy.
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As of the filing date, we have no exclusive agreements with any cryptocurrency exchanges, nor do we maintain margin or other type accounts that could create additional liability for the Company. Our approach to our crypto asset holdings remains adaptable to evolving market conditions and operational requirements. Details of the Company’s crypto asset held can be found under “Item 7.
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StaaS allows crypto asset holders to earn rewards by participating in network consensus mechanisms through Staking and Delegating their crypto assets to Company-operated validator nodes. As a non-custodial Validator operator, BTCS receives a percentage of token holders’ staking rewards generated as a validator node fee, creating the opportunity for potential scalable revenue and business growth with limited additional costs.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations.” 3 Staking-as-a-Service Through BTCS’s blockchain infrastructure operations, we validate transactions on behalf of those who delegate their crypto holdings (or “Stake”) to BTCS-operated validator nodes (referred to as “Staking as a Service” or “StaaS”) on dPoS blockchains.
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In January 2023, the Company launched a beta version of StakeSeeker, its proprietary Digital Asset Platform. StakeSeeker is a comprehensive crypto dashboard and education center for crypto asset holders to learn how to earn crypto rewards by Staking through its non-custodial Stake Hub and evaluate their crypto portfolios across exchanges and wallets in a single analytics platform.
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StaaS providers are operators of computer infrastructure and validation software that allow them and their Delegators to stake certain native crypto assets utilizing a dPoS consensus protocol. dPoS protocols provide for the validation of transactions on the related network as well as a “sybil resistance” mechanism to help secure the network.
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The self-custody of crypto assets by Delegators is a critical aspect of our non-custodial staking model. Recent headlines of bankruptcies, fraud, risk management failures, and misappropriation of customer assets in the crypto industry have raised concerns about the security of custodial exchanges and similar platforms.
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The nodes comprising a blockchain network use a protocol (or set of rules) to reach an agreement as to whether a given transaction proposed by a user of the network is valid under the rules of the protocol and should be added to the ledger (such agreement being referred to as “consensus”).
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StakeSeeker’s Stake Hub is central to BTCS’s growth strategy, allowing users to Delegate their crypto assets to the Company’s validator nodes. The growth of both StakeSeeker’s user base as well as the number and size of staked crypto assets by Delegators to Company-run validator nodes is critical to BTCS’s strategy and success.
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Protocols typically group transactions into blocks that can only be added to the common ledger when validated by a sufficient percentage of a dispersed network of unrelated computers or servers called “nodes” in the network.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations.” 3 INDUSTRY AND MARKET OVERVIEW (CRYPTO ASSET AND BLOCKCHAIN TECHNOLOGIES) Blockchain and Cryptocurrencies Distributed blockchain technologies utilize a decentralized and encrypted ledger that is designed to offer a secure, efficient, verifiable, and permanent way of storing records and other information without the need for intermediaries.
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A complete record (or “blockchain”) is maintained on the ledger by adding these groups (or “blocks”) of transactions to the chain, and the nodes constantly automatically monitor the blocks to ensure record accuracy. dPoS networks rely on validators who own native crypto assets and operate nodes for the network to confirm the validity of the transactions comprising each block to be added to the network ledger.
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Crypto assets, which include and are often referred to as cryptocurrencies, serve multiple purposes. They can serve as a medium of exchange, store of value or unit of account, and provide non-financial and next generation uses.
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The dPoS protocol software run by the relevant network nodes generally determines the validator node for each block at random, though each blockchain may have differing selection criteria.
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Blockchain technologies are being evaluated for a multitude of industries due to their potential impact in many areas of business, finance, information management, and governance. Cryptocurrencies are decentralized currencies that enable near instantaneous transfers. Transactions occur via an open source, cryptographic protocol platform which uses peer-to-peer technology to operate with no central authority.
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To be eligible to validate transactions and to write new blocks to the chain, validators are required to “stake” the relevant native crypto assets whereby validators commit value (in the form of the native crypto asset) to the underlying network and lock their native crypto assets, preventing them from otherwise transacting with those native crypto assets while they are staked.
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An online network of nodes hosts a public transaction ledger, known as a blockchain, and each cryptocurrency is associated with a source code that comprises the basis for the cryptographic and algorithmic protocols governing its blockchain.
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The dPoS mechanism is a sybil-resistance tool (fights against attacks on nodes) that incentivizes validators to confirm transactions that conform to the rules of the protocol at the risk of losing their staked crypto assets (“slashing”). Validators utilizing their native crypto assets to participate in dPoS protocols secure the relevant network and receive staking rewards for doing so.
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In a cryptocurrency network, every peer node has its own copy of the blockchain, which contains records of every historical transaction - effectively containing records of all account balances. Each account is identified solely by its unique public key (making it effectively anonymous) and is secured with its associated private key (a password).
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Both the crypto reward paid to the Delegator and the crypto fee paid to the Validator are distributed by the blockchain network. These “validator fees” in the dPoS network encourage validators to participate in the network and thereby help to secure and decentralize the network.
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The combination of private and public cryptographic keys constitutes a secure digital identity in the form of a digital signature, providing strong control of ownership. Most blockchain network infrastructures are collectively maintained by a decentralized public user base.
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A StaaS provider maintains a ministerial role in validating transactions on a given dPoS network on behalf of its Delegators by: (1) arranging transactions using open-source software to stake the relevant crypto assets; (2) monitoring the nodes it is operating to ensure the computers remain online to validate transactions; and (3) verifying transactions on the network when required.
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As a network is decentralized, it does not rely on either governmental authorities or financial institutions to create, transmit or determine the value of the currency units. Rather, the value is determined by market factors, supply and demand for the units, the prices being set in transfers by mutual agreement or barter among transacting parties.
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As a StaaS provider, BTCS does not take custody of or pool Delegator crypto assets or Delegator crypto rewards (i.e. BTCS does not take possession of users’ private “keys” or “crypto”). The rewards earned on delegated crypto assets are sent directly to Delegators by the respective blockchain network and are never in BTCS’s possession.
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Since transfers do not require involvement of intermediaries or third parties, there are currently limited transaction costs in direct peer-to-peer transactions. Units of cryptocurrency can be converted to fiat currencies, such as the U.S. dollar, at rates determined on various cryptocurrency exchanges.
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StakeSeeker’s Stake Hub functions as an educational center, offering users guidance on how to delegate their crypto assets to our non-custodial validator nodes, along with the ability to monitor such delegation activities through data analysis. StakeSeeker does not provide or facilitate direct crypto asset delegation through its StakeHub, nor does it facilitate transaction execution on our platform.
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Cryptocurrency prices are quoted on various exchanges and fluctuate with extreme volatility. 4 We believe certain cryptocurrencies offer many advantages over traditional fiat currencies, although many of these factors also present potential disadvantages and may introduce additional risks, including: ● Acting as a fraud deterrent, as cryptocurrencies are digital and cannot be counterfeited or reversed arbitrarily by a sender; ● Immediate settlement; ● Elimination of counterparty risk; ● No trusted intermediary required; ● Lower fees; ● Identity theft prevention; ● Accessible by everyone; ● Transactions are verified and protected through a confirmation process, which prevents the problem of double spending; ● Decentralized – no central authority (government or financial institution); and ● Recognized universally and not bound by government imposed or market exchange rates.
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Stake Hub’s primary role is to offer instructional support and monitoring capabilities. Crypto asset holders are able to delegate to our validator nodes without signing up for our StakeSeeker platform; conversely, crypto asset holders can delegate to validator nodes not operated by the Company and utilize our StakeSeeker software and data analytics.
Removed
However, cryptocurrencies may not provide all of the benefits they purport to offer at all or at any time. Businesses, including the Company, seeking to develop upon, adopt, transact or rely upon blockchain technologies and cryptocurrencies operate within an untested and evolving environment.
Added
The StakeSeeker platform is currently free-to-use for registered users so is not currently generating revenue. The Company is not a broker-dealer or an investment advisor and does not provide any such related services.
Removed
As with any new and emerging technology, there are potentially significant risks, not only related to the businesses’ opportunities the Company pursues, but also to the sector and industry as a whole, as well as the entirety of the concept behind blockchain and cryptocurrency as value.
Added
StakeSeeker operates exclusively as an informational and educational resource for the monitoring and analysis of crypto assets, with its non-custodial and non-transactional approach ensuring compliance with federal securities laws, thereby precluding any regulatory concerns as the platform continues to develop. 4 StakeSeeker provides a valuable analytical platform to crypto enthusiasts and strategically seeks to entice users with its features.
Removed
For example, in September 24, 2021, China declared all transactions in and mining of crypto assets, including Bitcoin, illegal based on concerns of high energy consumption.
Added
One underlying strategic objective of the platform is to drive the expansion of Delegators to our validator nodes. The growth of the size of delegations is central to the scalability of BTCS’s StaaS business strategy.
Removed
Many of our current and potential competitors have greater resources, longer histories, more users, and greater brand recognition. They may devote more resources to technology, infrastructure, marketing and may be able to more rapidly develop their solutions. Other companies also may enter into business combinations or alliances that strengthen their competitive positions.
