Ben Strack

<div id="highlights-block_6259bfba81a9a" class="highlights">
 <ul>
 <li>Stronghold’s IPO statement omitted to flag potential difficulties obtaining miners, law firm alleges</li>
 <li>The mining company reported a fourth-quarter net loss of $17.5 million</li>
 </ul>
 
</div>



A class action lawsuit against Stronghold Digital Mining is brewing after the company reported fourth quarter earnings results that fell short of expectations.&nbsp;



The company, which converts coal waste into energy to mine bitcoin, <a href="https://cms.blockworks.co/stronghold-digital-mining-ipo-opens-55-8-above-expected-stock-price/" target="_blank" rel="noreferrer noopener">went public in October</a>. Stronghold sold 7,690,400 shares of Class A common stock at a price of $19 per share as part of its initial public offering (IPO), receiving net proceeds of approximately $132.5 million.



Stronghold was set to use proceeds from the IPO for general purposes, including acquisitions of miners and power-generating assets to mine more bitcoin, according to an SEC <a href="https://www.sec.gov/Archives/edgar/data/0001856028/000156459021050660/sdmi-s1a.htm" target="_blank" rel="noreferrer noopener">filing</a>.



But the IPO&#8217;s registration statement was “materially false and misleading,” according to a Friday statement by law firm Robbins Geller Rudman &amp; Dowd LLP.



The law firm alleges that the statement did not mention that contracted suppliers were likely to miss anticipated delivery quantities and deadlines, and that Stronghold would experience difficulties obtaining miners outside of confirmed purchase orders.



If included, such information may have alerted investors of the “significant risk” that Stronghold would not expand its mining capacity as expected and likely experience losses, the firm argued in the statement.



A Stronghold spokesperson did not immediately return Blockworks’ request for comment. 



Stronghold’s 2021 fourth-quarter adjusted earnings-per-share showed a loss of $0.52 a share, the company <a href="https://cms.blockworks.co/stronghold-loses-25-after-hours-as-q4-earnings-revenue-miss-mark/" target="_blank" rel="noreferrer noopener">reported last month</a>. It posted a fourth quarter net loss of $17.5 million.



CEO Gregory Beard said during the firm’s latest earnings call that the results are “not representative of the potential we aim to deliver.”



Stronghold executives attributed the losses to delivery delays, noting that it received roughly 3,300 of the total 15,000 miners ordered from Canada-based MinerVa Semiconductor Corp, despite a delivery deadline of Dec. 31, 2021.



The stock price fell roughly 32% following the earnings report, according to Robbins Geller Rudman &amp; Dowd.



Anybody who bought Stronghold’s stock in connection with the IPO may seek to become the lead plaintiff, who will act on behalf of all other class members of the suit. Lead plaintiff motions must be filed with the court by June 13. 



The class action lawsuit against Stronghold, which commenced Thursday, charges the company and some of its top executives, as well as the IPO&#8217;s underwriters.



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Stronghold Mining Faces Lawsuit Over Earnings Miss

Casey Wagner

<div id="highlights-block_624ca1f36ab61" class="highlights">
 <ul>
 <li>Stronghold Digital Mining says it has already been over-reporting when it comes to climate-related disclosures</li>
 <li>One Democratic senator argues the rule puts unfair scrutiny on the fossil fuel industry</li>
 </ul>
 
</div>



The US Securities and Exchange Commission’s recent <a href="https://www.sec.gov/news/press-release/2022-46" target="_blank" rel="noreferrer noopener">proposal</a> that publicly traded companies should disclose greenhouse gas emissions and climate-related risks that would impact business has environmentalists and politicians torn, but one cryptocurrency mining company is welcoming it with open arms.



“Looking at this [rule proposal,] I think we are already doing most of this,” said Gregory Beard, co-chairman and CEO of Stronghold, a crypto mining company that uses energy from coal waste to mine bitcoin. “The risk section of our filings includes climate-related risks.”&nbsp;



The proposed rule changes would require publicly traded businesses to disclose information about how climate-related risks have had or are likely to have a material impact on their business.&nbsp;



“Our operations involving the combustion of coal refuse are subject to a number of risks arising out of the threat of climate change, which could result in increased operating and capital costs for us and reduce the extent of our business activities,” Stronghold’s <a href="https://www.sec.gov/Archives/edgar/data/0001856028/000156459021055305/sdmi-s1.htm" target="_blank" rel="noreferrer noopener">S-1 filing</a>, which was submitted to the SEC in November 2021, reads. 



