BTCS INC. Administration’s Dialogue and Evaluation of Monetary Situation and Outcomes of Operations. (type 10-Q)

The next dialogue and evaluation of monetary situation and outcomes of
operations must be learn along side our historic monetary
statements and the notes to these statements that seem elsewhere on this
report. Sure statements within the dialogue include forward-looking statements
based mostly upon present expectations that contain dangers and uncertainties, comparable to
plans, aims, expectations and intentions. Precise outcomes and the timing of
occasions might differ materially from these anticipated in these forward-looking
statements because of a variety of elements, together with these mentioned within the
Danger Components contained in our Annual Report on Kind 10-Okay for the yr ended
December 31, 2021. After we confer with the "2022 Quarter" and the "2021 Quarter" we
are referring to the three months ended June 30, 2022 and June 30, 2021
quarters, respectively. Additional, once we confer with the "2022 Interval" and the
"2021 Interval" we're referring to the six months ended June 30, 2022 and June
30, 2021 intervals, respectively. Moreover, the twelve months ending December
31, 2022 is known as "Fiscal 2022."



Overview



BTCS is an early entrant within the Digital Asset market and one of many first U.S.
publicly-traded firms to give attention to Digital Property and blockchain
applied sciences. By our blockchain-infrastructure operations, we safe
disruptive next-generation blockchains and function validator nodes on numerous
proof of stake-based blockchain networks, incomes rewards of extra Digital
Property by actively validating transactions on the networks. Whereas this course of
is much like Bitcoin mining the consensus mechanism is completely different. Now we're
constructing on the muse of our pre-established infrastructure with the
growth of a Digital Asset Platform. The primary characteristic of the dashboard,
which is an open beta, permits customers to guage their Digital Asset portfolios
from a number of exchanges on a single platform. We are also creating and plan to
combine into the platform a Staking-as-a-Service characteristic that, as soon as launched,
will enable customers to take part in asset leveraging by way of securing blockchain
protocols.



Blockchain Infrastructure



Blockchain infrastructure operations can broadly be outlined as incomes a reward
for securing a blockchain by validating transactions on that blockchain. There
are presently two most important consensus mechanisms used to safe blockchains: i)
proof-of-work ("PoW"), during which nodes dedicate computational assets, and ii)
proof-of-stake ("PoS"), during which nodes dedicate monetary assets. The
intention behind each PoW and PoS is to make it virtually unimaginable for any
single malicious actor to have sufficient computational energy or possession stake to
efficiently assault the blockchain.



Within the case of PoW, a miner does "work" utilizing energy-consuming computer systems and is
rewarded for this "work" with Digital Property. The miner, usually by way of swimming pools
operating nodes, validates transactions on the blockchain, primarily changing
electrical energy and computing energy right into a digital forex reward comprised of
transaction charges and newly-minted Digital Property. Bitcoin is an instance of PoW
and is by far the biggest and most safe PoW blockchain.



PoS miners, also known as validators in PoS methods, actively function
nodes and validate transactions. Validators are required to stake holdings of a
digital forex to take part within the consensus algorithm and are rewarded in
tokens for aligning conduct with the foundations of the algorithm. Dangerous conduct can
be penalized by "slashing" the validator's holdings and/or rewards. Validators
may also be faraway from the community for breaking the foundations. In poor health-intentioned
conduct amongst validators is discouraged, permitting for the blockchain to be
correctly maintained and secured. In comparison with PoW, PoS blockchains require much less
power.



Relying on the PoS blockchain protocol, native token holders have the
alternative to leverage their asset holdings by both operating their very own
validator ("Validating") or delegating their rights to a validator ("Delegating"
or "Staking"). With Delegating or Staking, token holders not directly take part
in blockchain networks by sustaining management of their non-public keys and
delegating their tokens to an present validator. Subsequently, Delegating is extra
akin to assigning voting rights of inventory to a different particular person or entity through an influence
of lawyer. With Validating, a node operator and token holder mix tokens in
order to enhance the node's collective odds of incomes token rewards for
efficiently validating new transactions and blocks on the community. With each
Delegating and Validating, the validator operators earn a charge for offering the
technical capabilities of operating a node 24/7 that requires common, energetic
upkeep and trade experience.