Added
The estimated staking rewards, expressed as the Annual Percentage Reward (APR), as displayed on StakeSeeker’s Stake Hub and our StakeSeeker website (www.stakeseeker.com), are determined using the most recent network data obtained through API data pulls from www.stakingrewards.com, a third-party blockchain data provider.
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Item 3. Legal Proceedings
Legal Proceedings — active lawsuits and investigations
1 edited+0 added−0 removed0 unchanged
Item 3. Legal Proceedings
Legal Proceedings — active lawsuits and investigations
1 edited+0 added−0 removed0 unchanged
2022 filing
2023 filing
Biggest changeITEM 3. LEGAL PROCEEDINGS. From time to time, we are party to certain legal proceedings that arise in the ordinary course and are incidental to our business. We know of no material, active or pending legal proceedings against us. ITEM 4. MINE SAFETY DISCLOSURES. Not applicable. PART II
Biggest changeITEM 3. LEGAL PROCEEDINGS. From time to time, we are party to certain legal proceedings that arise in the ordinary course and are incidental to our business. We know of no material, active or pending legal proceedings against us. ITEM 4. MINE SAFETY DISCLOSURES. Not applicable. 13 PART II
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
6 edited+4 added−2 removed2 unchanged
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
6 edited+4 added−2 removed2 unchanged
2022 filing
2023 filing
Biggest changeName or Class of Investor Date of Sale No. of Securities Reason for Issuance Executive Officers (1) January 2, 2022 1,645,834 shares of restricted stock units Performance awards Non-Employee Directors (1) January 2, 2022 95,544 shares of restricted stock units Compensation for services Executive officer (1) February 22, 2022 45,767 shares of restricted stock units Compensation for services Executive officer (1) February 22, 2022 160,183 shares of restricted stock units Performance awards Non-Employee Director (1) October 1, 2022 7,962 shares of restricted stock units Compensation for services (1) Exempt under Section 4(a)(2) of the Securities Act and Regulation 506(b) thereunder.
Biggest changeName or Class of Investor Date of Sale No. of Securities Reason for Issuance Executive Officers (1) January 1, 2023 354,713 shares of restricted stock Performance awards Executive Officers (1) January 1, 2023 50,000 shares of restricted stock units Compensation for services Non-Employee Directors (1) March 31, 2023 27,576 shares of restricted stock Compensation for services Non-Employee Directors (1) June 30, 2023 31,647 shares of restricted stock Compensation for services Non-Employee Directors (1) September 29, 2023 39,894 shares of restricted stock Compensation for services Non-Employee Director (1) December 29, 2023 23,007 shares of restricted stock Compensation for services (1) Exempt under Section 4(a)(2) of the Securities Act and Regulation 506(b) thereunder.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. MARKET INFORMATION Our Common Stock is listed and traded on the Nasdaq Stock Market under the symbol “BTCS”. The last reported sale price of our Common Stock on March 28, 2023 was $1.40.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. MARKET INFORMATION Our Common Stock is listed and traded on the Nasdaq Stock Market under the symbol “BTCS”. The last reported sale price of our Common Stock on March 19, 2024 was $1.22.
HOLDERS As of March 28, 2023, there were 180 stockholders of record of our Common Stock, one of which is Cede & Co., a nominee for Depository Trust Company, or DTC.
HOLDERS As of March 19, 2024, there were 177 stockholders of record of our Common Stock, one of which is Cede & Co., a nominee for Depository Trust Company, or DTC.
DIVIDENDS On January 5, 2022, the Board of Directors (the “Board”) of the Company declared a non-recurring special dividend of $0.05 for each outstanding share of Common Stock of the Company. The dividend was payable to holders of record as of the close of business on March 17, 2022.
On January 5, 2022, the Board declared a non-recurring special dividend of $0.05 for each outstanding share of Common Stock of the Company, payable to holders of record as of the close of business on March 17, 2022. Shareholders were provided the option to receive proceeds of their dividend payable in either cash or Bitcoin.
Shareholders were provided the option to receive proceeds of their dividend payable in either cash or Bitcoin. This dividend was considered to be a return of capital distribution for IRS income tax purposes as the value was in excess of the Company’s accumulated earnings. The total value of dividends paid in 2022 was approximately $631,000.
The dividend distributions were considered a return of capital distribution for IRS income tax purposes as the value was in excess of the Company’s current and accumulated earnings and profits. The return of capital distribution reduces the Company’s additional paid in capital balance. The total value of dividends paid in 2022 was approximately $631,000.
The Company is actively working with relevant parties to ensure a smooth process of the distribution moving forward. 9 RECENT SALES OF UNREGISTERED SECURITIES In addition to those unregistered securities previously disclosed in reports filed with the SEC, during the year ended December 31, 2022, we have issued securities without registration under the Securities Act, as described below.
The Company will evaluate the appropriateness of potential future dividends as the Company continues to grow its operations. 14 RECENT SALES OF UNREGISTERED SECURITIES In addition to those unregistered securities previously disclosed in reports filed with the SEC, during the year ended December 31, 2023, we have issued securities without registration under the Securities Act of 1933 (the “Securities Act”), as described below.
Removed
The Company will evaluate the appropriateness of potential future dividends as the Company continues to grow its operations. In the first quarter of 2023, the Company announced that it had created a new Series V Convertible Preferred Stock (the “Series V”) with plans to distribute the Series V to each shareholder of record as of March 27, 2023.
Added
DIVIDENDS Effective January 27, 2023, the Company’s Board of Directors (the “Board”) approved the issuance of a newly designated Series V Preferred Stock (“Series V”) on a one-for-one basis to the Company’s shareholders (including restricted stock unit holders and warrant holders who were entitled to such distribution).
Removed
Due to anticipated changes to the structure, the Company delayed the key dates including the record and payments dates of the Series V distribution.
Added
The distribution of Series V shares was approved and completed on June 2, 2023 to shareholders as of the record date of May 12, 2023.
Added
The Series V: (i) is non-convertible, (ii) has a 20% liquidation preference over the shares of common stock, (iii) is non-voting and (iv) has certain rights to dividends and distributions (at the discretion of the Board). A total of 14,542,803 shares of Series V Preferred Stock were distributed to shareholders on June 2, 2023.
Added
In June 2023, the Series V shares commenced trading on Upstream, a Merj Exchange market (“Upstream”). In November 2023, Upstream announced that it was no longer providing U.S. individuals with the ability to trade on Upstream. All Series V shares owned by U.S investors were returned to the transfer agent.
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
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Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
123 edited+98 added−26 removed233 unchanged
2022 filing
2023 filing
Biggest changeCrypto Assets Held at Period End Asset 2021Q4 2022Q1 2022Q2 2022Q3 2022Q4 Bitcoin (BTC) 90 90 - - - Ethereum (ETH) 8,098 8,196 8,283 8,380 8,454 Cardano (ADA) 257,757 257,757 260,555 262,860 262,860 Kusama (KSM) 374 5,278 5,550 6,297 6,493 Tezos (XTZ) 24,504 70,453 71,369 72,578 73,486 Solana (SOL) 4,779 7,043 7,136 7,238 7,371 Polkadot (DOT) 8,032 38,816 39,986 23,905 7,280 Terra (LUNA) 3,584 3,621 - - - Cosmos (ATOM) 3,072 80,474 86,613 91,181 96,318 Polygon (MATIC) 67,114 454,486 466,022 474,207 480,825 Avalanche (AVAX) 2,073 14,273 14,594 14,888 17,178 Algorand (ALGO) 51,103 51,197 51,201 51,201 - Axie Infinity (AXS) 22,322 31,763 37,402 42,030 Kava (KAVA) 183,966 264,917 280,293 290,909 Band Protocol (BAND) 992 992 Mina (MINA) 71,297 74,177 Oasis Network (ROSE) 349,661 359,607 Akash (AKT) 103,730 107,405 NEAR Protocol (NEAR) 74,702 Fair Market Value of Crypto Assets at Period End Asset 2021Q4 2022Q1 2022Q2 2022Q3 2022Q4 Bitcoin (BTC) 4,167,579 4,098,481 - - - Ethereum (ETH)* 29,820,477 26,894,723 8,840,595 11,128,675 10,117,237 Cardano (ADA) 337,716 294,320 119,555 114,190 64,786 Kusama (KSM) 103,866 992,851 267,583 265,505 149,981 Tezos (XTZ) 106,679 262,023 101,102 103,210 52,720 Solana (SOL) 813,791 863,854 239,700 240,377 73,426 Polkadot (DOT) 214,616 826,875 281,496 150,964 31,410 Terra (LUNA) 306,353 373,005 - - - Cosmos (ATOM) 99,761 2,325,374 651,909 1,186,824 900,440 Polygon (MATIC) 169,604 735,034 222,466 368,671 364,714 Avalanche (AVAX) 226,499 1,383,403 247,059 256,021 187,286 Algorand (ALGO) 84,830 47,492 16,115 18,044 - Axie Infinity (AXS) 1,416,264 461,649 470,116 253,943 Kava (KAVA) 828,742 468,634 423,326 166,752 Band Protocol (BAND) 1,215 1,396 Mina (MINA) 42,085 32,187 Oasis Network (ROSE) 21,330 12,291 Akash (AKT) 26,881 19,938 NEAR Protocol (NEAR) 93,785 Total 36,451,772 41,342,441 11,917,864 14,817,434 12,522,292 QoQ Change 21 % 13 % -71 % 24 % -15 % YoY Change 825 % 105 % -45 % -51 % -66 % 11 Prices of Crypto Assets at Period End Asset 2021Q4 2022Q1 2022Q2 2022Q3 2022Q4 Bitcoin (BTC) $ 46,306 $ 45,539 $ 19,785 $ 19,432 $ 16,547 Ethereum (ETH) $ 3,683 $ 3,282 $ 1,067 $ 1,328 $ 1,197 Cardano (ADA) $ 1.31 $ 1.14 $ 0.46 $ 0.43 $ 0.25 Kusama (KSM) $ 278 $ 188 $ 48 $ 42 $ 23 Tezos (XTZ) $ 4.35 $ 3.72 $ 1.42 $ 1.42 $ 0.72 Solana (SOL) $ 170 $ 123 $ 34 $ 33 $ 10 Polkadot (DOT) $ 26.72 $ 21.30 $ 7.04 $ 6.32 $ 4.31 Terra (LUNA) $ 85.47 $ 103 $ - $ - $ - Cosmos (ATOM) $ 32.47 $ 28.90 $ 7.53 $ 13.02 $ 9.35 Polygon (MATIC) $ 2.53 $ 1.62 $ 0.48 $ 0.78 $ 0.76 Avalanche (AVAX) $ 109 $ 96.92 $ 16.93 $ 17.20 $ 10.90 Algorand (ALGO) $ 1.66 $ 0.93 $ 0.31 $ 0.35 $ 0.17 Axie Infinity (AXS) $ 63.45 $ 14.53 $ 12.57 $ 6.04 Kava (KAVA) $ 4.50 $ 1.77 $ 1.51 $ 0.57 Band Protocol (BAND) $ 1.22 $ 1.41 Mina (MINA) $ 0.59 $ 0.43 Oasis Network (ROSE) $ 0.06 $ 0.03 Akash (AKT) $ 0.26 $ 0.19 NEAR Protocol (NEAR) $ 1.26 The following table presents the Fair Market Value of crypto assets held compared to the GAAP Book Value reported on the Company’s balance sheets.
