Bit Digital (BTBT) risk factors, FY2024 10-K

General Risks

1. 01We have a history of operating losses, and we may not be able to sustain profitability; we have recently shifted our emphasis from our digital assets mining business, to cloud services and HPC data centers and we may not be continuously successful in this business
2. 02Our results of operations may fluctuate significantly and may not fully reflect the underlying performance of our business
3. 03Our new services and changes to existing services could fail to attract or retain users or generate revenue and profits, or otherwise adversely affect our business
4. 04From time to time we may evaluate and potentially consummate strategic investments, combinations, joint-ventures, acquisitions or alliances, which could require significant management attention, disrupt our business and adversely affect our financial results
5. 05The loss of any member of our management team, our inability to execute an effective succession plan, or our inability to attract and retain qualified personnel could adversely affect our business
6. 06If we cannot maintain our corporate culture as we grow, we could lose the innovation, collaboration and focus that contribute to our business
7. 07We do not have any business interruption or disruption insurance coverage
8. 08Cyberattacks and security breaches of cloud services, or those impacting our third parties, could adversely impact our brand and reputation and our business, operating results, and financial condition
9. 09Our operations may be negatively affected if we are unable to obtain, develop and retain key personnel and skilled labor forces
10. 10Supply chain disruptions may adversely affect WhiteFiber’s operations
11. 11We operate in a capital-intensive industry and are subject to capital market and interest rate risks
12. 12We have an evolving business model which is subject to various uncertainties
13. 13We may be negatively impacted by future litigation, claims or investigations
14. 14Changes in tax law may negatively affect our business
15. 15Our operations could be negatively impacted by import tariffs and/or other government mandates
16. 16Our operations are subject to environmental laws and regulations that may increase costs of operations, impact or limit business plans, or expose us to environmental liabilities
17. 17General risk factors that could impact our businesses
18. 18We maintain cash deposits in excess of federally insured limits. Adverse developments affecting financial institutions, including bank failures, could adversely affect our liquidity and financial performance
19. 19Failure to manage our liquidity and cash flows may materially and adversely affect our financial conditions and results of operations. As a result, we may need additional capital, and financing may not be available on terms acceptable to us, or at all
20. 20Our cash balances are held at a number of financial institutions that expose us to their credit risk
21. 21Our cloud service technology and infrastructure may not operate properly or as we expect them to, which could cause us to incur fines and monetary penalties, adversely affecting our business, results of operations, and financial condition
22. 22Regulators may limit our ability to develop or implement our cloud service technology and infrastructure and/or may eliminate or restrict the confidentiality of our technology, which could have a material adverse effect on our business, financial condition and results of operations
23. 23Cloud service technology and infrastructure may not operate properly or as we expect them to, which could cause us to incur fines and monetary penalties adversely affecting our business, results of operations and financial condition
24. 24Regulators may limit our ability to develop or implement our cloud services technology and infrastructure and/or may eliminate or restrict the confidentiality of our technology, which could have a material adverse effect on our financial condition and results of operations
25. 25We use certain open source technology in our business. We may face claims from open source licensors claiming ownership of, or demanding the release of, the technology and any other intellectual property that we developed using or derived from such open-source technology
26. 26Impact of advancements in artificial intelligence on demand for AI and HPC data centers may reduce the need for high-performance computing (HPC) and AI-specific data center infrastructure, which could have an adverse effect on our business, results of operations, and financial condition
27. 27Our cloud services business is subject to complex and evolving U.S. and foreign laws and regulations regarding AI, machine learning, and automated decision making
28. 28Our ongoing investment in new cloud services, and technologies is inherently risky, and could divert management attention and harm our business, financial condition, and operating results
29. 29Regulatory restrictions that target AI, including, but not limited to, export restrictions may have a material adverse impact on our intended operations
30. 30Issues in the development and use of AI may result in reputational or competitive harm or liability
31. 31Our business may be adversely affected by future changes in the European Union’s regulations related to AI, which could be reflected in Icelandic and European Union countries’ domestic laws and regulations

