SecProbe.io

United States securities and exchange commission logo
September 21, 2023
Michael Prevoznik
Chief Financial Officer
BTCS Inc.
9466 Georgia Avenue #124
Silver Spring, MD 20910
Re:BTCS Inc.
Form 10-K for the Fiscal Year Ended December 31, 2022
Filed March 31, 2023
Form 10-K/A for the Fiscal year Ended December 31, 2022
Filed April 27, 2023
File No. 001-40792
Dear Michael Prevoznik:
            We have reviewed your filing and have the following comments.  In some of our
comments, we may ask you to provide us with information so we may better understand your
disclosure.
            Please respond to these comments within ten business days by providing the requested
information or advise us as soon as possible when you will respond.  If you do not believe our
comments apply to your facts and circumstances, please tell us why in your response.
            After reviewing your response to these comments, we may have additional comments.
Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2022
General
1.Please provide us with your legal analysis as to why you believe your activities supporting
staking-as-a-service are executed in compliance with the federal securities laws, including
why the agreements related to the staking-as-a-service program are not securities under
Section 2(a)(1) of the Securities Act.  In responding to this comment, please include a
materially complete description of the program.
2.We note that in separate SEC complaints, the SEC identified Cardano, Tezos, Solana,
Cosmos, Polygon, Axie Infinity, and NEAR Protocol crypto assets as securities.  In future
filings, please include a detailed discussion regarding the impact this may have on your
business, financial condition and results of operation.

 FirstName LastNameMichael Prevoznik
 Comapany NameBTCS Inc.
 September 21, 2023 Page 2
 FirstName LastNameMichael Prevoznik
BTCS Inc.
September 21, 2023
Page 2
3.We note your current report filed on Form 8-K on June 29, 2023 indicating that on June
29, 2023, you listed your Series V Preferred Stock on Upstream.  Please tell us whether
U.S. investors are able to buy or sell these shares on Upstream.  In that regard we note that
your current report includes instructions for U.S. based Preferred Stock holders to deposit
and trade their shares with Upstream.  If U.S. investors are not permitted to buy and sell
your Series V Preferred Stock on Upstream please explain to us, in sufficient detail, how
U.S. investors are prevented from buying or selling on Upstream, and also explain how
such prohibition is consistent with the above-noted instructions in your current report.
4.We note that Upstream prohibits U.S. investors from depositing, buying, or selling
securities on Upstream unless they are introduced by a licensed broker-dealer.  We also
note that Upstream identifies Boustead Securities as an introducing broker.  Please clarify
the relationship between the introducing broker and Upstream and the functions expected
to be performed by the introducing broker when it “introduces” U.S. investors to
Upstream.  For example, will the introducing broker transmit orders to Upstream on
behalf of U.S. investors or will U.S. investors access Upstream directly after being
referred to Upstream by the introducing broker?  Further, will Upstream (or MERJ
Depository or MERJ Exchange) carry customer accounts on behalf of the introducing
broker?
5.Please explain why you believe MERJ Depository and MERJ Exchange are not required
to register with the Commission as a broker or dealer, national securities exchange and/or
clearing agency.
6.We note that you indicate that you “do not hold or take possession of any Delegator funds,
crypto assets, or crypto asset rewards at any point during the Staking process,” but also
note that you currently hold substantial amounts of “staked crypto tokens” on your
balance sheet. Please clarify whether the “staked crypto tokens” held on your balance
sheet are assets held for the benefit of your customers, or if such “staked crypto tokens”
are digital assets staked for your own benefit.
7.Please provide a detailed legal analysis regarding whether the Company and its
subsidiaries meet the definition of an “investment company” under Section 3(a)(1)(A) of
the Investment Company Act. In your response, please address, in detail, each of the
factors outlined in Tonapah Mining Company of Nevada, 26 SEC 426 (1947) and provide
legal and factual support for your analysis of each such factor.
8.Please provide a detailed legal analysis regarding whether the Company or any of its
subsidiaries meet the definition of an “investment company” under Section 3(a)(1)(C) of
the Investment Company Act. In your response, please include all relevant calculations
under Section 3(a)(1)(C), identifying each constituent part of the numerators and
denominators, with values as of your most recent fiscal quarter ended. Please also describe
and discuss their proposed treatment for purposes of section 3(a)(1)(C), as well as any
other substantive determinations and/or characterizations of assets that are material to
your calculations.