Biggest changeCrypto Assets Held at Period End Asset 2022 Q4 2023 Q1 2023 Q2 2023 Q3 2023 Q4 Ethereum (ETH) 8,454 8,524 7,833 7,748 7,815 Cardano (ADA) 262,860 262,860 263,293 264,751 265,254 Kusama (KSM) 6,493 6,767 6,946 7,246 7,313 Tezos (XTZ) 73,486 74,765 25,375 25,760 26,174 Solana (SOL) 7,371 7,493 7,621 7,752 7,845 Polkadot (DOT) 7,280 7,526 7,882 8,284 8,650 Cosmos (ATOM) 96,318 102,298 243,472 256,784 270,098 Polygon (MATIC) 480,825 486,806 492,965 499,548 506,010 Avalanche (AVAX) 17,178 17,178 17,824 17,824 17,842 Axie Infinity (AXS) 42,030 46,482 50,955 55,584 60,552 Kava (KAVA) 290,909 304,968 315,362 327,862 345,394 Band Protocol (BAND) 992 992 992 992 992 Mina (MINA) 74,177 79,937 81,377 84,257 90,017 Oasis Network (ROSE) 359,607 2,569,991 2,600,279 2,626,600 2,647,629 Akash (AKT) 107,405 110,213 113,063 115,735 119,071 NEAR Protocol (NEAR) 74,702 75,724 77,389 79,067 80,267 Evmos (EVMOS) - - 295,422 322,693 345,777 Fair Market Value of Crypto Assets at Period End Asset 2022 Q4 2023 Q1 2023 Q2 2023 Q3 2023 Q4 Ethereum (ETH) 10,117,237 15,530,133 15,141,859 12,948,491 17,829,264 Cardano (ADA) 64,786 104,861 75,553 67,259 157,615 Kusama (KSM) 149,981 236,070 175,352 138,166 329,353 Tezos (XTZ) 52,720 83,614 20,452 17,569 26,379 Solana (SOL) 73,426 158,625 144,010 165,849 796,327 Polkadot (DOT) 31,410 47,720 40,763 34,009 70,879 Cosmos (ATOM) 900,440 1,144,459 2,261,411 1,859,407 2,860,870 Polygon (MATIC) 364,714 544,815 325,857 266,400 491,138 Avalanche (AVAX) 187,286 304,341 231,941 164,759 687,713 Axie Infinity (AXS) 253,943 389,893 302,966 254,967 535,546 Kava (KAVA) 166,752 270,486 305,501 207,289 301,429 Band Protocol (BAND) 1,396 1,857 1,260 1,121 2,174 Mina (MINA) 32,187 62,101 39,579 32,095 122,007 Oasis Network (ROSE) 12,291 156,698 128,686 109,516 363,571 Akash (AKT) 19,938 34,510 63,311 94,686 291,574 NEAR Protocol (NEAR) 93,785 150,854 107,088 89,660 293,204 Evmos (EVMOS) - - 26,069 24,089 43,886 Total 12,522,292 19,221,037 19,391,658 16,475,332 25,202,929 QoQ Change -15 % 53 % 1 % -15 % 53 % YoY Change -61 % -48 % 63 % 11 % 101 % 17 Prices of Crypto Assets at Period End Asset 2022 Q4 2023 Q1 2023 Q2 2023 Q3 2023 Q4 Ethereum (ETH) $ 1,197 $ 1,822 $ 1,933 $ 1,671 $ 2,281 Cardano (ADA) $ 0.25 $ 0.40 $ 0.29 $ 0.25 $ 0.59 Kusama (KSM) $ 23.10 $ 34.89 $ 25.24 $ 19.07 $ 45.04 Tezos (XTZ) $ 0.72 $ 1.12 $ 0.81 $ 0.68 $ 1.01 Solana (SOL) $ 9.96 $ 21.17 $ 18.90 $ 21.40 $ 102 Polkadot (DOT) $ 4.31 $ 6.34 $ 5.17 $ 4.11 $ 8.19 Cosmos (ATOM) $ 9.35 $ 11.19 $ 9.29 $ 7.24 $ 10.59 Polygon (MATIC) $ 0.76 $ 1.12 $ 0.66 $ 0.53 $ 0.97 Avalanche (AVAX) $ 10.90 $ 17.72 $ 13.01 $ 9.24 $ 38.54 Axie Infinity (AXS) $ 6.04 $ 8.39 $ 5.95 $ 4.59 $ 8.84 Kava (KAVA) $ 0.57 $ 0.89 $ 0.97 $ 0.63 $ 0.87 Band Protocol (BAND) $ 1.41 $ 1.87 $ 1.27 $ 1.13 $ 2.19 Mina (MINA) $ 0.43 $ 0.78 $ 0.49 $ 0.38 $ 1.36 Oasis Network (ROSE) $ 0.03 $ 0.06 $ 0.05 $ 0.04 $ 0.14 Akash (AKT) $ 0.19 $ 0.31 $ 0.56 $ 0.82 $ 2.45 NEAR Protocol (NEAR) $ 1.26 $ 1.99 $ 1.38 $ 1.13 $ 3.65 Evmos (EVMOS) $ - $ - $ 0.09 $ 0.07 $ 0.13 The tables below detail BTCS’s quarterly crypto assets earned as staking rewards during Fiscal 2023.
We have a limited operating history, and only recently commenced our new blockchain infrastructure operations in 2021. Further, we lack an operating history with respect to our crypto asset analytics and staking-as-a-service platform’s functions and operations. In addition, the PoS blockchain networks on which our operations are centered are a relatively new and evolving means of validating crypto asset transactions.
We have a limited operating history, and only recently commenced our blockchain infrastructure operations in 2021. Further, we lack an operating history with respect to our crypto asset analytics and staking-as-a-service platform’s functions and operations. In addition, the PoS blockchain networks on which our operations are centered are a relatively new and evolving means of validating crypto asset transactions.
All crypto assets not held in a Company’s controlled digital wallet are held at crypto exchanges and subject to the risks encountered by those exchange including DDoS Attacks, other malicious hacking, a sale of the exchange, loss of the crypto assets by the exchange, security breaches, and unauthorized access of our account by hackers.
All crypto assets not held in a Company’s controlled digital wallet are held at crypto exchanges and subject to the risks encountered by those exchanges including DdoS Attacks, other malicious hacking, a sale of the exchange, loss of the crypto assets by the exchange, security breaches, and unauthorized access of our account by hackers.
Such factors could have a material adverse effect on our ability to continue as a going concern or to pursue our strategy at all, which could have a material adverse effect on our business, prospects or operations and harm investors. 18 Risks Related to Crypto Assets A particular crypto asset’s status as a “security” in any relevant jurisdiction is subject to a high degree of uncertainty, with a growing number of regulators taking the position that certain crypto assets are securities and bringing enforcement actions accordingly, and if we are unable to properly characterize a crypto asset or comply with the applicable regulatory requirements, we may be subject to regulatory scrutiny, investigations, fines, and other penalties, which may adversely affect our business, operating results, and financial condition.
