Full Press Release Details
Bitcoin Strategy Related Supplemental Disclosures
Bitcoin Treasury Strategy
This section summarizes our current acquisition
strategy for bitcoin, including our historical purchases, trading execution, custody, storage, and accounting considerations. We reserve
the right to update and alter our acquisition strategy from time to time. We view bitcoin as a reliable store of value and a compelling
investment. We believe it has unique characteristics as a scarce and finite asset that can serve as a reasonable inflation hedge and safe
haven amid global instability. We also believe that its digital, architectural resilience makes it preferable to gold, which has a market
value that greatly exceeds the market value of bitcoin. Given the gap in value between gold and bitcoin, we believe that bitcoin has the
potential to generate outsize returns as it gains increasing acceptance as "digital gold." We believe that bitcoin's
unique attributes discussed above not only differentiate it from fiat money, but also from other cryptocurrency assets, and for that reason,
we have no plans to purchase cryptocurrency assets other than bitcoin.
Institutionalization of Bitcoin
We are encouraged by the growing global acceptance
and "institutionalization" of bitcoin - reflected by the January 2024 Securities and Exchange Commission, or SEC,
approval of 11 bitcoin exchange-traded funds. These funds have reported billions of dollars of net inflows, with investments from a large
number of institutions, including global banks, pensions, endowments and registered investment advisors. It is currently estimated that
more than 10% of all bitcoins are now held by institutions.
Our Decision to Adopt Bitcoin as Our Primary
Our board of directors and senior management have
been examining potential uses of cash, including acquisitions and stock repurchases. After studying various alternatives, we decided that
investing in bitcoin is currently the best use of our cash. Bitcoin will be our principal treasury holding on an ongoing basis, subject
to market conditions and our anticipated cash needs. As we embark on our new acquisition strategy, our board intends to proactively evaluate
Historical Execution
In May 2024, we announced our initial purchases
of an aggregate 581 bitcoins for an aggregate purchase price of $40.0 million, and have subsequently acquired additional bitcoins. As
of the current report on Form 8-K to which this supplement is filed as an Exhibit, we hold an aggregate 828 bitcoins, which we acquired
for an aggregate purchase price of $57.0 million, inclusive of fees and expenses. We purchased the bitcoin over-the-counter through a
bitcoin liquidity provider. We negotiated fees related to trading commissions. We executed trades using a time-weighted average price
over a prearranged time period that was expected to be low price volatility and high market liquidity to limit cost and pricing risks.
In selecting our liquidity provider, we evaluated pricing, annual trading volume, security and customer service.
Our bitcoins are held offline in cold storage
with a third-party provider. Digital assets like bitcoin depend on private keys to retrieve and transfer funds.
Bitcoin accounting guidance has been evolving.
According to the American Institute of Certified Public Accountants' "Accounting for and auditing of Digital Assets practice
aid," bitcoin would satisfy the definition of an indefinite-lived intangible asset and would be accounted for under ASC 350, Intangibles
- Goodwill and Other issued by Financial Accounting Standards Board, or FASB. Under these guidelines, bitcoin holdings would be
accounted for initially at cost and subject to impairment losses if their fair value fell below carrying value. In December 2023,
the FASB issued Accounting Standards Update No. 2023-08, Accounting for and Disclosure of Crypto Assets (ASU 2023-08), which revised
bitcoin accounting treatment. Under this new guidance, the valuation of bitcoin is to be measured based on fair value.
Overview of the Bitcoin Industry and Market
Bitcoin is a digital asset that is issued by and
transmitted through an open-source protocol, known as the bitcoin protocol, collectively maintained by a peer-to-peer network of decentralized
user nodes. This network hosts a public transaction ledger, known as the bitcoin blockchain, on which bitcoin holdings and all validated
transactions that have ever taken place on the bitcoin network are recorded. Balances of bitcoin are stored in individual "wallet"
functions, which associate network public addresses with one or more "private keys" that control the transfer of bitcoin.
The bitcoin blockchain can be updated without any single entity owning or operating the network.
Creation of New Bitcoin and Limits on Supply
New bitcoin is created and allocated by the bitcoin
protocol through a "mining" process that rewards users that validate transactions in the bitcoin blockchain. Validated transactions
are added in "blocks" approximately every 10 minutes. The mining process serves to validate transactions and secure the bitcoin
network. Mining is a competitive and costly operation that requires a large amount of computational power to solve complex mathematical
algorithms. This expenditure of computing power is known as "proof of work." To incentivize miners to incur the costs of mining
bitcoin, the bitcoin protocol rewards miners that successfully validate a block of transactions with newly generated bitcoin.
