SecProbe.io

CORRESP
1
filename1.htm

March
3, 2023

Securities
and Exchange Commission

Division
of Corporation Finance

100
F Street, NE

Washington,
D.C. 20549-4561

  Attn:
  Melissa
  Walsh

  Stephen
  Krikorian

  Re:
  Marathon
  Digital Holdings, Inc

  Form
  10-K for the Fiscal year Ended December 31, 2021

  Form
  10-Q for the Quarterly Period Ended September 30, 2022

  File
  No. 001-36555

Dear
Ms. Walsh and Mr. Krikorian:

This
letter constitutes the response (“Response”) of Marathon Digital Holdings, Inc. (the “Company”) to your comment
letter dated February 22, 2023 (the “Letter”) to Hugh Gallagher, Chief Financial Officer of the Company, relating
to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “2022 10-K”) and Form
10-Q for the quarterly period ended September 30, 2022 (the “Q3 2022 10-Q”). Unless otherwise indicated, capitalized terms
used herein have the meanings ascribed to them in the 2022 10-K and third quarter 2022 10-Q. For ease of reference, we have copied
each comment verbatim in bold type from your Letter and have placed our response immediately below each comment.

Form
10-Q for the quarterly period ended September 30, 2022

Notes
to Consolidated Condensed Financial Statements

Note
1 - Organization and Description of Business

Reclassifications,
page 7

1. We
                                            note your disclosure that realized gain on sale of digital currencies have now been reclassified
                                            as other non-operating income. Please revise such classification, consistent with your response
                                            to prior comment 1 in your letter dated August 1, 2022 indicating you would present realized
                                            gain on the sale of digital currencies as a component of income or loss from operations on
                                            a prospective basis with prior comparative periods reclassified.

Response:
We note the Staff’s comment and will classify the realized gains on sales of digital currencies to be reflected in
operating income for all periods presented consistent with our prior response in our letter of August 1, 2022. This will be addressed
in our Form 10-K for the year ended December 31, 2022.

    Securities Exchange Commission

March 3, 2023

Page 2

Digital
Currencies, Digital currencies, restricted and Digital currencies loaned, page 8

2. We
                                            note your response to prior comment 4. We note that impairment exists whenever carrying value
                                            exceeds fair value. Given the significant intraday volatility that has occurred in historical
                                            periods, it does not appear that your accounting convention complies with the ASC 350-30-35-19
                                            requirement to recognize impairment whenever carrying value exceeds fair value. Please revise.

Response:
We thank the staff for your consideration of our position on impairment of indefinite lived intangibles, which we previously
believed was appropriate based on our interpretation of the standards and our use of industry guidance on ASC 350 and ASC 820. We acknowledge
your direction to revise our position and as such we are restating our historical financials in the upcoming 10-K filing such that impairment
of digital assets will be reflected utilizing the intraday low price.

A
draft of our updated disclosure follows:

Digital
assets are included in current assets in the consolidated balance sheets. Digital assets are accounted for as indefinite lived intangible
assets, and are initially measured at cost, in accordance with FASB ASC 350 – Intangibles-Goodwill and Other. Digital assets, restricted
represent collateral for long-term loans and as such are classified as a non-current asset.

These
digital assets are not amortized but are assessed for impairment annually, or more frequently, when events or changes in circumstances
occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Whenever the exchange-traded price of digital
assets declines below its carrying value, the Company has determined that an impairment exists and records impairment equal to the amount
by which the carrying value exceeds the fair value

Digital
Currencies Held in Fund, page 9

3. We
                                            continue to consider your response to prior comments 6, 11, 12, and 13 and may have further
                                            comment.

Response
for prior comment 6 – We have reviewed this position further and have decided to restate our previously issued financial
statements to correct this classification error. We have concluded that the error, which we had previously considered a significant deficiency,
constitutes a material weakness around the application of GAAP and this material weakness, along with other material weaknesses will
be disclosed in our upcoming 10-K filing.