Such factors could have a material adverse effect on our ability to continue as a going concern or to pursue our strategy at all, which could have a material adverse effect on our business, prospects, or operations and harm investors. 29 Risks Related to Crypto Assets A particular crypto asset’s status as a “security” in any relevant jurisdiction is subject to a high degree of uncertainty, with a growing number of regulators taking the position that certain crypto assets are securities and bringing enforcement actions accordingly, and if we are unable to properly characterize a crypto asset or comply with the applicable regulatory requirements, we may be subject to regulatory scrutiny, investigations, fines, and other penalties, which may adversely affect our business, operating results, and financial condition.
While we paid a cash dividend in 2022, and declared a Series V Convertible Preferred stock (“Series V”) dividend in 2023, we do not expect to pay regular or recurring dividends in the future. Any return on investment may be limited to the value of our Common Stock.
While we paid a cash dividend in 2022, and declared a Series V Preferred stock (“Series V”) dividend in 2023, we do not expect to pay regular or recurring dividends in the future. Any return on investment may be limited to the value of our Common Stock.
The Company estimates the fair value of market-based RSUs as of the grant date and expected derived term using a Monte Carlo simulation that incorporates pricing inputs covering the period from the grant date through the end of the derived service period. Expected Volatility - The Company uses historical volatility as it provides a reasonable estimate of the expected volatility.
The Company estimates the fair value of market-based RSUs as of the grant date and expected derived term using a Monte Carlo simulation that incorporates pricing inputs covering the period from the grant date through the end of the derived service period. 25 Expected Volatility – The Company uses historical volatility as it provides a reasonable estimate of the expected volatility.
This would have a material adverse effect on an investment in us. We plan to acquire a portfolio of crypto assets including Ethereum and other crypto assets. There is an increased regulatory examination of crypto assets and Digital Securities. This has led to regulatory and enforcement activities.
This would have a material adverse effect on an investment in us. We hold and plan to acquire a portfolio of crypto assets including Ethereum and other crypto assets. There is an increased regulatory examination of crypto assets and Digital Securities. This has led to regulatory and enforcement activities.
If this trend continues, our operating results and financial condition will be materially adversely affected. 21 Our business faces significant scaling obstacles due to its dependence on crypto assets and related infrastructure.
If this trend continues, our operating results and financial condition will be materially adversely affected. Our business faces significant scaling obstacles due to its dependence on crypto assets and related infrastructure.
In addition, we may not be able to obtain on favorable terms, or at all, licenses or other rights with respect to intellectual property we do not own in providing ecommerce services to other businesses and individuals under commercial agreements. 30 Risks Related to Our Public Company Reporting Requirements and Accounting Matters We may need to implement additional finance and accounting systems, procedures and controls as we grow our business and organization and to satisfy new reporting requirements .
In addition, we may not be able to obtain on favorable terms, or at all, licenses or other rights with respect to intellectual property we do not own in providing ecommerce services to other businesses and individuals under commercial agreements. 41 Risks Related to Our Public Company Reporting Requirements and Accounting Matters We may need to implement additional finance and accounting systems, procedures and controls as we grow our business and organization and to satisfy new reporting requirements .
Also, such a development may make it difficult for such supported crypto asset to be traded, cleared, and custodied as compared to other crypto assets that are not considered to be securities.
Also, such a development may make it difficult for such supported crypto assets to be traded, cleared, and custodied as compared to other crypto assets that are not considered to be securities.
We are actively monitoring the situation and assessing potential mitigation strategies. 16 RISK FACTORS There are numerous and varied risks, known and unknown, that may prevent us from achieving our goals. If any of these risks actually occur, our business, financial condition or results of operation may be materially adversely affected.
We are actively monitoring the situation and assessing potential mitigation strategies. 26 RISK FACTORS There are numerous and varied risks, known and unknown, that may prevent us from achieving our goals. If any of these risks actually occur, our business, financial condition or results of operation may be materially adversely affected.
Similarly, a number of companies and individuals or businesses associated with cryptocurrencies may have had and may continue to have their existing bank accounts closed or services discontinued with financial institutions in response to government action, particularly in China, where regulatory response to cryptocurrencies has been to exclude their use for ordinary consumer transactions within China.
Similarly, a number of companies and individuals or businesses associated with cryptocurrencies may have had and may continue to have their existing bank accounts closed or services discontinued with financial institutions in response to government action, including in China where regulatory response to cryptocurrencies has been to exclude their use for ordinary consumer transactions within China.
U.S. sanctions laws and regulations generally restrict dealings by persons subject to U.S. jurisdiction with certain governments, countries, or territories that are the target of comprehensive sanctions, currently the Crimea Region of Ukraine, Cuba, Iran, North Korea, Syria, and Venezuela as well as with persons identified on certain prohibited lists.
U.S. sanctions laws and regulations generally restrict dealings by persons subject to U.S. jurisdiction with certain governments, countries, or territories that are the target of comprehensive sanctions, currently the Crimea Region of Ukraine, Russian Federation, Cuba, Iran, North Korea, Syria, and Venezuela as well as with persons identified on certain prohibited lists.
As such, there can be no guarantee that securing (mining) on PoS blockchain networks will be viewed as compliant, notwithstanding the May 2019 FinCEN guidance. In particular, the nature of blockchains make it technically impossible in all circumstances to prevent or identify transactions with particular persons or addresses.
As such, there can be no guarantee that securing (staking) on PoS blockchain networks will be viewed as compliant, notwithstanding the May 2019 FinCEN guidance. In particular, the nature of blockchains make it technically impossible in all circumstances to prevent or identify transactions with particular persons or addresses.
Any such action may adversely affect an investment in us. 24 Our interactions with a blockchain may expose us to SDN or blocked persons or cause us to violate provisions of law that did not contemplate distribute ledger technology. The Office of Financial Assets Control of the U.S.
Any such action may adversely affect an investment in us. 35 Our interactions with a blockchain may expose us to SDN or blocked persons or cause us to violate provisions of law that did not contemplate distribute ledger technology. The Office of Financial Assets Control of the U.S.
Such events could have a material adverse affect on an investment in us. Current interpretations require the regulation of Bitcoin, Ethereum, and other crypto assets under the CEA by the CFTC, we may be required to register and comply with such regulations.
Such events could have a material adverse effect on an investment in us. Current interpretations require the regulation of Bitcoin, Ethereum, and other crypto assets under the CEA by the CFTC, we may be required to register and comply with such regulations.
As a result, it may be more difficult for us to attract and retain qualified persons to serve on our Board or as executive officers, and to maintain insurance at reasonable rates, or at all. 31 Risks Related to our Common Stock Our stock price may be volatile.
As a result, it may be more difficult for us to attract and retain qualified persons to serve on our Board or as executive officers, and to maintain insurance at reasonable rates, or at all. 42 Risks Related to our Common Stock Our stock price may be volatile.
The Company has plans to continue to raise proceeds from the sale of Common Stock to fund operations as needed. Off Balance Sheet Transactions As of December 31, 2022, there were no off-balance sheet arrangements and we were not a party to any off-balance sheet transactions.
The Company has plans to continue to raise proceeds from the sale of Common Stock to fund operations as needed. Off Balance Sheet Transactions As of December 31, 2023, there were no off-balance sheet arrangements and we were not a party to any off-balance sheet transactions.
Such circumstances could adversely affect an investment in us. 23 Political or economic crises may motivate large-scale sales of crypto assets, which could result in a reduction in crypto asset values and adversely affect an investment in us. Geopolitical or economic crises may motivate large-scale sales of crypto assets, which could rapidly decrease the price of crypto assets.
Such circumstances could adversely affect an investment in us. 34 Political or economic crises may motivate large-scale sales of crypto assets, which could result in a reduction in crypto asset values and adversely affect an investment in us. Geopolitical or economic crises may motivate large-scale sales of crypto assets, which could rapidly decrease the price of crypto assets.
More recent government action in the U.S. involving crypto assets and related activities may cause this trend to expand in the U.S. We also may be unable to obtain or maintain these services for our business.
Government action in the U.S. involving crypto assets and related activities may cause this trend to expand in the U.S. We also may be unable to obtain or maintain these services for our business.
We are continuing to develop our Digital Asset Platform with the ultimate goal of consolidating users’ information so that it can be more easily accessed and reviewed by users. We may not successfully fully develop this platform as planned, in a cost-efficient manner, to the extent sought or at all.
We are continuing to develop our StakeSeeker platform with the ultimate goal of consolidating users’ information so that it can be more easily accessed and reviewed by users. We may not successfully fully develop this platform as planned, in a cost-efficient manner, to the extent sought or at all.
As described elsewhere in these Risk Factors, the SEC and certain state regulators have recently begun to take a more definitive and aggressive stance indicating that crypto assets and related activities, including custodial staking-based services, entail the offer and sale of securities subject to applicable securities laws and regulations.
As described elsewhere in these Risk Factors, the SEC and certain state regulators have in recent years begun to take a more definitive and aggressive stance indicating that crypto assets and related activities, including custodial staking-based services, entail the offer and sale of securities subject to applicable securities laws and regulations.