Risks Related to Our Data Center Operations

1. 32We are at an early stage of development of our business, currently have limited sources of revenue, and may not become profitable in the future
2. 33We may be unable to access sufficient additional capital needed to grow our business
3. 34We are subject to a highly evolving regulatory landscape and any adverse changes to or our colocation customers’ failure to comply with any laws or regulations could adversely affect our business, prospects or operations
4. 35Our business depends upon the demand for data centers
5. 36Our business has and is expected to continue to have significant customer concentration
6. 37During 2024, our HPC data center in Iceland had contracts with three customers. Our initial customer has accounted for almost 100% of our revenues through December 31, 2024
7. 38Failure to attract, grow and retain a diverse and balanced customer base, could adversely affect our business and operating results
8. 39We depend upon third-party suppliers for power, and we are vulnerable to service failures and price increases by such suppliers and to volatility in the supply and price of power in the open market
9. 40We depend on third parties to provide network connectivity to the customers in our data centers and any delays or disruptions in connectivity may materially adversely affect our operating results and cash flow
10. 41Any failure of our physical or information technology or operational technology infrastructure or services could lead to significant costs and disruptions
11. 42Any disruption of service experienced by certain of our third-party service providers, or our ineffective management of relationships with third-party service providers could harm our business, financial condition, operating results, cash flows and prospects
12. 43Any delays or unexpected costs in the development of any new properties acquired for development may delay and harm our growth prospects, future operating results and financial condition
13. 44If we incorrectly estimate our hosting capacity requirements and related capital expenditures, our results of operations could be adversely affected
14. 45Certain natural disasters or other external events, including climate change or mechanical failures, could harm our business, financial condition, results of operations, cash flows, and prospects
15. 46If we fail to effectively manage our growth, our business, financial condition and results of operations could be harmed
16. 47Even if we have additional space available for lease at any one of our data centers, our ability to lease this space to existing or new customers could be constrained by our ability to provide sufficient electrical power
17. 48Increased scrutiny and changing expectations from stakeholders with respect to our environmental, social, and governance (“ESG”) practices and the impacts of climate change may result in additional costs or risks
18. 49Our operating results have fluctuated due to the highly volatile nature of digital assets
19. 50Unfavorable Digital Asset Market Conditions
20. 51We may be unable to raise additional capital needed to grow our business
21. 52Our mining operating costs outpace our mining revenues, which could seriously harm our business or increase our losses
22. 53The properties included in our mining network may experience damage, including damage that is not covered by insurance
23. 54As a result of the bankruptcy filing by Compute North on September 22, 2022, as described above, we have experienced service disruptions
24. 55If our Hosting Agreements with the current hosting service providers in the U.S. and Canada are terminated, we may be forced to seek a replacement facility to operate our miners on acceptable terms; should this occur, our operations may be disrupted, which may have a material adverse effect on our operations
25. 56The development and acceptance of cryptographic and algorithmic protocols governing the issuance of and transactions in digital assets is subject to a variety of factors that are difficult to evaluate
26. 57Banks and financial institutions may not provide banking services, or may cut off services, to businesses that engage in cryptocurrency-related activities or that accept digital assets as payment, including financial institutions of investors in our securities
27. 58We may suffer significant and adverse effects due to hacking or one or more adverse software events
