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Marathon Digital Holdings (MARA)
NASDAQ:MARA
Risk Overview Q4, 2024
Risk Distribution
33% Finance & Corporate
20% Tech & Innovation
18% Legal & Regulatory
12% Production
10% Macro & Political
6% Ability to Sell
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
This chart displays the stock's most recent risk distribution according to category. TipRanks has identified 6 major categories: Finance & corporate, legal & regulatory, macro & political, production, tech & innovation, and ability to sell.
Risk Change Over Time
S&P500 Average
Sector Average
Risks removed
Risks added
Risks changed
Marathon Digital Holdings Risk Factors
New Risk (0)
Risk Changed (0)
Risk Removed (0)
No changes from previous report
The chart shows the number of risks a company has disclosed. You can compare this to the sector average or S&P 500 average.
The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.
The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.
Risk Highlights Q4, 2024
Main Risk Category
Finance & Corporate
With 16 Risks
Finance & Corporate
With 16 Risks
Number of Disclosed Risks
49
-3
From last reportS&P 500 Average: 31
49
-3
From last reportS&P 500 Average: 31
Recent Changes
31Risks added
32Risks removed
15Risks changed
Since Dec 2024
31Risks added
32Risks removed
15Risks changed
Since Dec 2024
Number of Risk Changed
15
+13
From last reportS&P 500 Average: 3
15
+13
From last reportS&P 500 Average: 3
See the risk highlights of Marathon Digital Holdings in the last period.
Risk Word Cloud
The most common phrases about risk factors from the most recent report. Larger texts indicate more widely used phrases.
Risk Factors Full Breakdown - Total Risks 49
Finance & Corporate
Total Risks: 16/49 (33%)Below Sector Average
Share Price & Shareholder Rights6 | 12.2%
Share Price & Shareholder Rights - Risk 1
Our ongoing at-the-market stock issuances contribute to stockholder dilution and may intensify due to our HODL strategy.Added
Share Price & Shareholder Rights - Risk 2
The unregulated nature and lack of transparency of many bitcoin trading venues may expose us to fraud, security failures, and operational risks, potentially harming the value of our bitcoin holdings.Changed
Bitcoin trading venues are relatively new and, in some cases, operate with minimal regulation. Many exchanges do not provide the public with significant information about their ownership, management, corporate practices, or regulatory compliance. As a result, confidence in bitcoin trading venues could decline, especially if prominent exchanges suffer fraud, business failures, cyberattacks, or government-imposed restrictions.
A lack of stability in the broader bitcoin market or the closure of key trading venues could lead to increased price volatility. If investors view our common stock as linked to our bitcoin holdings, these market disruptions could negatively impact the market value of our stock.
Share Price & Shareholder Rights - Risk 3
The sale or availability of a substantial number of shares of our common stock may negatively impact our stock price.Changed
If a significant number of our stockholders sell shares in the public market following the expiration of statutory holding periods or lock-up agreements, under Rule 144, or after the exercise of outstanding warrants or convertible securities, it could create an "overhang" effect. This anticipated sell-off could depress our stock price, regardless of actual sales activity. The presence of an overhang may also hinder our ability to raise additional capital through equity or equity-related securities on favorable terms.
Share Price & Shareholder Rights - Risk 4
The issuance, conversion, or exercise of convertible notes and other convertible securities, options, and warrants will dilute our stockholders' ownership.Changed
We have issued, and may continue to issue, convertible securities, options, and warrants to officers, directors, consultants, and certain stockholders. Additionally, we have issued convertible notes to certain institutional investors in private offerings. The exercise, conversion, or exchange of these instruments, including for other securities, will dilute existing stockholders' ownership percentages. This dilution may negatively impact our ability to obtain additional capital. Holders of these securities may choose to exercise or convert them at times when we could otherwise secure equity capital on more favorable terms or when our common stock is trading above the exercise or conversion price.
Share Price & Shareholder Rights - Risk 5
Our stock price is volatile and subject to significant fluctuations.Changed
The market price of our common stock is highly volatile and may fluctuate widely due to factors beyond our control, including:
- changes in our industry, particularly those affecting bitcoin and other digital assets;- variability in bitcoin pricing;- competitive pricing pressures;- our ability to obtain working capital financing;- additions or departures of key personnel;- sales of our common stock;- our ability to execute our business plan effectively;- operating results that fall below expectations;- loss of strategic relationships;- regulatory developments; and - broader economic and external factors.
Additionally, securities markets have historically experienced substantial price and volume fluctuations unrelated to specific companies' performance. Such market fluctuations could materially and adversely affect the market price of our common stock.