 FirstName LastNameMichael Prevoznik
 Comapany NameBTCS Inc.
 September 21, 2023 Page 3
 FirstName LastNameMichael Prevoznik
BTCS Inc.
September 21, 2023
Page 3
9.Please provide us with a comprehensive accounting analysis addressing the impact of
Staff Accounting Bulletin (“SAB”) No. 121 on your financial statements. Ensure your
analysis addresses the applicability of the SAB to your business, your conclusion on
treatment, how the impacted items are reflected in the financial statements and identify the
specific line items including quantification of the amounts of the impact. In your response,
clarify whether you hold, or engage other parties to hold on your behalf, any
cryptocurrency assets for any customers, third parties, related parties or entities that are
not included in the consolidated financial statements.
10.In future filings, please provide disclosure of any significant crypto asset market
developments material to understanding or assessing your business, financial condition
and results of operations, or share price since your last reporting period, including any
material impact from the price volatility of crypto assets.
Business
Our Business, page 3
11.In future filings, please include a more detailed description of the nature of your staking
services, including the specifics of how the staking process operates on your
StakeSeeker platform, how the arrangements with the users of your platform are
structured and whether your platform only allows users to stake or delegate their crypto
assets to your validator nodes or if it allows users to stake to third-party validators.  In
addition, please disclose the number of native tokens earned from staking your own crypto
assets and disclose any revenues earned from fees in connection with your StakeSeeker
service, separately discussing any revenue from users of your platform staking and
delegating their crypto assets to your validator nodes, and, as applicable, to third-party
validators.
12.We note your disclosure that "bad behavior" can be penalized by "slashing" the validator's
holdings and/or rewards.  In future filings, please revise to briefly describe what you mean
by "bad behavior" and "slashing."  In addition, please disclose what will happen to the
users of your platform that have staked their crypto assets to one of your validator nodes if
you are penalized for "bad behavior," and, to the extent that the platform allows users to
stake their crypto assets to other validators, what will happen if the third-party validators
are penalized for "bad behavior."
13.In future filings, please disclose whether you intend to hold or monetize your earned
crypto assets, and disclose your policies related to the uses of the earned crypto assets.  In
addition, disclose how you monetize your crypto assets, including the exchanges you use
and whether you have any agreements with any exchanges.
14.In future filings, please disclose your custody procedures and arrangements by identifying
your third-party custodians and describing the material terms of the agreements,
including:
•what portion of your crypto assets are held in hot wallets and cold wallets;

 FirstName LastNameMichael Prevoznik
 Comapany NameBTCS Inc.
 September 21, 2023 Page 4
 FirstName LastNameMichael Prevoznik
BTCS Inc.
September 21, 2023
Page 4
•the geographic location where crypto assets are held in cold wallets;
•whether any persons (e.g., auditors, etc.) are responsible for verifying the existence
for the crypto assets held by the third-party custodian(s); and
•a description of your custodian's insurance and the degree to which such policies
provide coverage for the loss of your crypto assets.
15.In future filings, please revise to include a comprehensive breakeven analysis for your
validator operations that compares the cost to earn one crypto asset with the value of the
crypto asset.
16.We note your disclosure on page 3 that "[t]he growth of both StakeSeeker's user base as
well as the number and size of staked crypto assets by Delegators to company-run
validator nodes is critical to [your] strategy and success."  In future filings, please revise
to disclose the size of your user base and the number and size of staked crypto assets.
17.In future filings, please provide greater details regarding your users and describe the use
of digital engagement practices in connection with your platform, including, as examples,
only, behavior prompts, differential marketing, game-like features and other design
elements or features designed to engage with retail investors.  Please also address the
following, without limitation:
•Specifically describe the analytical and technological tools and methods you use in
connection with such practices and your use of technology to develop and provide
investment education tools;
•Clarify whether any of such practices encourage retail investors to invest in different
products or change investment strategies;
•Clarify whether you use any optimization functions (e.g., to increase platform
revenues, data collection and customer engagement);
•To the extent your use of any optimization functions may lead to potential conflicts
between your platform and investors, please add related risk factor disclosure; and
•Describe in greater detail your data collection practices or those of your third-party
service providers.
Please include a separate risk factor discussing the current and potential future regulatory
risks associated with your use of digital engagement practices.  In that regard, please
consider the SEC's request for information and public comment on matters related to the
use of such practices made on August 27, 2021.
18.In future filings, to the extent material, please discuss how the bankruptcies of companies
in the crypto asset market and the downstream effects of those bankruptcies have
impacted or may impact your business, financial condition, customers, and counterparties,
either directly or indirectly.  Clarify here whether you have material assets that may not be
recovered due to the bankruptcies or may otherwise be lost or misappropriated.
19.In future filings, if material to an understanding of your business, please describe any
direct or indirect exposures to other counterparties, customers, custodians, or other
participants in crypto asset markets known to:
•Have filed for bankruptcy, been decreed insolvent or bankrupt, made any assignment