BTCS makes use of its blockchain infrastructure to function validator nodes on numerous
proof of stake-based blockchain networks. In reference to the validation of
transactions occurring on these blockchain networks, BTCS will stake the Digital
Property native to these blockchains on the validator nodes it operates so as
to earn staking rewards. BTCS may use its blockchain infrastructure to
validate and signal transactions on behalf of shoppers that delegate their
validation and voting rights to BTCS-operated validator nodes (known as
"Staking-as-a-Service" or "SaaS").



A SaaS supplier maintains an energetic function in validating transactions on a given
PoS community on behalf of its delegators by (1) arranging transactions utilizing
software program to stake the related Digital Property; (2) monitoring the nodes it's
working to make sure they continue to be on-line, able to validate transactions; and (3)
verifying transactions on the community when required to earn rewards.



21







Aside from Ethereum, the entire Firm's Digital Asset holdings are in tokens
secured by PoS or related consensus mechanisms that enable for Delegating and
asset leveraging. The Firm is presently actively working validator nodes on
Ethereum's Beacon Chain, Cosmos, Kava, Tezos, Avalanche, Kusama, Polygon and
Cardano. The Firm has additionally staked the next tokens Polkadot, Algorand,
Axie Infinity and Solana. Constructing on that base, the Firm plans to broaden its
PoS operations to safe different disruptive blockchain protocols that additionally enable
for delegating.



The Firm believes its blockchain infrastructure efforts will type the core
progress for its Digital Asset Platform. The Firm makes use of cloud infrastructure
to function and run its validator nodes and doesn't preserve its personal bodily
belongings, however could add this infrastructure sooner or later.



The Firm presently holds the next Digital Property that are core to its
blockchain infrastructure efforts. The desk additionally contains Bitcoin which isn't
core to our infrastructure operations.

Digital Property Held at Interval Finish

Asset                  2021Q2        2021Q3        2021Q4        2022Q1        2022Q2
Bitcoin (BTC)                90            90            90            90             -
Ethereum (ETH)            7,879         7,992         8,098         8,196         8,283
Cardano (ADA)           257,757       257,757       257,757       257,757       260,555
Kusama (KSM)                123           374           374         5,278         5,550
Tezos (XTZ)              14,966        24,172        24,504        70,453        71,369
Solana (SOL)                            4,788         4,779         7,043         7,136
Polkadot (DOT)                          8,032         8,032        38,816        39,986
Terra (LUNA)                            3,584         3,584         3,621             -
Cosmos (ATOM)                           3,072         3,072        80,474        86,613
Polygon (MATIC)                        67,114        67,114       454,486       466,022
Avalanche (AVAX)                        2,025         2,073        14,273        14,594
Algorand (ALGO)                        50,584        51,103        51,197        51,201

Axie Infinity (AXS)                                                22,322  

     31,763
Kava (KAVA)                                                       183,966       264,917




22

Truthful Market Worth of Digital Property at Interval Finish

Asset                             2021Q2           2021Q3           2021Q4           2022Q1           2022Q2
Bitcoin (BTC)                  $  3,153,675     $  3,941,180     $  4,167,579     $  4,098,481     $          -
Ethereum (ETH)*                $ 17,920,148     $ 23,990,541     $ 29,820,477     $ 26,894,723     $  8,840,595
Cardano (ADA)                  $    356,600     $    545,028     $    337,716     $    294,320     $    119,555
Kusama (KSM)                   $     26,501     $    123,957     $    103,866     $    992,851     $    267,583
Tezos (XTZ)                    $     45,495     $    146,914     $    106,679     $    262,023     $    101,102
Solana (SOL)                                    $    675,373     $    813,791     $    863,854     $    239,700
Polkadot (DOT)                                  $    229,558     $    214,616     $    826,875     $    281,496
Terra (LUNA)                                    $    138,351     $    306,353     $    373,005     $          -
Cosmos (ATOM)                                   $    111,252     $     99,761     $  2,325,374     $    651,909
Polygon (MATIC)                                 $     75,644     $    169,604     $    735,034     $    222,466
Avalanche (AVAX)                                $    135,191     $    226,499     $  1,383,403     $    247,059
Algorand (ALGO)                                 $     82,381     $     84,830     $     47,492     $     16,115
Axie Infinity (AXS)                                                               $  1,416,264     $    461,649
Kava (KAVA)                                                                       $    828,742     $    468,634
Whole                          $ 21,502,420     $ 30,195,370     $ 36,451,772     $ 41,342,441     $ 11,917,863
QoQ Change                                7 %             40 %             21 %             13 %            -71 %
YoY Change                             2013 %           1780 %            825 %            105 %            -45 %

* Roughly 9 ETH is just not staked.

