Twenty One Capital (XXI) risk factors, FY2025 10-K

Risks Related to the Business and Strategy of Twenty One Capital

1. 01Twenty One Capital has limited operating history and has not yet produced any revenues, which make it difficult to evaluate Twenty One Capital’s business and future prospects, and Twenty One Capital may not be able to achieve or maintain profitability in any given period
2. 02Twenty One Capital may not be able to successfully execute its business strategies
3. 03The occurrence of any of these factors could adversely affect our Bitcoin acquisition strategy
4. 04Twenty One Capital’s operating results, revenues and expenses may significantly fluctuate, including due to the highly volatile nature of Bitcoin, which could have an adverse effect on the market price of Class A Common Stock
5. 05As a result of these factors, it is difficult for us to forecast growth trends accurately and our business and future prospects are difficult to evaluate, particularly in the short term
6. 06Our Bitcoin acquisition strategy exposes us to various risks associated with Bitcoin
7. 07A significant decrease in the market value of our Bitcoin holdings could adversely affect our ability to satisfy our financial obligations
8. 08If we are unable to compete successfully, or if competing successfully requires us to take costly actions in response to the actions of our competitors, our business, operating results and financial condition could be adversely affected
9. 09We may suffer losses due to abrupt and erratic market movements
10. 10The emergence or growth of other digital assets, including those with significant private or public sector backing, including by governments, consortiums or financial institutions, could have a negative impact on the price of Bitcoin and adversely affect Twenty One Capital’s business
11. 11The Company is highly dependent on the services of Jack Mallers, who is our Chief Executive Officer and President
12. 12The Company relies on Tether, which has a controlling interest in the Company, for certain administrative and operational services
13. 13Twenty One Capital’s Bitcoin holdings are less liquid than its cash and cash equivalents and may not be able to serve as a source of liquidity for Twenty One Capital
14. 14Our limited insurance protection exposes us and our shareholders to the risk of loss of our Bitcoin for which no person is liable
15. 15The accounting treatment of our Bitcoin holdings is likely to have significant accounting impacts, including volatility of our results. If financial accounting standards undergo significant changes, our operating results could fluctuate
16. 16Bitcoin and other forms of digital assets are relatively novel and have been the source of much regulatory uncertainty, resulting in differing definitional outcomes without a single unifying statement, which subjects them to significant uncertainty that could adversely impact their price
17. 17Regulatory changes classifying Bitcoin as a “security” could lead to Twenty One Capital’s classification as an “investment company” under the Investment Company Act and could adversely affect the market price of Bitcoin and the market price of shares of Class A Common Stock
18. 18Mutual funds, ETFs and their directors and management are subject to extensive regulation as “investment companies” and “investment advisers” under U.S. federal and state law; this regulation is intended for the benefit and protection of investors
19. 19Twenty One Capital’s compliance and risk management methods might not be effective and may result in outcomes that could adversely affect Twenty One Capital’s reputation, operating results and financial condition
20. 20We plan to accelerate Bitcoin adoption and Bitcoin literacy. We have not previously engaged in the business of online learning programs and educational content, and growing these operations could be difficult for us, including, without limitation, due to operational challenges and significant competition
21. 21The only digital asset held by the Company is Bitcoin
22. 22The price of Bitcoin on available spot markets may be exposed to wash trading
23. 23The price of Bitcoin on available spot markets may be exposed to front-running
24. 24Bitcoin is susceptible to various types of malicious attacks, including a “51% attack” and such an attack, even temporarily, could adversely impact the price of Bitcoin and the value of shares of Class A Common Stock
25. 25If any of these exploitations or attacks occur, it could result in a loss of public confidence in Bitcoin and a decline in the value of Bitcoin and, as a result, adversely impact shares of Class A Common Stock
26. 26Twenty One Capital’s business activities may be subject to review or approval by regulatory authorities pursuant to certain U.S. or foreign laws or regulations
27. 27Third parties may claim we infringe their intellectual property rights