28. 59The impact of geopolitical and economic events on the supply and demand for digital assets is uncertain
29. 60Acceptance and/or widespread use of bitcoin is uncertain
30. 61Transactional fees may decrease demand for bitcoin and prevent expansion
31. 62There is a lack of liquid markets for digital assets, and blockchain/bitcoin-based assets are susceptible to potential manipulation
32. 63Our operations, investment strategies and profitability may be adversely affected by competition from other methods of investing in digital assets
33. 64The development and acceptance of competing blockchain platforms or technologies may cause consumers to use alternative distributed ledgers or other alternatives
34. 65Our digital assets may be subject to loss, theft or restriction on access
35. 66Bitcoin transactions are irrevocable and stolen or incorrectly transferred digital assets may be irretrievable. As a result, any incorrectly executed or fraudulent bitcoin transactions could adversely affect our investments and assets
36. 67Our reliance primarily on a few models of miners may subject our operations to increased risk of mining failure
37. 68The Company’s reliance on a third-party mining pool service provider for our mining revenue payouts may have a negative impact on the Company’s operations
38. 69The limited rights of legal recourse available to us and our lack of insurance protection for risk of loss of our digital assets exposes us and our shareholders to the risk of loss of our digital assets for which no person may ultimately be held liable and we may not be able to recover our losses
39. 70Digital assets face significant scaling obstacles that can lead to high fees or slow transaction settlement times
40. 71The price of digital assets may be affected by the sale of such digital assets by other vehicles investing in digital assets or tracking bitcoin markets
41. 72There are risks related to technological obsolescence, the vulnerability of the global supply chain for bitcoin hardware disruption, and difficulty in obtaining new hardware which may have a negative effect on our business
42. 73The bitcoin we mine is subject to halving; the bitcoin reward for successfully uncovering a block will halve several times in the future and bitcoin’s value may not adjust to compensate us for the reduction in the rewards we receive from our mining efforts
43. 74The impact of social media and influencers on the price for digital assets is uncertain
44. 75We may not be able to realize the benefits of forks
45. 76There is a possibility of bitcoin mining algorithms transitioning to proof of stake validation and other mining related risks, which could make us less competitive and ultimately adversely affect our business and the value of our shares
46. 77If a malicious actor or botnet obtains control of more than 50% of the processing power on a bitcoin network, or 33% or more share of the Ethereum Validators, such actor or botnet could manipulate blockchains to adversely affect us, which would adversely affect an investment in us or our ability to operate
47. 78We are subject to risks associated with our need for significant electrical power. Government regulators may potentially restrict the ability of electricity suppliers to provide electricity to mining operations, such as ours
48. 79We may not adequately respond to price fluctuations and rapidly changing technology, which may negatively affect our business
49. 80The value of stable coins that we hold may be subject to volatility and risk of loss
50. 81Risks Associated with Staking on Ethereum 2.0
51. 82Risks under the Federal securities laws associated with Staking
52. 83Speculative and Volatile Nature of ETH
53. 84Development of the Ethereum Platform
54. 85Uncertainty Regarding the Growth of Blockchain and Web 3 Technologies
55. 86Potential Decrease in Global Demand for ETH
56. 87Dependence on Ethereum Network Developers
57. 88Issues with the Cryptography Underlying the Ethereum Network
58. 89Disputes on the Development of the Ethereum Network may lead to Delays in the Development of the Network
59. 90The Ethereum Blockchain may Temporarily or Permanently Fork and/or Split
60. 91Risk if a Person Gains a 33% or More Share of the Ethereum Validators
61. 92Dependence on the Internet
62. 93Attacks on the Ethereum Network
63. 94Decrease in Block Reward or Yield
64. 95Competitors to ETH and the Ethereum Network
65. 96Financial Institutions may Refuse to Support Transactions Involving ETH