23

Costs of Digital Property at Interval Finish

Asset                  2021Q2       2021Q3       2021Q4       2022Q1       2022Q2
Bitcoin (BTC)         $ 35,041     $ 43,791     $ 46,306     $ 45,539     $ 19,785
Ethereum (ETH)        $  2,275     $  3,002     $  3,683     $  3,282     $  1,067
Cardano (ADA)         $   1.38     $   2.11     $   1.31     $   1.14     $   0.46
Kusama (KSM)          $    215     $    331     $    278     $    188     $     48
Tezos (XTZ)           $   3.04     $   6.08     $   4.35     $   3.72     $   1.42
Solana (SOL)                       $    141     $    170     $    123     $     34
Polkadot (DOT)                     $  28.58     $  26.72     $  21.30     $   7.04
Terra (LUNA)                       $  38.60     $  85.47     $    103     $      -
Cosmos (ATOM)                      $  36.21     $  32.47     $  28.90     $   7.53
Polygon (MATIC)                    $   1.13     $   2.53     $   1.62     $   0.48
Avalanche (AVAX)                   $  66.77     $    109     $  96.92     $  16.93
Algorand (ALGO)                    $   1.63     $   1.66     $   0.93     $   0.31
Axie Infinity (AXS)                                          $  63.45     $  14.53
Kava (KAVA)                                                  $   4.50     $   1.77

* The costs have been rounded to the closest complete greenback for costs above $100

Digital Asset Platform



The Firm can also be creating a proprietary Digital Asset Platform aimed toward
permitting customers to guage their crypto portfolio holdings throughout a number of
exchanges and chains on a single platform. The internally-developed dashboard
makes use of Digital Asset alternate APIs to learn consumer knowledge and doesn't enable for
the buying and selling of belongings. Along with portfolio monitoring, we're additionally working
to combine a full suite of different options together with decentralized exchanges,
wallets, threat metrics and probably a method for customers to calculate end-of
year-reports for tax functions. We imagine that growing the variety of options
we provide could create a sticky consumer expertise throughout a number of, interrelated
merchandise.



The Firm can also be presently creating and plans to combine into the Digital
Asset Platform a proprietary Staking-as-a-Service characteristic aimed toward permitting
customers to delegate supported cryptocurrencies to BTCS operated validator nodes
by way of a non-custodial platform. Staking permits customers to generate an annual
proportion yield ("APY") on their staked belongings whereas validator node operators
cost a charge on customers' staked asset rewards earned along with incomes an APY
on staked belongings. In flip, the extremely scalable nature of each staking Digital
Property in addition to permitting customers to stake Digital Property to earn token rewards
is the premise behind BTCS' Staking-as-a-Service platform.



24

Outcomes of Operations for the Three and Six Months Ended June 30, 2022 and 2021

The next tables replicate our working outcomes for the three and 6 months
ended June 30, 2022 and 2021:



                                        For the Three Months Ended
                                                 June 30,                   $ Change        % Change
                                           2022              2021             2022            2022

Revenues
Validator income                     $      514,349     $    380,499     $    133,850              35 %
Whole revenues                               514,349          380,499          133,850              35

Value of revenues
Validator expense                             93,900           59,249           34,651              58
Gross revenue                                 420,449          321,250           99,199              31

Working bills:
Normal and administrative            $      512,051     $    312,967     $    199,084              64 %
Analysis and growth                     185,004          245,336          (60,332 )           (25 )

Compensation and associated bills            638,025        1,703,771      

(1,065,746 )           (63 )
Advertising and marketing                                     23,691            1,365           22,326           1,636
Impairment loss on digital
belongings/currencies                          8,894,797        2,267,374        6,627,423             292
Realized features on digital
asset/forex transactions                 (398,446 )              -         (398,446 )           N/A
Whole working bills                   9,855,122        4,530,813        5,324,309             118

Different revenue (bills):
Curiosity expense                                   -          (59,835 )         59,835            (100 )
Amortization on debt low cost                      -         (572,675 )        572,675            (100 )
Change in truthful worth of warrant
liabilities                                1,710,000                -        1,710,000             N/A
Distributions to warrant holders                   -                -      