The bitcoin protocol limits the total number of
bitcoin that can be generated over time to 21 million. As part of bitcoin's coin issuance, miners are rewarded a certain amount of bitcoins
whenever a block is produced. When bitcoin first started, 50 bitcoins per block were given as a reward to miners. After every 210,000
blocks are mined (approximately every four years), the block reward halves and will keep on halving until the block reward per block becomes
0 (approximately by year 2140). The block reward as of April 2024 is 3.125 coins per block and will decrease to 1.5625 coins per
Modifications to the Bitcoin Protocol
Bitcoin is an open-source network that has no
central authority, so no one person can unilaterally make changes to the software that runs the network. However, there is a core group
of developers that maintain the code for the bitcoin protocol as well as various bitcoin end-user software, and they can propose changes
to the source code and release periodic updates and other changes. Unlike most software that has a central entity that can push updates
to users, bitcoin is a peer-to-peer network in which individual network participants, called miners or nodes, decide whether to upgrade
the software and accept the new changes. As a practical matter, a modification becomes part of the bitcoin protocol only if the proposed
changes are accepted by participants collectively having the most processing power, known as hash rate, on the network. If a certain percentage
of the nodes reject the changes, then a "fork" takes place and participants can choose the version of the software they want
Forms of Attack Against the Bitcoin Network
Blockchain technology has many built-in security
features that make it difficult for hackers and other malicious actors to corrupt the protocol or blockchain. However, as with any computer
network, the bitcoin network may be subject to certain attacks. Some forms of attack include unauthorized access to wallets that hold
bitcoin and direct attacks on the network, like "51% attacks" or "denial-of-service attacks" on the bitcoin protocol.
Bitcoin is designed to be controllable only by
the possessor of both the unique public key and private key(s) relating to the local or online digital wallet in which the bitcoin
is held. Private keys used to access bitcoin balances are not widely distributed and are typically held on hardware (which can be
physically controlled by the holder or by a third party such as a custodian) or via software programs on third-party servers. One form
of obtaining unauthorized access to a wallet occurs following a phishing attack where the attacker deceives the victim and manipulates
them into sharing their private keys for their digital wallet or other sensitive information. Other similar attacks may also result in
the loss of private keys and the inability to access, and effective loss of, the corresponding bitcoin. See "Supplemental Risk Factors-Risks
Related to Our Bitcoin Treasury Strategy and Holdings-We face risks relating to the custody of our bitcoin, including the loss or
destruction of private keys required to access our bitcoin and cyberattacks or other data loss relating to our bitcoin" elsewhere
A "51% attack" may occur when a group
of miners attain more than 50% of the bitcoin network's mining power, thereby enabling them to control the bitcoin network and protocol
and manipulate the blockchain. A "denial-of-service attack" occurs when legitimate users are unable to access information
systems, devices, or other network resources due to the actions of a malicious actor flooding the network with traffic until the network
is unable to respond or crashes. The bitcoin network has been, and can be in the future, subject to denial-of-service attacks, which can
result in temporary delays in block creation and in the transfer of bitcoin. See "Supplemental Risk Factors-Risks Related
to Our Bitcoin Treasury Strategy and Holdings-Bitcoin and other digital assets are novel assets, and are subject to significant
legal, commercial, regulatory and technical uncertainty" elsewhere in this supplement.
Bitcoin Industry Participants
The primary bitcoin industry participants are
miners, investors and traders, digital asset exchanges and service providers, including custodians, brokers, payment processors, wallet
providers and financial institutions.
Miners. Miners range from bitcoin enthusiasts
to professional mining operations that design and build dedicated mining machines and data centers, including mining pools, which are
groups of miners that act cohesively and combine their processing power to mine bitcoin blocks. See "-Creation
of New Bitcoin and Limits on Supply" above.
Investors and Traders. Bitcoin investors
and traders include individuals and institutional investors who, directly or indirectly, purchase, hold, and sell bitcoin or bitcoin-based
derivatives. On January 10, 2024, the SEC issued an order approving several applications for the listing and trading of shares of