Risks Related to United States Government Regulations

1. 97We are subject to governmental regulation and other legal obligations related to data privacy, data protection and information security. If we are unable to comply with these, we may be subject to governmental enforcement actions, litigation, fines and penalties or adverse publicity
2. 98Existing and increasing legal and regulatory requirements could adversely affect our results of operations
3. 99We are subject to extensive environmental, health and safety laws and regulations that may expose us to significant liabilities for penalties, damages or costs of remediation or compliance
4. 100Failure to comply with anti-corruption and anti-money laundering laws, including the Foreign Corrupt Practices Act (the “FCPA”) and similar laws associated with our activities outside of the United States, could subject us to penalties and other adverse consequences
5. 101New York State Moratorium on Cryptocurrency Mining Operations
6. 102The regulatory and legislative developments related to climate change, may materially adversely affect our brand, reputation, business, operating results and financial condition
7. 103Enactment of the Infrastructure Investment and Jobs Act of 2021 (the “Infrastructure Act”) may have an adverse impact on our business and financial condition

Risks related to material pending crypto legislation or regulations

1. 104Our interactions with a blockchain and mining pools may expose us to SDN or blocked persons or cause us to violate provisions of law that did not contemplate distributive ledger technology
2. 105Current regulation of the exchange of bitcoins under the CEA by the CFTC is unclear; to the extent we become subject to regulation under the CFTC in connection with our exchange of bitcoin, we may incur additional compliance costs, which may be significant
3. 106Because there has been limited precedent set for financial accounting of bitcoin and other digital assets, the determination that we have made for how to account for bitcoin and other digital assets transactions may be subject to change

Risks Related to Previously Operating in China

1. 107We may be subject to fines and penalties for operating in China without registration
2. 108We may be subject to fines and penalties for our prior mining activities in mainland China
3. 109We may be subject measures from the Cyberspace Administration of China concerning the collection of data and required to obtain clearance from the CAC
4. 110Currently, we have not been involved in any investigations on cybersecurity review initiated by the CAC or related governmental regulatory authorities, and we have not received any inquiry, notice, warning, or sanction in such respect
5. 111United States regulators may be limited in their ability to conduct investigations or inspections of our operations in Hong Kong
6. 112Our Hong Kong subsidiaries could become subject to certain PRC laws if such laws are applied to Hong Kong
7. 113However, due to changes in laws, regulations or policies, including how these laws, regulations or policies would be interpreted or implemented, the national laws applicable in Hong Kong in the Basic Law might be revised in the future
8. 114Enhanced scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on the indirect transfer of equity in the past and potential acquisitions we may pursue in the future

Risks Related to Singapore Government Regulations

1. 115Regulations on Payment Services in Singapore
2. 116Regulations on Anti-money Laundering and Countering the Financing of Terrorism (“AML/CFT”)
3. 117We may not be able to prevent others from unauthorized use of our intellectual property, which could harm our business and competitive position
4. 118In our cloud service business, customers often make advance payments to finance the equipment they intend to purchase from us. If we are unable to meet the contract requirements or deliver GPU clusters to their satisfaction for any reason, we may be obligated to refund these deposits
5. 119Various actual and potential conflicts of interest may be detrimental to stockholders
6. 120We may depend upon outside advisors who may not be available on reasonable terms as needed
7. 121The nature of our business requires the application of complex financial accounting rules, and there is limited guidance from accounting standard setting bodies. If financial accounting standards undergo significant changes, our operating results could be adversely affected

Risks Related to Our Ordinary Shares

1. 122Our Chief Financial Officer and Chairman currently have voting power to control all significant corporate actions
2. 123We may be unable to comply with the applicable continued listing requirements of the Nasdaq Capital Market, which may adversely impact our access to capital markets and may cause us to default certain of our agreements
3. 124If securities or industry analysts do not publish research or publish unfavorable research about our business, our share price and trading volume could decline
4. 125Our Ordinary Shares may be thinly traded, and you may be unable to sell at or near ask prices or at all if you need to sell your shares to raise money or otherwise desire to liquidate your shares
5. 126We defended and settled a securities class action litigation which resulted in significant costs for the Company
6. 127We have not paid Ordinary Share dividends in the past and do not anticipate paying cash dividends in the foreseeable future
7. 128You may face difficulties in protecting your interests as a shareholder, as Cayman Islands law provides less protection when compared to the laws of the United States and it may be difficult for a shareholder of ours to effect service of process or to enforce judgements obtained in the U.S. courts
8. 129You may experience difficulties in effecting service of legal process and enforcing judgments against us and our management, and the ability of U.S. authorities to bring actions abroad
9. 130Passive income generally includes dividends, interest, rents and royalties (other than rents or royalties derived from the active conduct of a trade or business) and gains from the disposition of passive assets
10. 131As of January 1, 2025, we were no longer a foreign private issuer and we are required to comply with the provisions of the Exchange Act, and the rules of Nasdaq, applicable to U.S. domestic issuers, which will continue to require us to incur significant expenses and expend time and resources