Cipher Digital (CIFR) risk factors, FY2024 10-K

Risks Related to Our Business, Industry and Operations

1. 01To stay current with a digital assets industry that is rapidly evolving, we expect the services and products associated with them to evolve and, thus, that our business model may need to evolve
2. 02If we fail to grow our hashrate, we may be unable to compete, and our results of operations could suffer
3. 03Furthermore, predicting the growth in network hashrate is extremely difficult. To the extent that hashrate increases but the price of bitcoin does not, the results of our bitcoin mining operations would suffer
4. 04Any unfavorable global economic, business or political conditions, such as geopolitical tensions, military conflicts, acts of terrorism, natural disasters, pandemics, trade restrictions, tariffs, or similar events could adversely affect our business, financial condition and results of operations
5. 05We have concentrated our operations and, thus, are particularly exposed to the performance of the Odessa Facility and changes in the regulatory environment, market conditions and natural disasters in Texas
6. 06While our power arrangement contains fixed power prices, they also contain certain price adjustment mechanisms in case of certain events. Furthermore, a portion of our power arrangements includes merchant power prices, or power prices reflecting market movements
7. 07If we are unable to secure power supply at prices or on terms acceptable to us, it would have a material adverse effect on our business, prospects, financial condition, and operating results
8. 08Bitcoin miners and other necessary hardware are subject to malfunction, technological obsolescence and physical degradation
9. 09significant liability for us, which could harm our operating results and financial condition, and damage our reputation or otherwise materially harm our business
10. 10The value of bitcoin has historically been subject to wide swings, and our operating results may be adversely affected by our hedging activity
11. 11There is a potential that, in the event of a bankruptcy filing by a custodian, bitcoin held in custody could be determined to be property of a bankruptcy estate and we could be considered a general unsecured creditor thereof
12. 12The Bitcoin we hold is not insured and not subject to FDIC or SIPC protections
13. 13Our success and future growth, to a significant degree, depends on the skills and services of our management team. The loss of any 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
14. 14We may experience difficulties in effectively managing our growth and expanding our operations
15. 15If we fail to maintain and enhance our brand and reputation, our business, operating results and financial condition may be adversely affected
16. 16Failure to keep up with evolving trends and shareholder expectations relating to ESG businesses or reporting could adversely impact our reputation, share price and access to and cost of capital
17. 17Our compliance and risk management methods might not be effective and may result in outcomes that could adversely affect our reputation, operating results, and financial condition
18. 18If we are unable to protect the confidentiality of our trade secrets or other intellectual property rights, our business and competitive position could be harmed
19. 19Third parties may claim that we are infringing upon, misappropriating or otherwise violating their intellectual property rights, which may prevent or inhibit our operations and cause us to suffer significant litigation expense even if these claims have no merit
20. 20aspect of its business, and may result in a material loss in revenue, which could adversely affect the trading price of our shares and harm our investors
21. 21Our mining costs may be greater than our mining revenues, which could seriously harm our business and adversely impact an investment in us
22. 22Our automated processes with respect to curtailment may adversely affect our operations
23. 23Our limited insurance protection exposes us and our shareholders to the risk of loss of our bitcoin for which no person is liable
24. 24We may need to raise additional capital, which may not be available on terms acceptable to us, or at all
25. 25The storage and custody of our bitcoin assets are subject to cybersecurity breaches, hacking, fraud risks and restriction on access, and we may not have adequate sources of recovery if our bitcoin assets are lost, stolen or destroyed
26. 26The emergence or growth of other digital assets, including those with significant private or public sector backing, could have a negative impact on the price of bitcoin and adversely affect our business

Risks Related to Regulatory Framework

1. 27Regulatory changes or actions may restrict the use of bitcoin in a manner that adversely affects our business, prospects or operations
2. 28If we were deemed an “investment company” under the Investment Company Act of 1940, as amended (the “1940 Act”), applicable restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business
3. 29Finally, we believe we are not an investment company under Section 3(b)(1) of the 1940 Act because we are primarily engaged in a non-investment company business
4. 30Changing environmental regulatory and legislative developments may materially adversely affect our brand, reputation, business, results of operations and financial position
5. 31Our 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
6. 32Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our financial condition and results of operations
7. 33Our ability to use certain tax attributes may be or become subject to limitation