         -             N/A
Whole different revenue (bills)              1,710,000         (632,510 )      2,342,510             370

Internet loss                              $   (7,724,673 )   $ (4,842,073 )     (2,882,600 )            60




25







                                         For the Six Months Ended
                                                 June 30,                   $ Change        % Change
                                          2022              2021              2022            2022

Revenues
Validator income                     $   1,077,364     $     453,023     $    624,341             138 %
Whole revenues                            1,077,364           453,023          624,341             138

Value of revenues
Validator expense                           231,769            74,245          157,524             212
Gross revenue                                845,595           378,778          466,817             123

Working bills:
Normal and administrative            $   1,162,340     $     866,948     $    295,392              34 %
Analysis and growth                    321,722           328,269           (6,547 )            (2 )
Compensation and associated bills         2,061,921         9,041,450       (6,979,529 )           (77 )
Advertising and marketing                                    65,484             2,786           62,698           2,250
Impairment loss on digital
belongings/currencies                        12,202,225         3,569,138        8,633,087             242
Realized features on digital
asset/forex transactions                (469,556 )      (3,054,418 )      2,584,862              85
Whole working bills                 15,344,136        10,754,173        4,589,963              43

Different revenue (bills):
Curiosity expense                                  -          (114,082 )        114,082            (100 )
Amortization on debt low cost                     -        (1,134,771 )      1,134,771            (100 )
Change in truthful worth of warrant
liabilities                               1,068,750                 -        1,068,750             N/A
Distributions to warrant holders            (35,625 )               -          (35,625 )           N/A
Whole different revenue (bills)             1,033,125        (1,248,853 )    

 2,281,978             183

Internet loss                              $ (13,465,416 )   $ (11,624,248 )     (1,841,168 )            16




26







Validator Income

The rise in income in the course of the 2022 Quarter and 2022 Interval as in comparison with
the 2021 Quarter and 2021 Interval is from our blockchain infrastructure
validating income. We imagine revenues will lower for the interval ending
September 30, 2022 and probably for the rest of 2022 because of
decline in market costs of the Digital Property now we have earned and/or bought.

Value of Revenues



The rise in price of revenues is because of our blockchain infrastructure
validating working prices, together with, net service internet hosting charges, and money and
stock-based compensation associated to companies offered by distributors. We imagine our
price of revenues will improve as we proceed to ramp up our enterprise. Nonetheless,
we imagine gross margin will enhance as we add scale to our blockchain
infrastructure operations and scale back prices because of elevated operational
efficiencies, resulting in improved gross income.



Working Bills

The rise in working bills within the 2022 Quarter is primarily as a result of
$8.9 million impairment loss on Digital Property ("Digital Asset Impairment") in
the 2022 Quarter, in comparison with solely $2.3 million Digital Asset Impairment within the
2021 Quarter. That is partially offset by the $1.6 million non-cash contingent
bonuses granted to workers and our non-employee administrators in the course of the 2021
Quarter for the achievement of efficiency milestones.



The rise in working bills within the 2022 Interval is primarily as a result of
$12.2 million Digital Asset Impairment within the 2022 Interval, in comparison with solely $3.6
million Digital Asset Impairment within the 2021 Interval. That is partially offset by
the $8.7 million non-cash contingent bonuses granted to workers and our
non-employee administrators in the course of the 2021 Interval for the achievement of efficiency
milestones.



We imagine working bills will stay constant because the Firm continues to
make the most of equity-based bonus incentives as a core a part of its compensation
technique. Nonetheless, volatility within the Digital Asset markets will topic the
Firm to the opportunity of extra impairment prices on its Digital

Asset
holdings.

The Firm is evaluating extra alternatives to scale back prices. As a part of
our price reducing measures, in June 2022, the Board of Administrators decreased all
director charges for 2022 from $50,000 to $25,000 and decreased the Audit,
Compensation and Nominating and Company Governance committee chair charges for
2022 to $5,000. Moreover, Charles Allen and Michal Handerhan, the Firm's
Chief Government Officer and Chief Working Officer, respectively, agreed to
forfeit $25,000 of their annual base salaries for 2022. Collectively, these
cost-cutting measures will lead to price financial savings of roughly $141,000,
which the Firm will see primarily within the subsequent two quarters.