The outcome of these factors could have negative effects on our ability to continue as a going concern or to pursue our business strategy at all, which could have a material adverse effect on our business, prospects or operations as well as potentially negative effect on the value of any Ethereum or other crypto assets we hold or acquire, which would harm investors in our securities. 22 If a malicious actor or botnet obtains control in excess of 50% of the processing power active on a cryptocurrency network, it is possible that such actor or botnet could manipulate a blockchain in a manner that adversely affects an investment in us.
The outcome of these factors could have negative effects on our ability to continue as a going concern or to pursue our business strategy at all, which could have a material adverse effect on our business, prospects or operations as well as potentially negative effect on the value of any Ethereum or other crypto assets we hold or acquire, which would harm investors in our securities. 33 If a malicious actor or botnet obtains control in excess of 50% control of a cryptocurrency network, it is possible that such actor or botnet could manipulate a blockchain in a manner that adversely affects an investment in us.
The Company may not maintain a custodian agreement with the exchanges with which it holds its crypto assets at. exchanges do not provide insurance and may lack the resources to protect against hacking and theft.
The Company may not maintain a custodian agreement with the exchanges with which it holds its crypto assets, and such exchanges do not provide insurance and may lack the resources to protect against hacking and theft.
As a non-custodial StaaS provider, we do not hold or take possession of any Delegator funds, crypto assets, or crypto asset rewards at any point during the Staking process. Delegation does not involve the transfer of token ownership to a Validator. While staking delegated tokens remain in the Delegator’s digital wallets.
As a non-custodial StaaS provider, we do not hold or take possession of any Delegator funds, crypto assets, or crypto asset rewards at any point during the staking or delegation process. Delegation does not involve the transfer of crypto asset ownership to a Validator. During the process of staking, delegated crypto assets remain in the Delegator’s digital wallets.
Sales by existing shareholders of a large number of shares of our Common Stock in the public market or the perception that additional sales could occur could cause the market price of our Common Stock to drop. 32
Sales by existing shareholders of a large number of shares of our Common Stock in the public market or the perception that additional sales could occur could cause the market price of our Common Stock to drop. 43
While we believe the non-custodial staking model we are pursuing for our platform presents distinctions from custodial methods of holding and controlling crypto assets such as those that were employed by FTX and Kraken, holders of crypto assets, regulators, and other stakeholders may fail to appreciate this distinction or to consider it sufficient to utilize our services or invest in our business.
While we believe the non-custodial staking model we are pursuing for our platform presents distinctions from custodial methods of holding and controlling crypto assets such as those that were employed by defendants in past regulatory actions such as FTX and Kraken, holders of crypto assets, regulators, and other stakeholders may fail to appreciate this distinction or to consider it sufficient to utilize our services or invest in our business.
We are subject to cyber security risks and may incur delays in platform development in an effort to minimize those risks and to respond to cyber incidents. Our Digital Asset Platform is and will continue to be dependent on the secure operation of our website and systems as well as the operation of the Internet generally.
We are subject to cyber security risks and may incur delays in platform development in an effort to minimize those risks and to respond to cyber incidents. StakeSeeker is and will continue to be dependent on the secure operation of our website and systems as well as the operation of the Internet generally.
The blockchain network calculates rewards earned, which are then distributed directly to the Delegator’s wallet. At no point does the Validator gain access or control to the custody of the original staked tokens or rewards earned through Staking to its node.
The blockchain network calculates rewards earned, which are then distributed directly to the Delegator’s wallet. At no point does the Validator gain access, control, or custody of the original staked crypto assets or the earned crypto rewards through staking to its node.
Any compromise of our security could result in a violation of applicable privacy and other laws, significant legal and financial exposure, damage to our reputation, and a loss of confidence in our security measures, which could harm our business. 29 We may become subject to data privacy and data security laws and regulations by virtue of our Digital Asset Platform, which could force us to incur significant compliance costs and expose us to liabilities.
Any compromise of our security could result in a violation of applicable privacy and other laws, significant legal and financial exposure, damage to our reputation, and a loss of confidence in our security measures, which could harm our business. 40 We may become subject to data privacy and data security laws and regulations by virtue of our StakeSeeker platform, which could force us to incur significant compliance costs and expose us to liabilities.
We may infringe the intellectual property rights of others, which may prevent or delay our product development efforts and stop us from commercializing or increase the costs of commercializing the Digital Asset Platform.
We may infringe the intellectual property rights of others, which may prevent or delay our product development efforts and stop us from commercializing or increase the costs of commercializing the StakeSeeker platform.
Our reliance on staking, which is expected to increase as we continue to seek to commercialize and improve upon our Digital Asset Platform and non-custodial staking-as-a-service business, means that if the market values of the crypto assets we stake continues to decline or remain at the relatively low levels they are currently, which appears possible given the adverse developments and wide scale sales of and skepticism surrounding crypto assets that have resulted, the revenue we generate from staking will diminish.
Our reliance on staking, which is expected to increase as we continue to seek to expand our non-custodial staking-as-a-service business, means that if the market values of the crypto assets we stake continues to decline or remain at the relatively low levels they are currently, which appears possible given the adverse developments and wide scale sales of and skepticism surrounding crypto assets that have resulted, the revenue we generate from staking will diminish.
As of March 28, 2023, the Company also has approximately $6.5 million available under the ATM Agreement over the next twelve months under the Form S-3 baby shelf rules, although, the amount that we may raise under the Form S-3 may increase or decrease based upon our stock price.
As of March 19, 2024, the Company also has approximately $5.5 million available under the ATM Agreement over the next twelve months under the Form S-3 baby shelf rules, although, the amount that we may raise under the Form S-3 may increase or decrease based upon our stock price.
Because of the foregoing, we may be subject to legal claims of alleged infringement of the intellectual property rights of third parties. We expect this risk to increase as we continue to develop and roll-out additional functions in our Digital Asset Platform and potential StaaS operations in the future.
Because of the foregoing, we may be subject to legal claims of alleged infringement of the intellectual property rights of third parties. We expect this risk to increase as we continue to develop and roll-out additional functions for the StakeSeeker platform and potential StaaS operations in the future.
We do not and will not hold our Ethereum and other crypto assets with a banking institution or a member of the FDIC or the Securities Investor Protection Corporation (“SIPC”) and, therefore, our crypto assets are not subject to the protections enjoyed by depositors with FDIC or SIPC member institutions. 28 Risks Related to Our Digital Asset Platform (StakeSeeker) Development There is substantial doubt that we will be able to fully develop or commercialize our Digital Asset Platform.
We do not and will not hold our Ethereum and other crypto assets with a banking institution or a member of the FDIC or the Securities Investor Protection Corporation (“SIPC”) and, therefore, our crypto assets are not subject to the protections enjoyed by depositors with FDIC or SIPC member institutions. 39 Risks Related to Our Development Efforts There is substantial doubt that we will be able to fully develop or commercialize our StakeSeeker platform as intended.
Therefore, economic downturns or a recession will cause a reduction in demand for our platform by causing consumers to reduce spending on investments or non-essential items such as crypto assets. Similarly, a decline in the popularity or public perception of such crypto assets would yield a similar result.
Therefore, economic downturns or a recession will cause a reduction in delegation traffic to our nods by causing consumers to reduce spending on investments or non-essential items such as crypto assets. Similarly, a decline in the popularity or public perception of such crypto assets would yield a similar result.
If we fail to develop a Digital Asset Platform as intended, it could have a material adverse effect on our business, especially to the extent that we allocate significant capital, labor and other resources to this endeavor rather than focusing on other business opportunities which may prove to have been more lucrative in hindsight.
If we fail to develop a comprehensive dashboard for StakeSeeker as intended, it could have a material adverse effect on our business, especially to the extent that we allocate significant capital, labor and other resources to this endeavor rather than focusing on other business opportunities which may prove to have been more lucrative in hindsight.
In exchange for staking the cryptocurrency and validating transactions on blockchain networks, the Company is entitled to all of the fixed cryptocurrency award for running the Company’s own node and is entitled to a fractional share of the fixed cryptocurrency award a third-party node operator receives (less crypto asset transaction fees payable to the node operator or exchanges, which are immaterial and are recorded as a deduction from revenue), for successfully validating or adding a block to the blockchain.
In exchange for staking the crypto assets and validating transactions on blockchain networks, the Company is entitled to all of the fixed crypto asset award earned from the network when delegating to the Company’s own node and is entitled to a fractional share of the fixed crypto asset award a third-party node operator receives (less crypto asset transaction fees payable to the node operator, which are immaterial and are recorded as a deduction from revenue), for successfully validating or adding a block to the blockchain.