Risks Related to Cryptocurrency

1. 34Our sources of revenue are dependent on bitcoin and the Bitcoin ecosystem, which can be highly volatile
2. 35The loss or destruction of our private keys to our digital wallets, causing a loss of some or all of our bitcoin assets
3. 36have accounts could harm our ability to operate, result in loss of our assets, damage our reputation and negatively affect the market perception of our effectiveness, all of which could adversely affect the value of our ordinary shares
4. 37Cryptocurrency transactions are irrevocable and stolen or incorrectly transferred cryptocurrencies may be irretrievable. As a result, any incorrectly executed or fraudulent cryptocurrency transactions could adversely affect our investments and assets
5. 38Acceptance and widespread use of cryptocurrency, in general, and bitcoin, specifically, is uncertain
6. 39The open-source structure of the Bitcoin network protocol means that the contributors to the protocol are generally not directly compensated for their contributions in maintaining and developing the protocol
7. 40Significant contributors to a network for any particular digital asset, such as bitcoin, could propose amendments to the respective network’s protocols and software that, if accepted and authorized by such network, could adversely affect our business
8. 41After a hard fork, it may become easier for an individual miner or mining pool’s hashing power to exceed 50% of the processing power of the Bitcoin network, thereby making the network more susceptible to attack
9. 42The development and acceptance of cryptographic and algorithmic protocols governing the issuance of and transactions in cryptocurrencies is subject to a variety of factors that are difficult to evaluate
10. 43Banks and financial institutions may not provide banking services, or may cut off services, to businesses that provide cryptocurrency-related services or that accept cryptocurrencies as payment
11. 44A 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. We also may be unable to maintain these services for our business
12. 45Cryptocurrencies, including bitcoin, face significant scaling obstacles that can lead to high fees or slow transaction settlement times and any mechanisms of increasing the scale of cryptocurrency settlement may significantly alter the competitive dynamics in the market
13. 46The development and acceptance of competing blockchain platforms or technologies may cause consumers to use alternative distributed ledgers or other alternatives
14. 47than the remainder of the miners on the blockchain can add valid blocks. In such alternate blocks, the malicious actor or botnet could control, exclude or modify the ordering of transactions, though it could not generate new digital assets or transactions using such control
15. 48The price of cryptocurrencies may be affected by the sale of such cryptocurrencies by other vehicles investing in cryptocurrencies or tracking cryptocurrency markets
16. 49We may face risks of Internet disruptions, which could have a material adverse effect on the price of cryptocurrencies

Risks Related to Bitcoin Mining

1. 50Bitcoin is the only cryptocurrency that we currently mine and, thus, our success depends in large part upon the value of bitcoin; the value of bitcoin and other cryptocurrencies may be subject to pricing risk and has historically been subject to wide swings
2. 51Our operating results depend in large part upon the value of bitcoin because it is the only cryptocurrency that we mine. Specifically, our revenues from our bitcoin mining operations are based upon two factors: (1) the number of block rewards that we successfully mine and (2) the value of bitcoin
3. 52Rewards for successful production of bitcoin are negatively impacted by the bitcoin halving protocol expected every four years, and the supply of bitcoin is limited

Risks Related to High-Performance Compute (“HPC”)

1. 53Any potential use of emerging technologies like artificial intelligence, machine learning and generative artificial intelligence could lead to unintended consequences and result in reputational harm and litigation
2. 54Our increased focus on developing data centers for HPC hosting may not become profitable in the future and may result in adverse consequences to our business, results of operations and financial condition
3. 55Constructing data centers for HPC hosting requires significantly higher capital expenditures compared to bitcoin mining data centers, and we may be unable to secure capital or financing for our construction efforts to develop data centers for HPC hosting
4. 56The regulatory landscape surrounding HPC, artificial intelligence (“AI”) and bitcoin mining operations is evolving rapidly, and we anticipate increased scrutiny and potential regulation in the near and long term. These developments may affect our business and operations in ways that are difficult to predict
5. 57It may take significant time and expenditure to develop an HPC hosting business through continued development at our existing and planned sites, and our efforts may not be successful

Risks Related to our Common Stock and Warrants

1. 58Bitfury Group is a significant shareholder and, as such, may be able to exert influence over our strategic direction and matters submitted to our stockholders for approval
2. 59Exercise of our outstanding warrants for our common stock would increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders
3. 60There is no guarantee that our public warrants will ever be in the money, and they may expire worthless
4. 61The price of our common stock and warrants has been and may continue to be volatile
5. 62If securities or industry analysts cease publishing research or reports about us, our business or market, or if they change their recommendations regarding our securities adversely, the price and trading volume of our securities could decline
6. 63Future sales, or the perception of future sales, by our stockholders in the public market could cause the market price for our common stock to decline
7. 64Because there are no current plans to pay cash dividends on our common stock for the foreseeable future, you may not receive any return on investment unless you sell our common stock for a price greater than that which you paid for it
8. 65We may issue additional shares of our common stock or other equity securities without your approval, which would dilute your ownership interests and may depress the market price of our common stock
9. 66Anti-takeover provisions in our Certificate of Incorporation and under Delaware law could make an acquisition of Cipher, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management
10. 67We may be subject to securities litigation, which is expensive and could divert management attention