Share Price & Shareholder Rights - Risk 6
Increased scrutiny and changing expectations from stockholders with respect to our environmental, social and governance ("ESG") practices and the impacts of climate change may result in additional costs or risks.Companies across many industries are facing increasing scrutiny related to their ESG practices. Investor advocacy groups, certain institutional investors, investment funds and other influential investors are also increasingly focused on ESG practices and in recent years have placed increasing importance on the non-financial impacts of their investments. Conversely, so-called "anti-ESG" and "anti-DEI" sentiment has also gained momentum across the United States, with several state and federal authorities having enacted or proposed "anti-ESG" policies or legislation, issued executive orders and legal opinions and engaged in related investigations and litigation. If our policies or practices are viewed as being in contradiction of such "anti-ESG" or "anti-DEI" policies, legislation executive orders or legal opinions, our reputation may be harmed and our business or financial condition may be adversely affected.
The SEC adopted a rule that requires climate disclosures in periodic and other filings with the SEC covering fiscal years beginning in 2025, which rule has been stayed pending the completion of a judicial review. To comply with this SEC rule, if the rule goes into effect in its current form, we will be required to establish additional internal controls, engage additional consultants and incur additional costs related to evaluating, managing and reporting on our environmental impact and climate-related risks and opportunities. If we fail to implement sufficient oversight or accurately capture and disclose on environmental matters, our reputation, business, operating results and financial condition may be materially adversely affected. Furthermore, increased public awareness and concern regarding environmental risks, including global climate change, may result in increased public scrutiny of our business and our industry, and our management team may divert significant time and energy away from our operations and towards responding to such scrutiny.
In addition, the physical risks of climate change may impact the availability and cost of materials and natural resources, sources and supplies of energy, and demand for bitcoin and other cryptocurrencies, and could increase our insurance and other operating costs, including, potentially, to repair damage incurred as a result of extreme weather events or to renovate or retrofit facilities to better withstand extreme weather events. If environmental laws or regulations or industry standards are either changed or adopted and impose significant operational restrictions and compliance requirements on our operations, or if our operations are disrupted due to physical impacts of climate change, our business, capital expenditures, results of operations, financial condition and competitive position could be negatively impacted.
Accounting & Financial Operations2 | 4.1%
Accounting & Financial Operations - Risk 1
The scheduled reduction of bitcoin mining rewards due to halving events may decrease our revenue and could force us to cease mining operations.Changed
Accounting & Financial Operations - Risk 2
Uncertainty in accounting standards for bitcoin and other cryptocurrencies may lead to financial restatements and business disruptions.Added
Limited precedent exists for the financial accounting of bitcoin and other cryptocurrency assets. Future changes in regulatory or accounting standards could require us to alter our accounting practices and restate financial statements, potentially affecting how we account for newly mined cryptocurrency rewards. Such changes could materially and adversely impact our business, financial condition, and operating results. A restatement may also raise concerns about our ability to continue as a going concern, negatively affecting investor confidence and the value of cryptocurrencies we hold or acquire.
Debt & Financing4 | 8.2%
Debt & Financing - Risk 1
We may experience liquidity constraints and need additional capital, which may not be available to us on favorable terms, or at all.Added
Debt & Financing - Risk 2
Our bitcoin lending arrangements expose us to risks of borrower default, operational failures and cybersecurity threats.Added
From time to time, we generate income through bitcoin lending, which carries significant risks. The volatility of bitcoin increases the likelihood that borrowers may default due to market downturns, liquidity crises, fraud or other financial distress. Because our bitcoin lending arrangements are unsecured, they rank below secured debt in a borrower's capital structure. If a borrower becomes insolvent, we may be unable to recover the loaned bitcoin, leading to substantial financial losses.
Additionally, digital asset lending platforms are vulnerable to operational and cybersecurity risks. Technical failures, software bugs or system outages could disrupt lending activities, delay transactions or result in inaccurate record-keeping. Cybersecurity threats, including hacking, phishing and other malicious attacks, pose further risks, potentially leading to the loss, theft or misappropriation of our loaned bitcoin. A successful cyberattack or security breach could materially and adversely impact our financial position, reputation and ability to conduct future lending activities.
Debt & Financing - Risk 3
Widespread delays in the recording of transactions could erode confidence in the Bitcoin network and negatively impact our business.Added
To the extent that any miners cease to record transactions in solved blocks, such transactions will not be recorded on the Bitcoin blockchain, until a block is solved by a miner who does not require the payment of transaction fees. Currently, there are no known incentives for miners to actively not record transactions in solved blocks. However, to the extent that any such incentives arise (e.g., a collective movement among miners or one or more mining pools forcing blockchain users to pay transaction fees as a substitute for or in addition to the award of new bitcoin upon the solving of a block), actions of miners solving a significant number of blocks could delay the recording and confirmation of transactions on the blockchain. Widespread delays could increase the risk of "double-spending" (i.e., spending the same digital assets in more than one transaction), reduce trust in the network, and negatively impact bitcoin's adoption and price. This could, in turn, affect the value of our bitcoin holdings and our financial performance.