Different Revenue (Bills)

The rise in different revenue for the intervals reported was primarily as a result of
lower within the truthful worth of warrant liabilities. This non-cash expense is
pushed by the worth of our inventory value on the finish of every quarter which we
can not predict.

Internet loss

The rise in our internet loss for the intervals reported was primarily as a result of
improve in working bills and improve in different revenue (expense) as
mentioned above. We imagine that our internet loss will improve because the Firm
incurs elevated prices associated to the event of its Digital Asset Platform
and incurs extra Digital Asset Impairment losses as a result of volatility in

the
Digital Asset markets.



27

Liquidity and Capital Assets

ATM Financing



On September 14, 2021, the Firm entered into an At-The-Market Providing
Settlement (the "ATM Settlement") with H.C. Wainwright & Co., LLC, as agent ("H.C.
Wainwright"), pursuant to which the Firm could provide and promote, from
time-to-time by way of H.C. Wainwright, shares of the Firm's Frequent Inventory
having an combination providing value of as much as $98,767,500. From the interval
September 14, 2021 by way of August 8, 2022, the Firm bought a complete of two,559,122
shares of Frequent Inventory underneath the ATM Settlement for combination whole gross
proceeds of roughly $14,340,000 at a mean promoting value of $5.60 per
share, leading to internet proceeds of roughly $13,888,000 after deducting
commissions and different transaction prices.



Liquidity

The Firm's monetary statements have been ready assuming that it's going to
proceed as a going concern, which contemplates continuity of operations,
realization of belongings, and liquidation of liabilities within the regular course of
enterprise. Liquidity is the power of an organization to generate funds to help its
present and future operations, fulfill its obligations, and in any other case function on
an ongoing foundation. At June 30, 2022, the Firm had roughly $2.5 million
of liquid Digital Property (i.e. non-staked) and $3.2 million of money.



We view our Digital Property as long-term holdings and we don't plan to interact in
common buying and selling of Digital Property. Throughout occasions of instability out there of
Digital Property, we could not be capable of promote our Digital Property at affordable
costs or in any respect. Because of this, our Digital Property could not be capable of function a
supply of liquidity for us to the identical extent as money and money equivalents.



As of August 8, 2022, the Firm had roughly $3.2 million of money and the
truthful market worth of the Firm's liquid Digital Property was roughly $4.4
million, which excludes $14.8 million of staked Ethereum. The Firm has no
excellent debt. As of August 8, 2022, the Firm additionally has roughly $17.7
million accessible underneath the On the Market Providing Settlement underneath the Kind S-3
child shelf guidelines, though, the quantity that we could increase underneath the Kind S-3 could
improve or lower based mostly upon our then inventory value. The Firm believes that
the present money and liquid Digital Property held by us, along with the funds
accessible to the Firm from the issuance of extra inventory by way of the ATM
Settlement, present adequate liquidity to satisfy working capital necessities,
anticipated capital expenditures and contractual obligations for not less than the
subsequent twelve months.



Money Flows

Money utilized in working actions was roughly $0.7 million in the course of the six
months ended June 30, 2022 in comparison with $(3.3) million for the six months ended
June 30, 2021.



Money utilized in investing actions was $8.8 million in the course of the six months ended
June 30, 2022 in comparison with $8.5 million for the six months ended June 30, 2021.
Internet money outflow for investing actions was used primarily for the acquisition of
Digital Property for our blockchain infrastructure operations.



Money offered by financing actions was $10.0 million in the course of the six months
ended June 30, 2022 in comparison with $14.2 million for the six months ended June 30,
2021. The money inflows from financing actions have been primarily from proceeds
from the Frequent Inventory bought pursuant to the ATM Settlement ($10.6 million). This
was partially offset by a one-time return of capital distribution of $635,000
made to file holders as of March 17, 2022. The Firm has plans to proceed
to boost proceeds from the sale of Frequent Inventory to fund operations as wanted.



28

Off Steadiness Sheet Transactions

As of June 30, 2022, there have been no off-balance sheet preparations and we have been
not a celebration to any off-balance sheet transactions. We’ve no ensures or
obligations aside from these which come up out of regular enterprise operations.

RECENT ACCOUNTING PRONOUNCEMENTS

For info on current accounting pronouncements, see Be aware 3 to the Unaudited
Condensed Monetary Statements.

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