Risks Related to Being a Public Company

1. 28Twenty One Capital’s ability to timely raise capital in the future may be limited, or may be unavailable on acceptable terms, if at all. Twenty One Capital’s failure to raise capital when needed could harm its business, operating results and financial condition
2. 29The issuance of additional shares or convertible securities by the Company could make it difficult for another company to acquire Twenty One Capital, may dilute the ownership of Twenty One Capital shareholders and could adversely affect the price of Class A Common Stock
3. 30Future resales of Class A Common Stock may cause the market prices of Twenty One Capital’s securities to drop significantly, even if Twenty One Capital’s business is doing well
4. 31The Company incurs significant costs as a result of being a public company, including additional legal, accounting, insurance and other expenses, as well as costs associated with public company reporting requirements
5. 32Twenty One Capital’s management team has limited experience managing and operating a U.S. public company
6. 33If Twenty One Capital is unable to maintain an effective system of internal controls and compliances, its business and reputation could be adversely affected
7. 34Twenty One Capital’s failure to timely and effectively implement controls and procedures required by Section 404(a) of the Sarbanes-Oxley Act could have a material adverse effect on its business, financial condition, results of operations, cash flow and prospects
8. 35The Company is an “emerging growth company” and a “smaller reporting company”. The reduced public company reporting requirements applicable to emerging growth companies may make Class A Common Stock less attractive to investors
9. 36Additionally, the Company qualifies as a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K promulgated by the SEC. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements
10. 37If securities or industry analysts do not publish research or reports about Twenty One Capital’s business or publish negative reports, the market price of Class A Common Stock could decline
11. 38The Company’s Amended and Restated Certificate of Formation includes (a) an exclusive forum provision, which could limit a shareholder’s ability to obtain a favorable judicial forum for disputes with the Company or its directors, officers or other employees and (b) a jury trial waiver for any “internal entity claim”

Risks Related to Ownership of Company Stock

1. 39Tether and Bitfinex, through their voting control of Twenty One Capital, are in a position to control actions that require shareholder approval and may make decisions that are adverse to other shareholders
2. 40Volatility in Twenty One Capital’s share price could subject the Company to securities class action litigation
3. 41Reports published by analysts, including projections in those reports that differ from Twenty One Capital’s actual results, could adversely affect the price and trading volume of Company Stock
4. 42Twenty One Capital may or may not pay cash dividends in the foreseeable future
5. 43Twenty One Capital is a controlled company under applicable securities exchange rules and expects to avail itself of applicable exemptions from the corporate governance requirements thereof

Risks Related to the Convertible Notes

1. 44Twenty One Capital’s indebtedness could adversely affect our financial condition and prevent us from fulfilling our obligations under the Convertible Notes and could have a further material adverse effect on our business, financial condition and results of operations
2. 45Twenty One Capital’s obligation to offer to redeem the Convertible Notes upon the occurrence of a Fundamental Change will be triggered only by certain specific transactions, and may discourage a transaction that could be beneficial to the holders of Class A Common Stock and the Convertible Notes
3. 46The Indenture contains terms which restrict Twenty One Capital’s current and future operations, particularly its ability to respond to changes or to take certain actions
4. 47These restrictions may affect our ability to expand our business, which could have a material adverse effect on our business, financial condition and results of operations
5. 48Our obligation to repurchase the Convertible Notes at the Convertible Note Investors’ option could significantly strain our liquidity and financial condition
6. 49The increase in the conversion rate applicable to the Convertible Notes that holders convert in connection with a Make-Whole Fundamental Change or Notice of Redemption may not adequately compensate you for the lost option time value of your Convertible Notes as a result of that Make-Whole Fundamental Change
7. 50Liquidity, regulatory actions, changes in market conditions and other events may adversely affect the trading price and liquidity of the Convertible Notes and the ability of investors to implement a convertible note arbitrage trading strategy
8. 51Under the Convertible Notes, a converting holder will be exposed to fluctuations in the value of Class A Common Stock during the period from the date such holder surrenders Convertible Notes for conversion until the date we settle our conversion obligation
9. 52The Indenture contains cross-default provisions that could result in the acceleration of all of Twenty One Capital’s indebtedness
10. 53A lowering or withdrawal of the ratings assigned to Twenty One Capital’s debt securities by rating agencies, if any, may increase Twenty One Capital’s future borrowing costs and reduce its access to capital
11. 54There is no existing public trading market for the Convertible Notes, and a holder of the Convertible Notes ability to sell such notes will be limited
12. 55The accounting method for convertible debt securities that may be settled in cash, including the Convertible Notes, may have a material effect on Twenty One Capital’s reported financial results
13. 56The market price of the Class A Common Stock, which may fluctuate significantly, may directly affect the market price for the Convertible Notes
14. 57As a holder of the Convertible Notes, you will not be entitled to any rights with respect to the Class A Common Stock, but you will be subject to all the changes made with respect to the Class A Common Stock
15. 58The Convertible Notes are convertible into Class A Common Stock, which will not be entitled to voting rights even after the Convertible Notes are converted. As a result, you will be subject to all the risks associated with holding Class A Common Stock
16. 59Federal and state fraudulent transfer laws may permit a court to void the Convertible Notes and, if that occurs, the Convertible noteholders may not receive any payments on the Convertible Notes
17. 60The conversion rate of the Convertible Notes may not be adjusted for all dilutive events that may occur

Risks Related to Taxation

1. 61You may be subject to tax if we adjust, or fail to adjust, the conversion rate of the Convertible Notes, even though you will not receive a corresponding cash distribution
2. 62Unrealized fair value gains on our Bitcoin holdings could cause us to become subject to the corporate alternative minimum tax under the Inflation Reduction Act of 2022