Debt & Financing - Risk 4
The irreversibility of digital asset transactions exposes us to risks of theft, loss and human error, which could negatively impact our business.Added
Digital asset transactions are not, from an administrative perspective, reversible without the consent and active participation of the recipient of the transaction or, in theory, control or consent of a majority of the processing power on that digital asset network. Once a transaction has been verified and recorded in a block that is added to the blockchain, an incorrect transfer of digital assets or a theft of digital assets generally will not be reversible, and we may not be capable of seeking compensation for any such transfer or theft.
Although we regularly transfer digital assets to or from vendors, consultants and services providers, it is possible that, through computer or human error, or through theft or criminal action, such assets could be transferred in incorrect amounts or to unauthorized third parties.
To the extent we are unable to seek a corrective transaction to identify the third party which has received our digital assets through error or theft, we will be unable to revert or otherwise recover the impacted digital assets, and any such loss could adversely affect our business, results of operations and financial condition.
Corporate Activity and Growth4 | 8.2%
Corporate Activity and Growth - Risk 1
We have engaged in, and may continue to engage in, strategic acquisitions and other transactions that could disrupt our business, dilute our stockholders, strain our financial resources and harm our operating results.Changed
Corporate Activity and Growth - Risk 2
Bitcoin network forks, where the blockchain splits into two separate networks, could cause disruptions and negatively impact our business.Added
Since the Bitcoin network is an open-source project, any individual can download the Bitcoin network software and make any desired modifications, which are proposed to users and miners on the Bitcoin network through software downloads and upgrades and typically posted to the Bitcoin development forum on GitHub.com. A substantial majority of miners and Bitcoin users must consent to those software modifications by downloading the altered software or upgrade that implements the changes. Otherwise, the changes do not become a part of the Bitcoin network.
Since the Bitcoin network's inception, changes to the network have been accepted by the vast majority of users and miners, ensuring that the network remains a coherent economic system. However, a developer or group of developers could propose a modification to the Bitcoin network that is not accepted by a vast majority of miners and users, but that is nonetheless accepted by a substantial population of participants in the Bitcoin network. In such a case, and if the modification is material or not compatible with the prior version of Bitcoin network software, a fork in the blockchain could develop and two separate Bitcoin networks could result with one running the pre-modification software program and the other running the modified version (i.e., a second "Bitcoin" network).
Historically, the Bitcoin community has worked to merge forked blockchains, but a prolonged or unresolved split could create confusion, disrupt the network and affect bitcoin's stability. A fork could decrease confidence in bitcoin, negatively impacting its price and, in turn, our business and stock value.
Corporate Activity and Growth - Risk 3
Our HODL strategy exposes us to market volatility and liquidity risks.Added
In the third quarter of 2024, we adopted a HODL strategy whereby we retain all bitcoin mined in our operations or purchased in the open market, rather than selling bitcoin to generate revenue. In the second half of 2024, we raised approximately $2.2 billion, primarily through the issuance of the 2024 Convertible Notes, to acquire bitcoin as part of our HODL strategy. As a result, our financial condition is highly dependent on the market price of bitcoin, which historically has been volatile and subject to fluctuations due to regulatory developments, macroeconomic conditions,technological advancements, security incidents, market speculation and adoption trends. If the price of bitcoin declines significantly or remains low for an extended period, the value of our holdings could decrease materially, affecting our balance sheet and liquidity. Since we do not generate significant revenue from other business activities, a prolonged downturn in bitcoin's price could make it difficult to cover operational expenses, service debt or fund strategic initiatives. Additionally, if we need to sell bitcoin to meet financial obligations, we could face liquidity constraints, unfavorable market conditions or regulatory restrictions that limit our ability to do so. Any of these factors could adversely affect our financial stability and business prospects. While we believe our HODL strategy will create long-term value, there is no guarantee that it will generate the returns we expect or that we will be able to meet our obligations under outstanding convertible notes without negatively impacting our financial condition.
Corporate Activity and Growth - Risk 4
Our future success depends on our ability to expand our organization to match the growth of our activities.As our operations grow, the administrative demands and scaling demands upon us will grow, and our success will depend upon our ability to meet those demands. MARA and our subsidiaries require certain financial, managerial and other resources, which could create challenges to our ability to successfully manage our subsidiaries and operations and impact our ability to assure compliance with our policies, practices and procedures. These demands include, but are not limited to, increased executive, technical, operations, accounting, legal, staff support and general office services. We may need to hire additional qualified personnel, including contractors, to meet these demands, the cost and quality of which is dependent in part upon market factors outside of our control. Further, we will need to effectively manage the training and growth of our staff to maintain an efficient and effective workforce, and our failure to do so could adversely affect our business and operating results.
Tech & Innovation
Total Risks: 10/49 (20%)Above Sector Average
Trade Secrets3 | 6.1%
Trade Secrets - Risk 1
Variability in intellectual property laws may adversely affect our intellectual property position.Trade Secrets - Risk 2
Intellectual property disputes related to digital asset technology could threaten our ability to operate.Added
The legal landscape for digital assets remains uncertain, and third parties may assert intellectual property claims related to blockchain technology, digital asset transactions or source code. Any litigation, regardless of its merit, could create uncertainty about the long-term viability of digital asset networks and reduce investor confidence in our business. If a court upholds an intellectual property claim, we and other market participants could be restricted from accessing certain digital asset networks or conducting transactions, which could materially impact our business, results of operations and financial condition.