Response
for prior comments 11, 12, and 13 – It is our understanding from conversations with the Staff that the Staff is no
longer pursuing the issues discussed in these prior comments. Please confirm our understanding if possible.

Investments,
page 9

4. We
                                            note your expanded disclosure in response to prior comment 8. Revise to also address how
                                            you account for your $35.5 million investment in Auradine, Inc. preferred stock, including
                                            the basis for the classification and the initial and subsequent measurement.

Response:
We acknowledge the Staff’s comment and confirm that we will expand our disclosure in the “Investments”
section of the SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES footnote to clarify the accounting for the $35.5 million investment in Auradine,
Inc., preferred stock, including the basis for the classification and the initial and subsequent measurement in our upcoming 10-K filing
for the year ended December 31, 2022 as follows:

Investments,
which may be made from time to time for strategic reasons (and not to engage in the business of investments) are included in non-current
assets in the consolidated balance sheets. Investments without a readily determinable fair value are recorded at cost minus impairment,
plus or minus changes from observable price changes in orderly transactions for identical or similar investments of the same issuer in
accordance with the measurement alternative described in Topic 321 Investments – Equity Securities (“ASC 321”). As
part of the Company’s policy to maximize return on strategic investment opportunities, while preserving capital and limiting downside
risk, the Company may at times enter into equity investments or Simple Agreements for Future Equity (“SAFE”) agreements.
The nature and timing of the Company’s investments will depend on available capital at any particular time and the investment opportunities
identified and available to the Company.

    Securities Exchange Commission

March 3, 2023

Page 3

On
December 21, 2021 and December 30, 2021, the Company entered into two separate SAFE agreements classified on the balance sheet as non-current
assets. SAFE agreements are accounted for as equity securities without readily determinable fair value at cost minus impairment, as adjusted
for observable price changes in orderly transactions for identical or similar investment of the same issue pursuant to ASC 321.

On
February 3, 2022, the Company invested approximately $10 million in convertible preferred stock of Compute North Holdings, Inc. The acquisition
of convertible preferred stock was accounted for as investments in equity securities without readily determinable fair value at cost
minus impairment, as adjusted for observable price changes in orderly transactions for identical or similar investment of the same issuer
pursuant to ASC 321. This investment was subject to an impairment of $10.0 million following Compute North’s Chapter 11 Bankruptcy
filing in September 2022 (See COMPUTE NORTH BANKRUPTCY footnote).

On
May 3, 2022, the Company converted $2.0 million from a SAFE investment into preferred stock while purchasing an additional $3.5 million
of preferred stock in Auradine, Inc. along with entering into a commitment to acquire $30.0 million of additional shares of preferred
stock. This forward contract was accounted for under ASC 321 as an equity security.

On
September 27, 2022, the Company increased its investment in the preferred stock of Auradine, Inc. by $30.0 million, bringing its total
carrying amount of investment in Auradine, Inc. preferred stock to $35.5 million. The preferred stock is accounted for as investments
in equity securities without a readily determinable fair value at cost minus impairment, as adjusted for observable price changes in
orderly transactions for identical or similar investments from the same issuer pursuant to ASC 321. During 2022, there were no noted
impairments or other adjustments (See NOTE 15 - RELATED PARTY TRANSACTIONS footnote).

As
of December 31, 2022, the Company has one remaining SAFE investment with a carrying value of $1.0 million, with no noted impairments
or other adjustments.

Note
3 - Revenues from Contracts with Customers, page 11

5. As
                                            we continue to evaluate your accounting policy disclosure for your Participant, Private Pool
                                            Participant, and Operator revenue streams, please further revise your revenue recognition
                                            policy disclosure to ensure the following items are succinctly articulated:

 ● How
                                            you determine when a contract exists, including what consideration was given to whether the
                                            contracts are terminable by either party at any time without compensation;

 ● The
                                            nature of your performance obligations, ensuring consistent references to computing power
                                            and transaction verification services;

    Securities Exchange Commission

March 3, 2023

Page 4

 ● How
                                            the transaction price is determined, including when you measure noncash consideration. In
                                            this regard, you disclose that it is measured at contract inception, but we also note your
                                            disclosures that it is determined using the daily closing rate. Please also clarify any reference
                                            to consideration as variable if it is known at contract inception;

 ● Whether
                                            your conclusion that the accounting convention for measuring noncash consideration is not
                                            materially different is based on the volatility of bitcoin on the day it is measured or for
                                            purposes of financial reporting; and

 ● Disclose
                                            the amount of revenue recognized from each of your types of arrangements in each of the periods
                                            presented.