Additionally, the SEC proposes that registrants disclose information about direct greenhouse gas emissions and indirect emissions from purchased electricity or other forms of energy.&nbsp;



“If there were a way to do this without emitting carbon into the air at all, we would do it, even if it wasn&#8217;t the most economic thing to do,” Beard said. “We&#8217;re looking at technologies and investments to reduce our carbon emissions and lower our carbon footprint.”&nbsp;



The proposed rule changes come even as institutional investors’ concerns over environmental issues appear to be <a href="https://cms.blockworks.co/does-crypto-have-a-place-in-an-esg-portfolio/" target="_blank" rel="noreferrer noopener">easing</a>.



Environmentally friendly mining is a key part of Stronghold’s business model and mission, Beard added. Stronghold owns and operates the Scrubgrass Plant, a coal-refuse power generation facility in Pennsylvania. Coal refuse is classified under Pennsylvania law as a Tier II alternative energy source, similar to large-scale hydropower, Beard said.



“We believe our power generation facility is environmentally beneficial because we remove legacy coal refuse and facilitate the remediation of land and water, with power generation being the byproduct of this activity,” the filing notes.&nbsp;



The SEC’s three Democratic commissioners voted to approve the proposed rule and the sole Republican commissioner voted against it. SEC Chair Gary Gensler said the rule would provide “consistent, comparable and decision-useful information” for investors looking to invest consciously.



One Democratic senator, Joe Manchin from West Virginia, criticized the rule for unfairly targeting fossil fuel companies in an <a href="https://www.manchin.senate.gov/imo/media/doc/SEC%20ClimateDisclosure%20Letter.pdf?cb" target="_blank" rel="noreferrer noopener">open letter</a> to Gensler, released on Monday. Manchin said the proposed reporting requirements are unnecessary because most companies already release sustainability reports, although the content of these reports varies between companies and can be difficult to verify. 



While Beard did not comment on his personal opinion of the rule, he did acknowledge that the proposal did not come as a surprise. He also noted that cryptocurrency mining companies face an uphill battle when it comes to changing the rhetoric around the industry, and greater reporting requirements may help their case.



“On a federal level, you can always expect changes in regulations, and I would expect changes in regulations around climate,” Beard said. “I think there are no public crypto mining boards that aren&#8217;t aware of this issue and aren’t trying to get access to more clean power.”



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Crypto Mining Company Welcomes SEC Environmental Reporting Proposal

<div id="highlights-block_62437d40f0d3a" class="highlights">
 <ul>
 <li>Stronghold has received approximately 3,300 of a total 15,000 miners ordered, despite an initial delivery deadline of Dec. 31, 2021</li>
 <li>Stronghold remains committed to environmentally friendly mining operations, executives insisted</li>
 </ul>
 
</div>



Stronghold Digital Mining (ticker: SDIG) lost more than 25% in after hours trading after the ​​crypto mining company that uses coal waste energy to mine bitcoin reported lower-than-expected fourth quarter earnings.&nbsp;



Stronghold’s 2021 fourth quarter adjusted earnings-per-share shows a loss of $0.52 a share, according to the company’s <a href="https://ir.strongholddigitalmining.com/news-releases/news-release-details/stronghold-digital-mining-reports-fourth-quarter-and-year-end" target="_blank" rel="noreferrer noopener">report</a>. Analysts predicted a gain of $0.002.



Revenue rose from $900,000 in the fourth quarter of 2020 to $17 million in 2021, missing analysts’ estimated $21.9 million. The revenue increase in 2021 “is primarily attributable to higher energy generation and crypto asset mining revenues,” the report said.&nbsp;



The company posted a net loss for the fourth quarter of 2021 of $17.5 million, compared to net income of $200,000 for the same quarter in 2020. Stronghold’s net loss for the full year of 2021 came in at $27.3 million, compared to a net loss of $100,000 in the prior year period.



“[I] want to be clear to everyone, our recent results are not up to the expectations we have at Stronghold and are not representative of the potential we aim to deliver,” Gregory Beard, co-chairman and CEO of Stronghold, said during the company’s earnings conference call Tuesday afternoon. “I firmly believe Stronghold has the foundational pieces to be a successful and differentiated company.”



Stronghold executives said losses can be attributed to delivery delays. Hash rate has been negatively impacted by delays in miner deliveries, the report noted.



To date, Stronghold has received approximately 3,300 of the total 15,000 miners ordered from MinerVa, a Canada-based semiconductor corporation, despite an initial delivery deadline of Dec. 31, 2021. Stronghold is now expecting miners to be delivered by April 30, 2022, executives said.&nbsp;



“We are also revisiting our miner procurement strategy to put a greater emphasis on spot purchases over forward deliveries,” Beard said. “We believe deliveries have an elevated risk profile given potential delays to delivery timing and uncertainty related to bitcoin fundamentals at time of receipt.”  