Trade Secrets - Risk 3
Developing and protecting new inventions and intellectual property is costly, time-consuming and uncertain.Added
Our pursuit to develop new inventions or intellectual property requires significant financial, managerial and other resources. There is no guarantee that these efforts will result in valuable intellectual property or generate revenue. Even if we develop new technologies, securing and maintaining a proprietary position presents additional risks, including:
- delays or failures in obtaining patents;- patent challenges, including interference and opposition proceedings;- competitors developing similar or alternative technologies; and - complexity, cost, and uncertainty of patent enforcement.
Even issued patents may not provide meaningful protection, as they can be circumvented, challenged, invalidated or narrowed in scope. Additionally, if others have already patented similar technologies, we may need to obtain costly licenses or be restricted from commercializing certain products. Patent application delays could also impact our ability to generate revenue from internally developed patents and may cause us to miss market opportunities.
Cyber Security3 | 6.1%
Cyber Security - Risk 1
Cybersecurity threats, including hacking and malware, could result in loss of digital assets, reputational damage, and business disruptions.Added
Cyber Security - Risk 2
A 51% attack on the Bitcoin network could undermine security and market confidence.Added
The security of the Bitcoin network relies on its decentralized nature, which makes it difficult for any single entity to control a majority of the network's mining power. However, if a malicious actor or coordinated group were to gain control of more than 50% of the total hashrate, a scenario known as a "51% attack," they could theoretically manipulate the network by:
- reversing previously confirmed transactions, enabling double-spending of bitcoin;- preventing new transactions from being confirmed, effectively halting the network; and - excluding or modifying transactions, undermining the trustworthiness of the blockchain.
A 51% attack could occur through several mechanisms, including large-scale mining operations, through which a single entity invests in expansive mining facilities with enough computing power to control the majority of the network; mining pool dominance, in which mining pool becomes so large that it collectively controls more than 50% of the network's hashrate; or botnet-based attacks, in which botnets (volunteers or hacked collections of computers controlled by networked software coordinating the actions of the computers) are used to hijack computing resources and direct them toward mining, effectively amassing enough power to launch an attack.
If a 51% attack were successfully executed, it could lead to a loss of confidence in bitcoin's security and reliability, causing its price to drop significantly. Such an event could also prompt regulatory restrictions on cryptocurrency mining and trading, further exacerbating the negative impact on our business.
Even if a 51% attack does not occur, the mere perception that such an attack is possible could damage bitcoin's credibility and discourage institutional adoption. Given our dependence on bitcoin mining, any loss of trust in the security of the Bitcoin network could materially and adversely affect our business, financial condition and results of operations.
Cyber Security - Risk 3
Loss of access to our private keys or data could result in a permanent loss of our digital assets.Changed
Digital assets are controllable only by the possessor of both the unique public key and private key relating to the local or online digital wallet which hold the digital assets. We are required by the operators of digital asset networks to publish the public key relating to a digital wallet in use once we first verify a spending transaction from that digital wallet and broadcast such information into the respective network. We safeguard the private keys relating to our digital assets by relying on four custody providers, including New York Digital Investment Group LLC ("NYDIG"). To the extent a private key is lost, destroyed or otherwise compromised and no backup of the private key is accessible, we would be unable to access the digital assets and the private key would not be capable of being restored by the respective digital asset network. Any loss of private keys relating to digital wallets used to store our digital assets could adversely affect an investment in our securities.
Technology4 | 8.2%
Technology - Risk 1
We face risks related to technological obsolescence, vulnerability of the global supply chain for cryptocurrency hardware, potential trade restrictions and difficulty in obtaining new hardware, which may have a material adverse effect on our business.Added
Technology - Risk 2
The open-source structure of the Bitcoin network exposes us to risks related to software development, security vulnerabilities and potential disruptions.Added
Digital asset networks are open-source projects and, although there is an influential group of leaders in, for example, the Bitcoin network community known as the "Core Developers," there is no official developer or group of developers that formally controls the Bitcoin network. As an open-source project, Bitcoin is not represented by an official organization or authority. The Bitcoin network protocol is not sold, and contributors generally are not compensated for maintaining and updating the Bitcoin network protocol. Without guaranteed financial incentives, there may be insufficient resources to address emerging issues, upgrade security or implement necessary improvements in a timely manner. If the Bitcoin network's software is not properly maintained or developed, it could become vulnerable to security threats, operational inefficiencies and reduced trust, all of which could negatively impact bitcoin's long-term viability and our business.
Technology - Risk 3
Our increasing reliance on immersion-cooling technology exposes us to operational and regulatory risks.Changed
We are expanding our use of immersion-cooling technology for bitcoin mining, particularly at our Granbury, Texas facility. Immersion-cooling is an emerging, relatively untested technology at scale within the bitcoin mining industry, and we may face challenges in achieving the expected cooling performance. If we fail to optimize our immersion-cooling systems, our mining efficiency and profitability may suffer.