Set forth below is a summary of the principal risks we face: ● We have a limited operating history, particularly with respect to our developing blockchain infrastructure solutions business, Digital Asset Platform and staking-as-a -service operations. ● We have a history of operating losses and expect to continue to experience operating losses in future periods. ● We have an evolving business model which we may be unable to develop, adapt or execute effectively, and we may be unable to manage our growth or implement our business plan as intended or at all. ● We are highly dependent on our executive officers, particularly Charles Allen, our Chairman and Chief Executive Officer, Michal Handerhan, our Chief Operating Officer, Michael Prevoznik, our Chief Financial Officer, and Manish Paranjape, our Chief Technology Officer, and the loss of the services of these individuals could materially harm our business. ● We may be subject to regulatory actions, private causes of actions such as intellectual property infringement claims, and restrictions and limited access to baking and financial services due to our operations in the cryptocurrency industry, and regulatory or other adverse developments in the cryptocurrency industry could otherwise adversely affect us. ● Because of our involvement in staking of crypto assets through use of our Digital Asset Platform, we are subject to risks inherent in engaging in activities involving financial instruments owned by third party users, notwithstanding the non-custodial nature of our platform or other features management believes to constitute meaningful distinctions for regulatory, compliance and other purposes. ● A particular crypto asset’s status as a “security” in any relevant jurisdiction is subject to a high degree of uncertainty, and if we are unable to correctly characterize a crypto asset, we may be subject to regulatory scrutiny, investigations, fines, sanctions, penalties and other adverse consequences, including potentially becoming subject to the Investment Company Act of 1940 which would impose significant regulatory burdens and compliance costs. ● Crypto assets and our related activities are characterized by numerous other risks and uncertainties, including the possibility for adverse developments such as regulatory actions, bans or restrictions, declines in the price of, demand for or public perception of crypto assets, theft, fraud, hacking, manipulation or malicious coding, price volatility, the potential for one cryptocurrency to branch into two, variations among and the potential for adverse changes to blockchain algorithms, and other external forces beyond our control described more fully below. ● The future development and growth of cryptocurrencies is subject to a variety of factors that are difficult to predict and evaluate, and the market for the crypto assets we obtain and hold may not grow as we expect or the prices may decline, including due to political or economic crises or other factors which we neither predict nor control. ● The cryptocurrency space is subject to continuous regulatory uncertainty, and any adverse regulatory changes or other developments with respect to our operations or the crypto assets with which we transact may require us to alter our business model or suspend or cease some or all of our operations. ● Our focus on PoS blockchain networks exposes us to risk of loss due to features unique to those networks, including by virtue of being locked in by smart contracts such that we cannot liquidate a portion of the relevant crypto assets for a period of time during and after the staking process, during which the price or value of the crypto assets may depreciate. ● We are reliant on a single service provider for cloud computing infrastructure deployed in our blockchain infrastructure solutions business, and are therefore exposed to the risks which may arise from potential adverse developments that may be caused or experienced by such service provider. ● Our critical accounting policies may prove to be incorrect, we may need to implement additional finance and accounting systems, procedures and controls, and we face challenges inherent in operating a crypto assets business which is subject to evolving accounting treatment for which there is limited precedent. ● Our stock price may be subject to significant volatility due to a variety of factors, many of which are beyond our control, including its potential connection to the price of one or more of the crypto assets with which we are or may become involved. 17 Risks Related to Our Company in General We have a limited operating history, particularly with respect to our new blockchain infrastructure operations which recently commenced and our platform and staking-as-a-service business model, and we have a history of operating losses, and expect to incur significant additional operating losses.
Set forth below is a summary of the principal risks we face: ● We have a limited operating history, particularly with respect to our blockchain infrastructure solutions business, StakeSeeker, Builder+, ChainQ and staking-as-a-service operations. ● We have an evolving business model which we may be unable to develop, adapt or execute effectively, and we may be unable to manage our growth or implement our business plan as intended or at all. ● We are highly dependent on our executive officers, particularly Charles Allen, our Chairman and Chief Executive Officer, Michal Handerhan, our Chief Operating Officer, Michael Prevoznik, our Chief Financial Officer, and Manish Paranjape, our Chief Technology Officer, and the loss of the services of any of these individuals could materially harm our business. ● We may be subject to regulatory actions, private causes of actions such as intellectual property infringement claims, and restrictions and limited access to banking and financial services due to our operations in the cryptocurrency industry, and regulatory or other adverse developments in the cryptocurrency industry could otherwise adversely affect us. ● Because of our involvement in staking of crypto assets through delegations as part of our StaaS strategy, we are subject to risks inherent in engaging in activities involving financial instruments owned by third-party users, notwithstanding the non-custodial nature of our platform or other features management believes to constitute meaningful distinctions for regulatory, compliance and other purposes. ● A particular crypto asset’s status as a “security” in any relevant jurisdiction is subject to a high degree of uncertainty, and if we are unable to correctly characterize a crypto asset, we may be subject to regulatory scrutiny, investigations, fines, sanctions, penalties and other adverse consequences, including potentially becoming subject to the Investment Company Act of 1940 which would impose significant regulatory burdens and compliance costs. ● Crypto assets and our related activities are characterized by numerous other risks and uncertainties, including the possibility for adverse developments such as regulatory actions, bans or restrictions, declines in the price of, demand for or public perception of crypto assets, theft, fraud, hacking, manipulation or malicious coding, price volatility, the potential for one cryptocurrency to branch into two, variations among and the potential for adverse changes to blockchain algorithms, and other external forces beyond our control described more fully below. ● The future development and growth of cryptocurrencies is subject to a variety of factors that are difficult to predict and evaluate, and the market for the crypto assets we obtain and hold may not grow as we expect or the prices may decline, including due to political or economic crises or other factors which we neither predict nor control. ● The cryptocurrency space is subject to continuous regulatory uncertainty, and any adverse regulatory changes or other developments with respect to our operations or the crypto assets with which we transact may require us to alter our business model or suspend or cease some or all of our operations. ● Our focus on PoS blockchain networks exposes us to risk of loss due to features unique to those networks, including by virtue of being locked in by smart contracts such that we cannot liquidate a portion of the relevant crypto assets for a period of time during and after the staking process, during which the price or value of the crypto assets may depreciate. ● We are reliant on a single service provider for cloud computing infrastructure deployed in our blockchain infrastructure business, and are therefore exposed to the risks which may arise from potential adverse developments that may be caused or experienced by such service provider. ● We are subject to various other risks and uncertainties relating to our StaaS and other elements of our business, including potential loss of revenue if we experience excessive removal of delegated crypto assets on our validator nodes, potential shifts in the block building landscape, and competitive forces for Ethereum and other crypto assets for which our services are offered, technical failures, bugs, or vulnerabilities in our block builder software, and our efforts with respect to new features and services which were recently launched or are still under development. ● Our critical accounting policies may prove to be incorrect including due to our adoption of new accounting standards applicable to crypto assets in 2023, we may need to implement additional finance and accounting systems, procedures and controls, and we face challenges inherent in operating a crypto assets business which is subject to evolving accounting treatment for which there is limited precedent. ● Our stock price has in the past and may in the future be subject to significant volatility due to a variety of factors, many of which are beyond our control, including its potential connection to the price of one or more of the crypto assets with which we are or may become involved. 27 Risks Related to Our Company in General We have a limited operating history, particularly with respect to our blockchain infrastructure operations, including certain features and service offerings which recently commenced and our platform and staking-as-a-service business model, and we have a history of operating losses, and expect to incur significant additional operating losses.
We are subject to the following risks: ● Contrary to legal advice, the SEC or a court may conclude that Ethereum, or other crypto assets we later acquire to be securities; ● based on legal advice, we may acquire other crypto assets which we have been advised are not securities but later are held to be securities; and ● we may knowingly acquire crypto assets that are securities and acquire minority investments in businesses which investments are securities.
We are subject to the following risks: ● the SEC or a court may conclude that Ethereum, or other crypto assets we later acquire to be securities, notwithstanding differing conclusions we may draw on advice of counsel; ● based on legal advice, we may acquire other crypto assets which we have been advised are not securities but later are held to be securities; and ● we may knowingly acquire crypto assets that are securities and acquire minority investments in businesses which investments are securities.
Through these contracts, the Company provides cryptocurrency to stake on a node for the purpose of validating transactions and adding blocks to a respective blockchain network.
Through these contracts, the Company provides crypto assets to stake to a node for the purpose of validating transactions and adding blocks to a respective blockchain network.
The Company will record impairment losses as the fair value falls below the carrying value of the crypto assets at any time during the period, as determined using the lowest U.S. dollar spot price of the related crypto asset subsequent to its acquisition.
The Company recorded impairment losses as the fair value fell below the carrying value of the crypto assets at any time during the period, as determined using the lowest intraday U.S. dollar spot price of the related crypto asset subsequent to its acquisition.
Particularly in the event of prolonged or recurring recessionary conditions. 26 Our obligations to comply with the laws, rules, regulations, and policies of a variety of jurisdictions is uncertain and untested, and we are subject to uncertainty with respect to our potential non-custodial staking-as-a-service business and we may be subject to investigations and enforcement actions by U.S. and non-U.S. regulators and governmental authorities.
Particularly in the event of prolonged or recurring recessionary or turbulent market conditions. 37 Our obligations to comply with the laws, rules, regulations, and policies of a variety of jurisdictions is uncertain and untested, and we are subject to uncertainty with respect to our Ethereum block building and non-custodial staking-as-a-service businesses and we may be subject to investigations and enforcement actions by U.S. and non-U.S. regulators and governmental authorities.
Events in 2022 and more recently have increased the likelihood that U.S. federal and state legislatures and regulatory agencies will enact laws and regulations to regulate crypto assets and crypto asset intermediaries, such as crypto exchanges and custodians.