Stronghold made its <a href="https://cms.blockworks.co/stronghold-digital-mining-ipo-opens-55-8-above-expected-stock-price/" target="_blank" rel="noreferrer noopener">Nasdaq debut</a> in October 2021 at an opening price of $26.50 — 55.8% higher than the anticipated range between $16 and $18 price per share.&nbsp;



Executives remained positive, insisting that the company’s core mission remains intact.&nbsp;



“​​We are focused on improving the environment,” Beard said. “Our vertically integrated business model offers low costs, we have significant scale and our management team is highly aligned with over 50% ownership in the company.”



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Stronghold Loses 25% After Hours as Q4 Earnings, Revenue Miss Mark

<div id="highlights-block_6227b74b85b0c" class="highlights">
 <ul>
 <li>Marathon Digital expects to have 199,000 bitcoin miners producing approximately 23.3 EH/s by early 2023</li>
 <li>Stronghold Digital Mining, which owns its power, seeks to buy additional plants and scale its mining equipment and operations this year</li>
 </ul>
 
</div>



Cryptocurrency miners will diversify their revenue streams and business models from one another this year, according to Compass Point Research and Trading.&nbsp;



The cryptocurrency research firm estimates the global hashrate will rise to 327 exahashes per second (EH/s) by the end of 2022 — a nearly 60% year-over-year increase, <a href="https://compasspoint.bluematrix.com/links2/secure/pdf-viewer/36c024b3-5d83-4e8c-af91-e7c207a26a67" target="_blank" rel="noreferrer noopener">according to a note</a> by Chase White. Hashrate could reach 587 EH/s by the end of next year, he added.



“While we believe our hash rate growth estimate is relatively aggressive compared to consensus, we see it as a more conservative approach given that miner revenues and per-BTC costs are directly related to global hash rate share, potentially suggesting upside to our estimates if growth is lower than expected,” White wrote.



Bitcoin traded around $38,800 at 2 pm ET on Tuesday.



Compass Point expects bitcoin prices to average roughly $49,000 this year — ending the year at $65,000 — and rise to an average of $81,000 in 2023. The expected rise is driven in part by BTC’s resilience during Russia’s invasion of Ukraine and expected increased adoption globally, especially among retail investors, White wrote.



“We do not believe all miners are created equal, and we believe 2022 is the year that investors will start to look at the differentiators between the companies and their businesses,” he wrote. &#8220;These factors lead us to favor Marathon (MARA) among the scaled miners and Stronghold Digital Mining (SDIG) among the small miners.&#8221;



<h3 class="wp-block-heading">Marathon versus Riot Blockchain</h3>



Marathon has 35,510 active miners producing approximately 3.8 EH/s, the company reported last week. It increased hash rate 8% from the prior month after deploying 2,800 miners.



Marathon mined 360.3 bitcoins in February — a 730% increase from 43.4 bitcoins in February 2021. The company now holds 8,956 bitcoins, currently valued at nearly $350 million.



While many miners are going the vertically integrated route by owning infrastructure and power sources, Marathon has taken the opposite tactic, according to Charlie Schumacher, vice president of corporate communications.



The company owns its machines but partners with other companies that provide infrastructure, as well as power companies that offer primarily renewable energy, he said. Buying infrastructure was not an attractive return on Marathon’s investment, Schumacher said.



“We could have spent $750 million to build a data center, but instead we spent $750 million to go out and buy machines and increase our hashrate,” Schumacher said. “We would rather buy assets that generate revenue than own assets that don’t.”



Hut 8 Mining, a company not included in Compass Point’s report, recently acquired five data centers as it looks to <a href="https://cms.blockworks.co/bitcoin-miner-targets-gaming-web3-with-cloud-services-expansion/" target="_blank" rel="noreferrer noopener">build out its cloud computing business</a>.



Marathon’s focus this year is to deploy the miners it has purchased. Marathon expects to have 199,000 bitcoin miners producing approximately 23.3 EH/s by early 2023, Schumacher said, and expects its mining operations to be 100% carbon neutral by the end of 2022.



The company’s status as a scaled miner with ample access to capital likely gives it the first look at any available hosting capacity, White wrote. He lowered Riot Blockchain’s rating from buy to neutral, noting that Marathon offers better upside.



Riot produced 436 bitcoins in February, bringing the total it holds to 5,783 BTC, the company reported last week. Riot, which has a fleet of 38,310 miners with a hashrate of 3.9 EH/s, anticipates a total self-mining hash rate capacity of 12.8 EH/s by January 2023.