In addition, regulation of certain perfluoroalkyl and polyfluoroalkyl substances, collectively known as "PFAS," may affect our operations. Governments in the United States and internationally have increased their focus on and regulation of PFAS which are present in some coolants used in our immersion-cooling systems. Developments in global chemical regulatory trends (including relating to PFAS) could lead to additional compliance costs, potential litigation, or operational disruptions, all of which could adversely affect our operations and financial condition.
Technology - Risk 4
Prolonged power and internet outages, shortages or capacity constraints could harm our business.Changed
Our mining operations rely on a significant amount of electricity and high-speed internet access. The success of any current or future mining site depends on securing sufficient, cost-effective power. We operate across a mix of fully owned campuses, leased properties, and active hosting agreements, each with unique power arrangements. If we are unable to obtain adequate electricity or experience prolonged internet outages, we may be forced to scale back or shut down operations.
Geopolitical events, including the war in Ukraine and high inflation, have driven up global energy prices. If power costs continue to rise, our ability to mine bitcoin profitably could be severely impacted. At times of high energy prices or shortages, we may voluntarily reduce power consumption or be required to do so under agreements with utility providers. In some cases, utilities or government entities may restrict or prohibit electricity use for mining operations, further limiting our ability to generate bitcoin.
As we expand to new sites, competition for locations with affordable power could intensify. Any limitations on power access could materially and adversely affect our business, financial performance and future growth.
Legal & Regulatory
Total Risks: 9/49 (18%)Below Sector Average
Regulation5 | 10.2%
Regulation - Risk 1
Our bitcoin holdings could subject us to regulatory scrutiny and potential restrictions on future transactions.Changed
Regulation - Risk 2
Regulatory, commercial and technical uncertainties may influence bitcoin prices.Changed
The market price of bitcoin is subject to numerous uncertainties, including evolving regulatory frameworks, commercial adoption trends and technical risks, any of which could negatively impact its value. Regulatory treatment of digital assets remains uncertain in various jurisdictions, and new regulations, enforcement actions, or interpretations by governmental authorities could diminish bitcoin's appeal, restrict its use or otherwise depress its market price.
Beyond regulation, bitcoin's price is influenced by factors such as:
- public perception and media coverage of bitcoin and digital assets;- accessibility and convenience of purchasing, holding and transacting with bitcoin;- institutional demand for bitcoin as an asset class;- consumer adoption of bitcoin for everyday transactions; and - emergence of competing digital assets with potentially superior functionality, scalability or regulatory compliance.
Even if bitcoin adoption increases in the short term, there is no guarantee that this growth will be sustained. Since bitcoin exists solely as digital records on the Bitcoin blockchain, its value is also susceptible to technical risks, including:
- a decrease in miner incentives due to declining block rewards and transaction fees;- security vulnerabilities, such as potential network attacks or software exploits;- forks or changes to the Bitcoin protocol that may split the network or cause instability; and - developments in mathematics or technology, including in digital computing, algebraic geometry and quantum computing, that could result in the cryptography used by the Bitcoin blockchain becoming insecure or ineffective.
Additionally, bitcoin's liquidity could be adversely affected if financial institutions, payment processors or market makers withdraw their support for bitcoin-related services due to regulatory pressure, reputational concerns or operational risks. If any of these risks materialize, they could negatively impact bitcoin's market price, which, in turn, would adversely affect our business and financial condition.
Regulation - Risk 3
The rapidly evolving and uncertain regulatory landscape for cryptocurrencies exposes us to legal risks, compliance costs, and potential business disruptions.Added
Our business operates within a complex and evolving regulatory framework that includes a wide range of federal, state, and international laws, rules, and policies. These include regulations governing financial services, securities, commodities, money transmission, consumer lending, privacy, cybersecurity, taxation, anti-bribery, sanctions, anti-money laundering, and other areas. Many of these laws were enacted before the rise of cryptocurrencies and blockchain technology, creating uncertainty in their interpretation and application.
Regulatory bodies, including the SEC, CFTC, federal energy regulators, and other financial oversight agencies, frequently modify and reinterpret existing rules, leading to inconsistencies across jurisdictions. As a result, we must exercise judgment in determining how certain laws apply to our operations, and regulators may not always agree with our interpretations. If we are found to be in violation of any applicable laws, we could face significant fines, license revocations, product or service restrictions, reputational damage, and other regulatory consequences that could materially impact our business.
Additionally, failures of major cryptocurrency trading platforms and lenders, such as FTX, Celsius, Voyager, and Three Arrows Capital, have intensified calls for stricter oversight of the crypto economy. In response, legislative and regulatory bodies in the U.S. and abroad are actively considering new regulations that could affect our operations. Increased scrutiny and regulatory actions may subject us to audits, examinations, investigations, and enforcement proceedings that could disrupt our business and increase compliance costs
Given the unpredictable nature of cryptocurrency regulation and enforcement, any adverse regulatory developments, whether through new laws, changing interpretations, or enforcement actions, could negatively impact our reputation, business operations, financial condition, and ability to offer competitive products and services.