Past and recent events have increased the likelihood that U.S. federal and state legislatures and regulatory agencies will enact laws and regulations to regulate crypto assets and crypto asset intermediaries, such as crypto exchanges and custodians.
While our platform, StakeSeeker, utilizes geo-blocking in an effort to prevent its use by persons located in sanctioned jurisdictions, if notwithstanding these efforts our current or planned activities are found to constitute “facilitating” or assisting the actions of non-U.S. persons that would be prohibited for U.S. persons to perform directly due to U.S. sanctions, despite the fact we don’t take custody of staked crypto assets nor pay delegator crypto rewards, it could result in material negative consequences for us, including costs related to government investigations, harsh financial penalties, and harm to our reputation.
If, notwithstanding these efforts, our current or planned activities are found to constitute “facilitating” or assisting the actions of non-U.S. persons that would be prohibited for U.S. persons to perform directly due to U.S. sanctions, despite the fact we don’t take custody of staked crypto assets nor pay delegator crypto rewards, it could result in material negative consequences for us, including costs related to government investigations, harsh financial penalties, and harm to our reputation.
The cash inflows from financing activities in Fiscal 2022 were primarily from proceeds of Common Stock sold pursuant to the ATM Agreement ($11.1 million). This was partially offset by a one-time return of capital distribution of $631,000 made to record holders as of March 17, 2022.
The cash inflows from financing activities in Fiscal 2023 and Fiscal 2022 were entirely from proceeds of Common Stock sold pursuant to the ATM Agreement. The cash inflows from financing activities during Fiscal 2022 was partially offset by a one-time return of capital distribution of $631,000 made to record holders as of March 17, 2022.
The collapse of TerraUSD and Luna and the bankruptcy filings of FTX and its subsidiaries, Three Arrows Capital, Celsius Network, Voyager Digital, Genesis Global and BlockFi have resulted in calls for heightened scrutiny and regulation of the crypto asset industry, with a specific focus on crypto asset exchanges, platforms, and custodians.
Beginning with the collapse of TerraUSD and Luna in 2022 and the bankruptcy filings of FTX and its subsidiaries, Three Arrows Capital, Celsius Network, Voyager Digital, Genesis Global and BlockFi, as well as alleged violations of law brought against other industry participants, have resulted in calls for heightened scrutiny and regulation of the crypto asset industry, with a specific focus on crypto asset exchanges, platforms, and custodians.
However, we believe gross margin will improve as we add scale to our blockchain infrastructure operations and reduce costs as a result of increased operational efficiencies, leading to improved gross profits.
We believe our cost of revenues will increase as we continue to ramp up our business. However, we believe gross margin may improve as we add scale to our blockchain infrastructure operations and reduce costs as a result of increased operational efficiencies, leading to improved gross profits.
Nevertheless, the digital wallets and exchanges we utilize may not be impenetrable and may not be free from defect or immune to acts of God, and any loss due to a security breach, software defect or act of God will be borne by us.
Nevertheless, the digital wallets and exchanges we utilize may not be impenetrable and may not be free from defect or immune to acts of God, and any loss due to a security breach, software defect or act of God will be borne by us. Any of these events may adversely affect our operations and, consequently, an investment in us.
Since the CCPA was enacted, other states including Nevada, Maine, Colorado and Virginia have enacted similar legislation designed to protect the personal information of consumers and penalize companies that fail to comply, and other states have also proposed similar legislation.
Since the CCPA was enacted, a growing number of states have enacted similar legislation designed to protect the personal information of consumers and penalize companies that fail to comply, and other states have also proposed similar legislation.
At that point, revenue is recognized. 15 Stock-Based Compensation The Company accounts for stock-based compensation in accordance with ASC 718 Compensation - Stock Compensation (“ASC 718”). ASC 718 addresses all forms of share-based payment awards including shares issued under employee stock purchase plans and stock incentive shares.
Stock-Based Compensation The Company accounts for stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation . ASC 718 addresses all forms of share-based payment awards including shares issued under employee stock purchase plans and stock incentive shares.
The satisfaction of the performance obligation for processing and validating blockchain transactions occurs at a point in time when confirmation is received from the network indicating that the validation is complete, and the awards are available for transfer.
Each separate block creation or validation under a smart contract with a network represents a performance obligation. The satisfaction of the performance obligation for processing and validating blockchain transactions occurs at a point in time when confirmation is received from the network indicating that the validation is complete, and the awards are available for transfer.
If AWS fails to maintain the continuous functionality or security of its networks and related hardware on which we rely for our operations, we may be unable to generate revenue we otherwise would, and could suffer substantial losses.
We have limited control over AWS, the services it provides us and the safety and security measures related thereto. If AWS fails to maintain the continuous functionality or security of its networks and related hardware on which we rely for our operations, we may be unable to generate revenue we otherwise would, and could suffer substantial losses.
If we fail to fully develop and commercialize our platform in a timely and effective manner, your investment in us could lose some or all of its value. Even if we develop and commercialize our Digital Asset Platform, we may not be able to generate material revenues.
If we fail to fully develop and commercialize our platform in a timely and effective manner, your investment in us could lose some or all of its value. Even if we develop and commercialize our StakeSeeker platform, we may not be able to generate material revenues. The continued development of StakeSeeker will require significant time and capital.
Congress and certain U.S. agencies (e.g., the SEC, the CFTC, FinCEN, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Federal Bureau of Investigation) as well as the White House have issued reports and releases concerning crypto assets, including Bitcoin and crypto asset markets.
Congress and certain U.S. agencies (e.g., the SEC, the CFTC, FinCEN, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Federal Bureau of Investigation) as well as the White House have issued reports and releases concerning crypto assets, including Bitcoin and crypto asset markets, and have formed coalitions aimed at addressing the perceived threats posed by crypto assets and activities involving them.
The complexity of U.S. federal and state and international regulatory and enforcement regimes, coupled with the evolving global regulatory environment, could result in a single event prompting a large number of overlapping investigations and legal and regulatory proceedings by multiple government authorities in different jurisdictions.
Conversely, if regulations diverge worldwide, we may face difficulty adjusting aspects of our business. The complexity of U.S. federal and state and international regulatory and enforcement regimes, coupled with the evolving global regulatory environment, could result in a single event prompting a large number of overlapping investigations and legal and regulatory proceedings by multiple government authorities in different jurisdictions.
While we declared and paid a cash dividend (which came with the option to be paid in Bitcoin if elected by the shareholder) payable to holders of our Common Stock as of March 17, 2022, and recently declared a planned Series V dividend distribution to shareholders of our Common Stock of record as of March 27, 2023, which has since been delayed due to anticipated changes to the structure, as described elsewhere in this Report, we do not anticipate paying dividends on a regular or recurring basis for the foreseeable future.
While we declared and paid a cash dividend (which came with the option to be paid in Bitcoin if elected by the shareholder) payable to holders of our Common Stock as of March 17, 2022, and distributed Series V dividend to shareholders of our Common Stock of record as of May 12, 2023, we do not anticipate paying dividends on a regular or recurring basis for the foreseeable future.
The impact on us related to these matters could be substantial. We are seeking legal guidance on what, if any, controls and procedures need to be put in place and whether our activities could constitute facilitation of any illicit activities under the current regulatory framework. Regulators worldwide frequently study each other’s approaches to the regulation of the digital economy.
The impact on us related to these matters could be substantial. We’ve sought and are seeking additional legal guidance on what, if any, controls and procedures need to be put in place and whether our activities could constitute facilitation of any illicit activities under the current regulatory framework.
The Digital Asset Platform that we are currently developing will require significant time and capital. Even if we do develop this platform and acquire a sufficient number of users to generate revenue, we cannot guarantee the revenue would be material or sufficient to justify the costs we anticipate incurring to develop the platform.
Even if we do develop this platform and acquire a sufficient number of users to generate revenue, we cannot guarantee the revenue would be material or sufficient to justify the costs we anticipate incurring to develop the platform.
The usefulness of cryptocurrencies as a payment system and the public perception of cryptocurrencies could be damaged if banks or financial institutions were to close the accounts of businesses engaging in cryptocurrency-related activities, which contingencies may become more likely in the future if and to the extent crypto assets are considered a significant factor in the recent financial collapses experienced by the major banks as described above.
The usefulness of cryptocurrencies as a payment system and the public perception of cryptocurrencies could be damaged if crypto exchanges and other industry participants exit the U.S. markets, and if banks or financial institutions were to close the accounts of businesses engaging in cryptocurrency-related activities, which contingencies may become more likely in the future if and to the extent crypto assets are considered a significant factor in the financial crises or criminal activity such as those described above.
Federal and state legislatures and regulatory agencies are expected to introduce and enact new laws and regulations to regulate crypto asset intermediaries, such as crypto asset exchanges and custodians. The March 2023 collapses of Silicon Valley Bank, Silvergate Bank, and Signature Bank may amplify and/or accelerate these trends. The U.S. regulatory regime - namely the Federal Reserve Board, U.S.