Response:
The Company respectfully acknowledges the Staff’s comment and will accordingly revise its accounting policy and expand
its disclosures in the “Revenue From Contracts with Customers” section of the SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Footnote to revise the revenue recognition policy in line with the disclosure requirements under ASC Topic 606, Revenue from Contracts
with Customers in our upcoming 10-K filing for the year ended December 31, 2022. The following responses correspond to each point in
the foregoing comment from the Staff. The responses below should be reviewed in conjunction with the revised revenue recognition policy
as stated below in comment 7.

a)
– c) The Company acknowledges the Staff’s comment and accordingly revised the revenue recognition policy. Please refer to
the respective sections for the revised policy stated in the response to comment 7 below.

d)
The Company has evaluated the quantitative impact of the difference between recognizing revenue at fair value of bitcoin at contract
inception versus recognizing revenue using the accounting convention i.e. at the daily closing U.S. dollar spot rate of bitcoin on the
date of contract inception (when the Company is a pool operator) or the date block rewards and transaction fees to which the Company
is entitled for its contribution to a third party mining pool is received, respectively. The impact is quantitatively immaterial to the
Company’s consolidated statement of operations for all periods presented as indicated below:

    (in thousands)
    Years ended December 31,

    2022
    2021 (Restated)

    Operator

    Company’s accounting convention
    $ 113,491
    $ 138,589

    Revenues at contract inception
      113,856
      138,595

    Difference
      (365 )
      (6 )

    Participant

    Company’s accounting convention
      4,262
      20,574

    Revenues at contract inception
      4,236
      20,619

    Difference
      26
      (45 )

    Total Revenue

    Company’s accounting convention
      117,753
      159,163

    Revenues at contract inception
      118,092
      159,214

    Difference
      (339 )
      (51 )

e)
Please refer to the disaggregation of revenues recognized for each of our identified revenue streams as presented in our revised revenue
recognition policy in the response to comment 7 below.

    Securities Exchange Commission

March 3, 2023

Page 5

6. In
                                            order to help us to continue to evaluate your accounting policy for your participation in
                                            third party bitcoin mining pools, please address the following:

a) Clarify
for us whether your contracts with third party bitcoin mining pool operators are terminable by either party at any time without compensating
the other party for the termination (that is, other than paying amounts due as a result of goods or services transferred up to the termination
date).

b) Clarify
for us whether you are only entitled to consideration for computing power provided for the successful placement of a block on the bitcoin
blockchain by the third party and that you are not entitled to any compensation for computing power provided for unsuccessful attempts
to place a block on the bitcoin blockchain by the third party.

c) Provide
your materiality analysis for the difference between your accounting convention for measuring noncash consideration received for your
third party pool participation for each quarterly and year-to-date period through December 31, 2022.

Response:
The Company respectfully acknowledges the Staff’s comment along with previous comments and will accordingly revise
its accounting policy and expand its disclosures in the “Revenue From Contracts with Customers” section of the SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES Footnote in our upcoming 10-K filing for the year ended December 31, 2022. The following responses correspond
to each point in the foregoing comment from the Staff. The responses below should be reviewed in conjunction with the revised revenue
recognition policy as stated below in comment 7.

a)
We acknowledge the Staff’s comment and confirm that our contracts with third-party mining pool operators are terminable at any
time by either party for convenience without compensating the other party for such termination.

b)
We acknowledge the Staff’s comment and confirm that the Company is only entitled to consideration for computing power provided
for the