Regulation - Risk 4
Changes in regulatory interpretations could require us to register as a money services business or money transmitter, leading to increased compliance costs or operational shutdowns.Added
If regulatory changes or interpretations require us to register as a money services business with FinCEN under the U.S. Bank Secrecy Act, or as a money transmitter under state laws, we may be subject to extensive regulatory requirements, resulting in significant compliance costs and operational burdens. In such a case, we may incur extraordinary expenses to meet these requirements or, alternatively, may determine that continued operations are not viable. If we decide to cease certain operations in response to new regulatory obligations, such actions could occur at a time that is unfavorable to investors.
Multiple states have implemented or proposed regulatory frameworks for digital asset businesses. Compliance with such state-specific regulations may increase costs or impact our business operations. Furthermore, if we or our service providers are unable to comply with evolving federal or state regulations, we may be forced to dissolve or liquidate certain operations, which could materially impact our investors.
Regulation - Risk 5
The classification of bitcoin as a commodity could subject us to additional CFTC regulation, resulting in significant compliance costs or the cessation of certain operations.Added
Under current interpretations, bitcoin is classified as a commodity under the Commodity Exchange Act and is subject to regulation by the CFTC. If our activities require CFTC registration, we may be required to comply with extensive regulatory obligations, which could result in significant costs and operational disruptions. Additionally, current and future legislative or regulatory developments, including new CFTC interpretations, could further impact how bitcoin and bitcoin derivatives are classified and traded.
If bitcoin is further regulated as a commodity, we may be required to register as a commodity pool operator and register the Company as a commodity pool with the CFTC through the National Futures Association. Compliance with these additional regulatory requirements could result in substantial, non-recurring expenses, adversely affecting an investment in our securities. If we determine not to comply with such regulations, we may be forced to cease certain operations, which could negatively impact our investors.
Taxation & Government Incentives1 | 2.0%
Taxation & Government Incentives - Risk 1
Changes in tax laws or IRS guidance regarding bitcoin's classification could negatively impact our business and stockholders.Added
Environmental / Social3 | 6.1%
Environmental / Social - Risk 1
Target energy regulations and taxes could increase our costs and adversely affect our business.Added
Environmental / Social - Risk 2
Changing environmental regulations and public energy policies could increase our costs and threaten our bitcoin mining operations.Added
Bitcoin mining requires substantial energy consumption, and our ability to operate profitably depends on securing electricity at competitive rates. Our strategic expansion plans rely on assumptions about current energy regulations and policies. If new environmental or energy regulations are enacted, or if existing ones change, we may face increased costs or operational limitations that could impact our business model.
The lack of consistent climate legislation creates uncertainty for our industry, and bitcoin mining's high energy usage makes it a potential target for future regulations. New laws could impose higher energy costs, require additional capital investments, mandate environmental monitoring, or impose other compliance burdens. Additionally, bitcoin miners in Texas have recently been required to disclose extensive information about their energy usage to the U.S. Energy Information Administration, which could lead to negative public perception and further regulatory scrutiny.
The ongoing debate over climate change policies adds further uncertainty to our financial outlook. Even without regulatory changes, negative publicity regarding bitcoin mining's environmental impact could damage our reputation and affect our financial condition.
Environmental / Social - Risk 3
If bitcoin is classified as a security, we may be subject to extensive regulation, which could result in significant costs or force us to cease certain operations.Added
Regulatory changes or interpretations that classify bitcoin as a security under the Securities Act of 1933, as amended (the "Securities Act") or Investment Company Act of 1940, as amended (the "Investment Company Act"), could require us to register and comply with additional regulations. Compliance with these requirements could impose extraordinary, non-recurring expenses on our business. If the costs and regulatory burdens become too great, we may be forced to modify or cease certain operations, which could be detrimental to our investors.
The SEC has previously indicated that certain digital assets may be considered securities depending on their structure and use. While no formal regulations have been proposed to classify bitcoin as a security, future developments could change its legal status, requiring us to comply with securities laws. If we fail to do so, we may be forced to discontinue some or all of our business activities, negatively impacting investments in our securities.
If the SEC or other regulators determine that bitcoin or other digital assets we hold qualify as securities, we may be required to register as an investment company under the Investment Company Act. This classification would subject us to additional periodic reporting, disclosure requirements, and regulatory compliance obligations, significantly increasing our operational costs.
Although we do not currently engage in investing, reinvesting, or trading securities, and we do not hold ourselves out as an investment company, we could inadvertently be deemed one under the Investment Company Act. If we are unable to rely on an exclusion, we would be required to register with the SEC, which could impose additional financial and regulatory burdens.
