Published on : Nov 11, 2022
BTCS Inc. (Nasdaq: BTCS) (“BTCS” or the “Company”), a blockchain technology-focused company, announced results for the third quarter ending September 30, 2022.
Third Quarter 2022 Financial Highlights
Revenue for the first nine months of 2022 rose 83% to $1.4 million compared to $0.8 million for the same period in 2021. However, revenue decreased by 33% from the second quarter of 2022 to $0.3 million for the third quarter of 2022. The revenue decline is a result of Digital Asset prices remaining depressed throughout the quarter after crypto markets hit a 2022 low in mid-June.
Despite a 12% reduction in validator expenses quarter over quarter through the implementation of streamlined operations, gross margins for Q3 2022 decreased slightly to 76%, down from Q2 2022’s 82% gross margin. This was a result of a decline in Digital Asset prices. Gross margins were 78% for the first nine months of 2022, down from 81% during the same period in 2021.
U.S. GAAP (“GAAP”) net loss for the quarter decreased to $1.0 million ($0.08 per share) compared to $7.7 million in Q2 2022 and $3.9 million for Q3 2021. GAAP net loss for the nine months ended September 30, 2022, decreased to $14.5 million ($1.15 per share) compared to $20.5 million GAAP net loss for the respective period ended September 30, 2021. BTCS’s net loss is primarily driven by non-cash charges related to the impairment of Digital Assets, as GAAP requires us to impair our Digital Assets to their lowest price since acquisition. Under GAAP, there is no ability to mark Digital Assets up if prices rebound. Digital Asset impairment charges during Q3 2022 quarter amounted to $145,000 compared to $8.9 million in Q2 2022 and $3.3 million in Q1 2022, highlighting the impact of the crypto market’s decline throughout the year on our financial statements. Digital Asset impairment for the nine months ended September 2022 totaled $12.4 million compared to $3.7 million in the respective period ended September 30, 2021.
The fair value of BTCS’s Digital Assets rebounded 24% from June 30, 2022, to $14.8 million as of September 30, 2022. As of September 30, 2022, the Company had $2.9 million in cash.
“BTCS’ management team saw early potential in next-generation blockchains resulting in a strategic shift from Bitcoin to these networks starting with Ethereum. Our focus is on next-gen blockchains that leverage proof-of-stake consensus mechanisms. We seek to capitalize on the multi-billion dollar staking market opportunity and upward trend, which our SaaS platform is being developed to capture. We are optimistic about the operational progress of our integrated analytics and staking-as-a-service platform”, said Michael Prevoznik, Chief Financial Officer of BTCS.
“BTCS has been resilient despite macroeconomic headwinds to both traditional and crypto markets during the third quarter. Our management team is centered on effectively executing our strategic initiatives with a low-cost philosophy while ensuring we maintain a strong balance sheet and drive long-term value for our shareholders”, stated Charles Allen, Chief Executive Officer of BTCS. “The economic environment may be contributing to our stock being traded at a discount to the fair market value of our crypto holdings and cash balances as of November 10th, 2022. With no debt or significant liabilities, we believe BTCS is a value play for investors looking for diversified exposure to cryptocurrency in the midst of a crypto winter”, added Allen.
“In light of recent news surrounding FTX, we would like to confirm that BTCS has no exposure to FTX and only 1% of our Digital Assets are held on exchanges, which limits our counterparty risk. Our priority continues to be focused on non-custodial staking where users control and maintain their own private keys while safeguarding their assets”, stated Michael Prevoznik, Chief Financial Officer of BTCS.
Industry and Business Highlights
During the third quarter, the Fed took aggressive measures to control inflation by raising interest rates again. Market volatility continues to impact the economy negatively. With an economic recession looming, we have focused on cost-cutting measures while continuing to allocate funds to R&D for our integrated analytics and Staking-as-a-Service business. With interest rates rising and equity markets underperforming digital assets have become an increasingly attractive way for investors seeking alternative solutions to hedge against inflation and further diversify their portfolios.
Following a challenging first half of 2022, the cryptocurrency markets saw a rebound during the third quarter, with Ethereum’s price increasing by 27% compared to only 3% for Bitcoin with both outperforming the S&P 500, which was down about 5%. However, crypto prices remain well below early 2022 levels, indicating we are still in the middle of a “crypto winter.” Despite current stock and crypto market conditions, there are several signs of optimism in the crypto segment. Blockchain and Web 3 application development and the number of users has seen exponential growth during 2022. Additionally, traditional institutions have demonstrated an increasingly rapid embrace of crypto, as headlined by Nasdaq’s announcement of its new digital assets custody business, as well as several other recent announcements.
In September 2022, the success of the Ethereum merge was a catalyst in the industry for other blockchain network upgrades. The transition from proof-of-work to proof-of-stake was smooth and, according to Bitwise Asset Management, resulted in a significant drop in Ethereum’s carbon footprint by more than 99%, cutting global energy consumption by 0.2% post-merge. The Merge also brought industry awareness, highlighted segment growth opportunities, and emphasized the benefits of proof-of-stake consensus mechanisms for blockchain protocols. The Ethereum Merge and continued growth in crypto adoption are positive indicators for the value of our Digital Assets, especially Ethereum, which continues to be our largest holding and source of staking recurring revenue.
BTCS has long believed in the innovative and disruptive power of next-generation blockchains and continues to focus on expanding our blockchain infrastructure and staking operations to secure and support the various protocols we’ve invested in thus far.