 FirstName LastNameMichael Prevoznik
 Comapany NameBTCS Inc.
 September 21, 2023 Page 5
 FirstName LastName
Michael Prevoznik
BTCS Inc.
September 21, 2023
Page 5
for the benefit of creditors, or have had a receiver appointed for them;
•Have experienced excessive redemptions or suspended redemptions or withdrawals
of crypto assets;
•Have the crypto assets of their customers unaccounted for; and
•Have experienced material corporate compliance failures.
20.We note your disclosure on page 3 that "BTCS plans to expand its PoS operations to
secure other disruptive blockchain protocols that allow for Delegating."  In future filings,
please disclose how you select blockchain networks.
21.We note that you stake crypto assets on your own validator nodes and on nodes run by
third-party operators both directly or through crypto asset exchanges.  In future filings,
please disclose the material terms of your agreements with the third-party operators
and identify both the third-party operators and the crypto asset exchanges on which you
stake your crypto assets.  In addition, please describe any material risks to you, either
direct or indirect, due to excessive redemptions, withdrawals, or a suspension of
redemptions or withdrawals of crypto assets on the exchanges that you use, and identify
any material concentrations of risk and quantify any material exposures.
22.We note your disclosure that your crypto asset platform is still in beta form.  In future
filings, please disclose its current functionality, your plans for future phases of the
crypto asset platform, including a timeline and the estimated costs of developing the
crypto asset platform.  In this regard, we note your disclosure on page 6 that you intend to
acquire additional crypto assets and to continue to develop and expand upon your
crypto asset platform to enable it to offer a wider range of functions and availability for
use with a greater variety of crypto assets.  Please revise to disclose the functions you plan
to add to your crypto asset platform, and how you intend to add these functions and
services in compliance with the federal securities laws.  In addition, please disclose the
policies and procedures for compliance with the federal securities laws, related to the
decision to add functions and crypto assets to your crypto asset platform.
Management's Discussion and Analysis of Financial Condition and Results of Operations, page
10
23.In future filings, please disclose whether you have experienced excessive removal of
staked crypto assets, and, if so, explain the potential effects on your financial condition.
24.We note that you own crypto assets.  In future filings, to the extent material,
please explain whether these crypto assets serve as collateral for any loan, margin,
rehypothecation, or other similar activities to which you or your affiliates are a party. If
so, identify and quantify the crypto assets used in these financing arrangements and
disclose the nature of your relationship for loans with parties other than third-parties. State
whether there are any encumbrances on the collateral.  Discuss whether the current crypto
asset market disruption has affected the value of the underlying collateral.

 FirstName LastNameMichael Prevoznik
 Comapany NameBTCS Inc.
 September 21, 2023 Page 6
 FirstName LastName
Michael Prevoznik
BTCS Inc.
September 21, 2023
Page 6
Results of Operations for the Years Ended December 31, 2022 and 2021, page 13
25.Please enhance future filings to further disaggregate general and administrative, research
and development, compensation and related expenses, and marketing expense to provide
investors with a quantified understanding of significant underlying components of these
line items that are material to your operations. Your current disclosures only provide
explanation of the year-over-year change and the nature of and drivers of current year
activity are unclear. Further, enhance your disclosures to clarify the impact of material
changes on future operating trends. Refer to Item 303(b)(2) of Regulation S-K and Section
III.D of SEC Release No. 33-6835.
Validator Revenue, page 13
26.You disclose validator revenue as your only revenue item.  However, you also disclose on
page 15 that you generate revenue from staking transactions using your own validator
nodes as well as staking on third party nodes, and that you also purchase crypto assets for
non-staking activities.  Further, your int