Furthermore, state regulators may conclude that the digital assets we hold are securities under state laws, requiring us to comply with state-specific securities regulations. States like California have stricter definitions of "investment contracts" than the SEC, increasing the risk of additional regulatory scrutiny.
Any additional registration requirements, whether due to regulatory developments or an inadvertent classification as an investment company, could result in extraordinary compliance costs and adversely impact an investment in our securities. If we determine that compliance is too costly, we may seek to cease certain or all operations, which could lead to significant investment losses for our shareholders.
Production
Total Risks: 6/49 (12%)Above Sector Average
Manufacturing1 | 2.0%
Manufacturing - Risk 1
Noise generated by our mining operations poses regulatory, legal, operational and reputational risks.Added
Employment / Personnel1 | 2.0%
Employment / Personnel - Risk 1
We are highly dependent on the continued service of our executive team.Changed
Supply Chain2 | 4.1%
Supply Chain - Risk 1
Our reliance on third-party mining pools for a portion of our mining revenue exposes us to operational and financial risks.Added
Supply Chain - Risk 2
Our reliance on third-party hosting providers for bitcoin mining operations exposes us to financial and operational risks.Added
We rely on third-party hosting providers to power a portion of our mining rigs. If these providers experience financial difficulties, including bankruptcy, or fail to meet their contractual obligations, our ability to mine bitcoin could be significantly impacted.
In 2022, our largest hosting provider, Compute North, filed for bankruptcy, resulting in a $55.7 million impairment charge for our company. Hosting contracts often include provisions that allow hosting providers to place liens on our mining equipment, which could delay or prevent us from reclaiming our assets in the event of a provider's bankruptcy. Additionally, significant deposits made to hosting providers may be at risk if those funds are used for the provider's operations or are otherwise inaccessible due to bankruptcy proceedings. These factors introduce uncertainty and financial risk that could materially impact our business.
Costs2 | 4.1%
Costs - Risk 1
High operating costs and the need for professionalized mining operations may lead to downward pressure on bitcoin prices.Added
Costs - Risk 2
The lack of legal recourse and insurance for our digital assets increases the risk of total loss in the event of theft or destruction.Changed
Our digital assets are not insured against theft, loss or destruction. If an event occurs where we lose our digital assets, whether due to cyberattacks, fraud or other malicious activities, we may not have any viable legal recourse or ability to recover the lost assets. Unlike funds held in insured banking institutions, our digital assets are not protected by the Federal Deposit Insurance Corporation or the Securities Investor Protection Corporation. If our digital assets are lost under circumstances that render another party liable, there is no guarantee that the responsible party will have the financial resources to compensate us. As a result, we and our stockholders could face significant financial losses.
Macro & Political
Total Risks: 5/49 (10%)Above Sector Average
Economy & Political Environment1 | 2.0%
Economy & Political Environment - Risk 1
The U.S. political and economic environment could materially impact our business operations and financial performance, and uncertainty surrounding the potential legal, regulatory and policy changes by the new U.S. presidential administration may directly affect us and the global economy.Added
International Operations1 | 2.0%
International Operations - Risk 1
Operating in foreign jurisdictions exposes us to political, legal, and regulatory risks that could negatively impact our financial condition.Added
Natural and Human Disruptions1 | 2.0%
Natural and Human Disruptions - Risk 1
Geopolitical and economic crises could lead to increased uncertainty, large-scale selloffs of digital assets and a decline in bitcoin's value, negatively impacting our business and stock price.Changed
Capital Markets2 | 4.1%
Capital Markets - Risk 1
Bitcoin price volatility may affect our ability to effectively manage our growth plans and profitability.Changed
Capital Markets - Risk 2
Significant disruptions in the cryptocurrency markets, like those in late 2022, could materially impair the value of our mining rigs, and prolonged low bitcoin prices could force us to idle mining rigs.Added
Major disruptions in the cryptocurrency market, such as those in late 2022, could significantly impact the value of our mining equipment. In the fourth quarter of 2022, bitcoin's price fell from nearly $21,500 to a low of approximately $15,500. This decline, combined with negative market sentiment following the collapse of FTX Trading Ltd. in November 2022 and the bankruptcies and restructurings of multiple digital asset companies, caused a material decline in the fair value of our mining rigs and deposits for future mining rig purchases. As a result, we recorded a $332.9 million impairment charge for the quarter ended December 31, 2022. Similar market downturns in the future could force us to record further impairments on our current and future assets, which could negatively impact our financial condition.
Our ability to operate profitably depends heavily on bitcoin prices. If bitcoin's price drops and remains low for an extended period, we may have to consider whether it is financially viable to continue operating certain mining rigs until prices recover. There is a theoretical minimum bitcoin price below which bitcoin mining becomes uneconomical, particularly when operating costs exceed mining revenue. However, determining this threshold is complex due to the constantly changing variables involved. We operate multiple mining sites with different hosting and electricity costs, each governed by separate contract structures. If market conditions make mining unprofitable across multiple sites, we may need to shut down or scale back operations, which could reduce our revenues and negatively impact our financial performance.