As for other miners featured in the report, Compass Point retained its buy rating for Argo Blockchain and downgraded its rating for Iris Energy from buy to neutral.



<h3 class="wp-block-heading">Stronghold’s 2022 focuses</h3>



Compass Point’s preference of Stronghold compared to fellow smaller miners is driven by its relatively low power costs, diversified revenue streams and low-cost options on additional power capacity.



“We acknowledge there is execution risk on the path to capacity,” White wrote.



The company, which <a href="https://cms.blockworks.co/stronghold-digital-mining-ipo-opens-55-8-above-expected-stock-price/" target="_blank" rel="noreferrer noopener">went public last year</a>, generates power from the waste byproduct of legacy coal mining operations. It’s focused on maximizing the benefits of owning its power, which is typically the largest cost for miners.



“In owning our own power assets, we can continue to grow our mining operations and clean up the environment at the same time,” Stronghold CEO Greg Beard told Blockworks in an email. “It also allows us to stabilize the electricity grid in the region at a time of questionable energy security, not just locally and regionally, but globally.”



The company acquired its second plant, the Panther Creek Energy Facility in Pennsylvania, last November. It reported having about 14,000 miners with 1.3 EH/s of capacity in January.&nbsp;



“We are plugging in miners and expanding our mining power as fast as we can,” Beard said. “That will truly unlock the growth potential of our vertically integrated operation, as we will have the lowest cost of power in the industry.”



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Bitcoin Mining Operators Jostling for Market Share in 2022

Jacquelyn Melinek

<div id="highlights-block_620d2cd1cd8b4" class="highlights">
 <ul>
 <li>The fund will target investments in founders from underrepresented groups such as women, Black and Indigenous people</li>
 <li>Stronghold’s SHX token has fallen about 42% on the month to .00392 cents as of 11:08 am ET on Wednesday</li>
 </ul>
 
</div>



Stronghold, a payments and financial infrastructure firm, has launched Stronghold Capital to deploy a $100 million fund to expand into early-stage startups in <a href="https://cms.blockworks.co/andrew-yang-we-must-avoid-politicizing-crypto-web3/" target="_blank" rel="noreferrer noopener">Web3</a>, blockchain and fintech ecosystems.



The fund will focus on investing in “overlooked” companies and fund managers, the company said in a <a href="https://www.businesswire.com/news/home/20220215005035/en/Stronghold-Launches-100-Million-Investment-Fund" target="_blank" rel="noreferrer noopener">statement</a>. The capital firm has previously invested in Sam Bankman-Fried’s Alameda Research and Precursor Ventures, which backs seed-stage investors and aims to deploy capital to founders who are women, LGBTQ and people of color.



The firm’s CEO and Co-founder Tammy Camp will serve as fund manager for the capital arm. Camp told Blockworks she has been involved in the blockchain space since 2013, so investing in this space felt natural.



“We’re not looking to reinvent the wheel in venture capital,” she said. “But more diversity in the ecosystem is something that is better for the ecosystem…the more capital that goes into the market, the more it should be allocated for diverse groups.”



“Identifying and investing in emerging talent — especially underrepresented and undervalued founders — stands to benefit the developer community, the fintech industry, and even society as a whole,” Camp said in a statement.



Stronghold’s SHX token has fallen about 42% on the month to .00392 cents as of 11:08 am ET on Wednesday. SHX has a market capitalization of $22.95 million, CoinMarketCap <a href="https://coinmarketcap.com/currencies/stronghold-token/" target="_blank" rel="noreferrer noopener">data</a> shows.



A handful of <a href="https://cms.blockworks.co/sovereign-wealth-fund-vet-eyes-150m-for-crypto-fund-of-funds/" target="_blank" rel="noreferrer noopener">funds</a> have been announced in recent weeks as firms continue to pool money into the crypto ecosystem. Funds launched last week include Hartmann Capital’s for $30 million, Infinity Ventures Crypto’s for $70 million and XYO’s for $20 million with partner Outliers Fund.



While they focus on different subsectors within the crypto world, the funds all carry an objective to further invest in the space, pointing to long-term growth of the industry.



“These new ecosystems must be built sustainably to last, and they must be built decentralized to matter,” Felix Hartmann, managing partner at Hartmann Capital, <a href="https://cms.blockworks.co/1-19-billion-invested-in-crypto-companies-this-week/" target="_blank" rel="noreferrer noopener">previously told</a> Blockworks. “Taking a venture approach helps us make sure of that.”



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