Federal and state legislatures and regulatory agencies are expected to introduce and enact new laws and regulations to regulate crypto asset intermediaries, such as crypto asset exchanges and custodians. The March 2023 collapses of Silicon Valley Bank, Silvergate Bank, and Signature Bank are believed to have also contributed to these trends.
The Company’s fractional share of awards received from delegating to a third-party validator node is based on the proportion of cryptocurrency the Company staked to the node to the total cryptocurrency staked by delegators to the node. The provision of validating blockchain transactions is an output of the Company’s ordinary activities.
The Company’s fractional share of awards received from delegating to a third-party validator node is proportionate to the crypto assets staked by the Company compared to the total crypto assets staked by all Delegators to that node at that time. The provision of validating blockchain transactions is an output of the Company’s ordinary activities.
Further, we do not issue or hold crypto assets on behalf of the third parties and have no exposure to the risks an exchange would have with respect to loans, rehypothecation and margin. 10 The table below describes BTCS’s quarterly crypto assets holdings as of the end of Fiscal 2021 through the end of Fiscal 2022.
Further, we do not issue or hold crypto assets on behalf of third parties and have no exposure to the risks an exchange would have with respect to loans, rehypothecation, or margin.
More recently, the SEC has brought enforcement actions with respect to crypto assets and related activities, including custodial staking-as-a-service models, as more particularly described later in these Risk Factors.
The SEC has also brought enforcement actions with respect to crypto assets and related activities, including custodial staking-as-a-service models, and the SEC and courts have issued further orders and guidance as the crypto asset industry continues to develop and evolve, as more particularly described later in these Risk Factors.
The term of a smart contract can vary based on the rules of the respective blockchain and typically last a few weeks to months after it is canceled by the operator and requires that the cryptocurrency staked remain locked up during the duration of the smart contract.
The term of a smart contract can vary based on the rules of the respective blockchain and typically last from a few days to several weeks after it is cancelled (or “un-staked”) by the delegator and requires that the crypto assets staked remain locked up during the duration of the smart contract.
Any of these events may adversely affect our operations and, consequently, an investment in us. 27 To the extent that any of our crypto assets are held by crypto exchanges, we may face heightened risks from cybersecurity attacks and financial stability of the exchanges.
To the extent that any of our crypto assets are held by crypto exchanges, we may face heightened risks from cybersecurity attacks and the financial stability of the exchanges.
Realized gain (loss) on sale of crypto assets are included in other income (expense) in the statements of operations. The Company recorded realized gains (losses) on crypto assets of approximately $0.5 million and $3.1 million during the years ended December 31, 2022 and 2021, respectively.
The Company recorded impairment losses of approximately $0 and $13,349,000 related to crypto assets during the years ended December 31, 2023 and 2022, respectively. 23 Realized gain (loss) on sale of crypto assets are included in other income (expense) in the statements of operations.
As a result, we are at a heightened risk of enforcement action, litigation, regulatory, and legal scrutiny which could lead to sanctions, cease, and desist orders, or other penalties and censures which could significantly and adversely affect our continued operations and financial condition.
As a result, we are at a heightened risk of enforcement action, litigation, regulatory, and legal scrutiny which could lead to sanctions, cease, and desist orders, or other penalties and censures which could significantly and adversely affect our continued operations and financial condition. 38 Security Risks Related to Our Crypto Asset Holdings Our crypto assets may be subject to loss, damage, theft or restriction on access.
From the period September 14, 2021 through March 28, 2023, the Company sold a total of 2,934,433 shares of Common Stock under the ATM Agreement for aggregate total gross proceeds of approximately $14,986,000 at an average selling price of $5.11 per share, resulting in net proceeds of approximately $14,510,000 after deducting commissions and other transaction costs.
From the period September 14, 2021 through March 19, 2024, the Company sold a total of 4,346,748 shares of Common Stock under the ATM Agreement for aggregate total gross proceeds of approximately $17,256,000 at an average selling price of $3.97 per share, resulting in net proceeds of approximately $16,696,000 after deducting commissions and other transaction costs.
Further certain of our staked crypto assets may be locked up depending on a the specific blockchain protocol and we may be unable to unstake them in a timely manner in order to liquidate to the extended desired.
Certain of our staked crypto assets may be locked up for varying durations, depending on the specific blockchain protocol, and we may be unable to unstake them in a timely manner in order to liquidate to the extent desired. Lock-up periods for our staked crypto assets range from several hours to six months.
If any of the foregoing or other adverse developments occur as a result of our reliance on a single service provider for our PoS validating operations, it could have a material adverse effect on our business, financial condition and results of operations.
If any of the foregoing or other adverse developments occur as a result of our reliance on a single service provider for our PoS validating operations, it could have a material adverse effect on our business, financial condition and results of operations. Crypto assets staked on Proof-of-Stake blockchains are locked in smart contracts and may not be accessible and liquid.
The crypto asset industry is characterized by a high level of volatility, and the collapse in the prices of most popular crypto assets such as Bitcoin and Ethereum has cast doubt on the future of crypto asset-focused businesses such as ours.
The crypto asset industry is characterized by a high level of volatility, and the significant decline in the prices of most popular crypto assets such as Bitcoin and Ethereum from their all-time highs in 2021 has cast doubt on the future of crypto asset-focused businesses such as ours, despite the partial recovery of those prices as of February 2024.
Crypto assets staked on Proof of Stake blockchains are locked in smart contracts and may not be accessible and liquid. Crypto assets which utilize PoS consensus mechanisms are locked in smart contracts while staked which limits liquidity of the underlying crypto asset.
Crypto assets which utilize PoS consensus mechanisms are locked in smart contracts while staked which limits liquidity of the underlying crypto asset.
Because our current business plan and operations depend on consumers investing in crypto assets and staking and monitoring them using our non-custodial platform, economic downturns will materially adversely affect us.
Because our current staking-as-a-service business plan and operations depend on consumers investing in crypto assets and staking to our nodes and monitoring them using our non-custodial platform, economic downturns will materially adversely affect us. Our non-custodial staking-as-a-service strategy depends on consumers purchasing crypto assets from exchanges and holding them long-term, and staking them to our validator nodes.
We believe that our crypto assets will be an appealing target to hackers or malware distributors seeking to destroy, damage or steal our crypto assets. To minimize the risk of loss, damage and theft, security breaches, and unauthorized access we primarily hold our crypto assets in various cryptocurrency digital wallets and hold minimal amounts at exchanges.
To minimize the risk of loss, damage and theft, security breaches, and unauthorized access we primarily hold our crypto assets in various cryptocurrency digital wallets and hold minimal amounts at exchanges.
Any penalties or slashing events could damage our brand and reputation, cause us to suffer financial losses, and adversely impact our business. 25 Our blockchain infrastructure operations, including Company owned and run validator nodes on PoS blockchains, are subject to concentration risk as they are consolidated on Amazon Web Services The development and operation of the Company’s validator nodes for non-custodial staking, as well as the development of the Digital Asset Platform, is hosted on cloud computing by Amazon Web Services (“AWS”).
Any penalties or slashing events could damage our brand and reputation, cause us to suffer financial losses, and adversely impact our business. 36 Builder+, ChainQ, and our blockchain infrastructure operations including Company owned and run validator nodes on PoS blockchains, are subject to concentration risk as they are consolidated on Amazon Web Services.
During times of high volatility or downturns, which are common among crypto assets for many reasons including those described elsewhere in these Risk Factors, we may be unable to liquidate certain crypto assets to the extent desired. We currently carry our staked Ethereum as a non-current long-term asset on our balance sheet until liquidity for staked Ethereum is unlocked.
During times of high volatility or downturns, which are common among crypto assets for many reasons including those described elsewhere in these Risk Factors, we may be unable to liquidate certain crypto assets to the extent desired.
For example, in February 2023 the SEC charged Kraken with failing to register the offer and sale of its staking-as-a-service program, whereby investors transfer crypto assets to Kraken for staking in exchange for advertised annual investment returns.
In February 2023, the SEC charged Kraken with failing to register the offer and sale of its staking-as-a-service program, whereby investors transferred crypto assets to Kraken for staking in exchange for advertised annual investment returns. Kraken settled this action by agreeing to cease its custodial staking business and to pay $30 million in disgorgement, prejudgment interest, and civil penalties.
Our business is focused on the cryptocurrency industry, particularly blockchain infrastructure including our Digital Asset Platform. We also hold and stake a number of crypto assets to generate revenue from the PoS systems on which they operate.
We also hold and stake a number of crypto assets to generate revenue from the PoS systems on which they operate.
Because our staking business is dependent on the value of the crypto assets we stake to obtain blockchain rewards, and because those rewards are paid out in the form of the blockchain’s native crypto assets, the ongoing low market values and/or continued or long-term declines in crypto asset prices will materially and adversely affect our results of operations.
New laws, regulations, and regulatory actions could significantly restrict or eliminate the market for, or uses of, crypto assets including Ethereum, which could have a negative effect on the value of Ethereum, which in turn would have a negative effect on the value of the Company’s shares. 32 Because our blockchain infrastructure business is dependent on the value of the crypto assets we stake to obtain blockchain rewards, and because those rewards are paid out in the form of the blockchain’s native crypto assets, low market values and/or continued or long-term declines in crypto asset prices will materially and adversely affect our results of operations.
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