Ability to Sell
Total Risks: 3/49 (6%)Below Sector Average
Competition1 | 2.0%
Competition - Risk 1
Failure to increase our hashrate may reduce our competitiveness and negatively impact our financial performance.Added
Demand1 | 2.0%
Demand - Risk 1
The adoption and long-term viability of digital asset networks is uncertain, and a decline in their growth or acceptance could negatively impact our business and the value of our stock.Added
Sales & Marketing1 | 2.0%
Sales & Marketing - Risk 1
Our interactions with the Bitcoin network may expose us to transactions with sanctioned individuals, leading to regulatory penalties and reputational harm.Added
See a full breakdown of risk according to category and subcategory. The list starts with the category with the most risk. Click on subcategories to read relevant extracts from the most recent report.
FAQ
What are “Risk Factors”?
Risk factors are any situations or occurrences that could make investing in a company risky.
The Securities and Exchange Commission (SEC) requires that publicly traded companies disclose their most significant risk factors. This is so that potential investors can consider any risks before they make an investment.
They also offer companies protection, as a company can use risk factors as liability protection. This could happen if a company underperforms and investors take legal action as a result.
It is worth noting that smaller companies, that is those with a public float of under $75 million on the last business day, do not have to include risk factors in their 10-K and 10-Q forms, although some may choose to do so.
How do companies disclose their risk factors?
Publicly traded companies initially disclose their risk factors to the SEC through their S-1 filings as part of the IPO process.
Additionally, companies must provide a complete list of risk factors in their Annual Reports (Form 10-K) or (Form 20-F) for “foreign private issuers”.
Quarterly Reports also include a section on risk factors (Form 10-Q) where companies are only required to update any changes since the previous report.
According to the SEC, risk factors should be reported concisely, logically and in “plain English” so investors can understand them.
How can I use TipRanks risk factors in my stock research?
Use the Risk Factors tab to get data about the risk factors of any company in which you are considering investing.
You can easily see the most significant risks a company is facing. Additionally, you can find out which risk factors a company has added, removed or adjusted since its previous disclosure. You can also see how a company’s risk factors compare to others in its sector.
Without reading company reports or participating in conference calls, you would most likely not have access to this sort of information, which is usually not included in press releases or other public announcements.
A simplified analysis of risk factors is unique to TipRanks.
What are all the risk factor categories?
TipRanks has identified 6 major categories of risk factors and a number of subcategories for each. You can see how these categories are broken down in the list below.
1. Financial & Corporate
- Accounting & Financial Operations - risks related to accounting loss, value of intangible assets, financial statements, value of intangible assets, financial reporting, estimates, guidance, company profitability, dividends, fluctuating results.
- Share Price & Shareholder Rights – risks related to things that impact share prices and the rights of shareholders, including analyst ratings, major shareholder activity, trade volatility, liquidity of shares, anti-takeover provisions, international listing, dual listing.
- Debt & Financing – risks related to debt, funding, financing and interest rates, financial investments.
- Corporate Activity and Growth – risks related to restructuring, M&As, joint ventures, execution of corporate strategy, strategic alliances.
2. Legal & Regulatory
- Litigation and Legal Liabilities – risks related to litigation/ lawsuits against the company.
- Regulation – risks related to compliance, GDPR, and new legislation.
- Environmental / Social – risks related to environmental regulation and to data privacy.
- Taxation & Government Incentives – risks related to taxation and changes in government incentives.
3. Production
- Costs – risks related to costs of production including commodity prices, future contracts, inventory.
- Supply Chain – risks related to the company’s suppliers.
- Manufacturing – risks related to the company’s manufacturing process including product quality and product recalls.
- Human Capital – risks related to recruitment, training and retention of key employees, employee relationships & unions labor disputes, pension, and post retirement benefits, medical, health and welfare benefits, employee misconduct, employee litigation.
4. Technology & Innovation
- Innovation / R&D – risks related to innovation and new product development.
- Technology – risks related to the company’s reliance on technology.
- Cyber Security – risks related to securing the company’s digital assets and from cyber attacks.
- Trade Secrets & Patents – risks related to the company’s ability to protect its intellectual property and to infringement claims against the company as well as piracy and unlicensed copying.
5. Ability to Sell
- Demand – risks related to the demand of the company’s goods and services including seasonality, reliance on key customers.
- Competition – risks related to the company’s competition including substitutes.
- Sales & Marketing – risks related to sales, marketing, and distribution channels, pricing, and market penetration.
- Brand & Reputation – risks related to the company’s brand and reputation.
6. Macro & Political
- Economy & Political Environment – risks related to changes in economic and political conditions.
- Natural and Human Disruptions – risks related to catastrophes, floods, storms, terror, earthquakes, coronavirus pandemic/COVID-19.
- International Operations – risks related to the global nature of the company.
- Capital Markets – risks related to exchange rates and trade, cryptocurrency.