SecProbe.io

CORRESP
1
filename1.htm

May
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, 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 April 6, 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, 2022 (the “2022 10-K”). Unless otherwise indicated, capitalized
terms used herein have the meanings ascribed to them in the 2022 10-K. For ease of reference, we have copied each comment verbatim
from your Letter and have placed our response immediately below each comment.

Form
10-K for the year ended December 31, 2022

Business

Corporate
Overview

History
and Pivot to Bitcoin Mining, page 5

    1.
    Clarify
    the types of businesses that are “ancillary” to your bitcoin mining business that you may expand into in the future.

    Response:
    In order to address comments which request revision of information in the 2022 10-K, we propose to file an Amendment No. 1to
    Form 10-K for the year ended December 31, 2022 (the “10-K/A”), which will be filed subsequent to our submission of this
    comment response letter. The 10-K/A will contain, verbatim, all proposed disclosures set forth in this comment response letter,
    subject to any further comments we may receive from the Staff. Where we indicate in this letter that language will be added in the
    10-K/A, the language will also be included prospectively in all future periodic filings and other disclosure filed with the SEC,
    where relevant. In response to this comment, we will revise to include the following language in the 10-K/A:

    Ancillary
    businesses are those that relate to the Bitcoin ecosystem but may be above and beyond those directly related to the self-mining of
    bitcoin. The ancillary businesses most closely related to mining of bitcoin may include, but will not be limited to, management
    of bitcoin mining facilities for third party owners and advisory and consulting services to third parties seeking to set up and
    operate bitcoin mining facilities and joint ventures for bitcoin mining projects in domestic and international jurisdictions
    such as our project in Abu Dhabi, United Arab Emirates. We will also seek to be involved in bitcoin related projects including but
    not limited to development of technologies in immersion, hardware, firmware, mining pools and side chains that use the bitcoin blockchain.
    We will also seek to be involved in the development of projects and technologies for generating electricity from renewable energy
    sources as well as methane gas capture to power bitcoin mining projects.

    Securities Exchange Commission

May 3, 2023

Page 2

Risk
Factors, page 12

    2.
    Please
    revise to also address any material risk or impact that the current crypto asset market disruption may have on the use and valuation
    of your mining rigs. In this regard, we note the decrease in the cost of bitcoin mining rigs that was driven by the drop in bitcoin
    prices during the fourth quarter ended December 31, 2022 resulted in significant impairment of your mining rigs and the deposits
    with bitcoin mining equipment manufacturers. Also address the risk that bitcoin mining rigs would have to be shut down for lack of
    profitability once the price of bitcoin declines below a certain amount.

    Response:
    In response to this comment, we will add in the following new risk factor in the 10-K/A:

    Further
    significant disruptions in the crypto asset markets, such as those experienced in the second half of 2022, may cause further material
    impairment of the value and use of our mining rigs.

    During
    the fourth quarter of 2022, the per coin price of bitcoin reached a low of approximately $15,500 from a high of high of almost $21,500
    earlier in the quarter. This decrease in the price of bitcoin combined with the general market sentiment caused in large part by
    the FTX collapse and various bitcoin company related bankruptcies and restructurings led to a material decline in the fair value
    of our mining rigs and deposits for future mining rig purchases. As a result, we recorded an impairment charge of $332,933 thousand
    on these assets during that period, although operations were unaffected and continued throughout. Furthermore, future decreases in
    the value of bitcoin could cause us to record additional impairments in the value of these and future mining rig assets.

    Securities Exchange Commission

May 3, 2023

Page 3

    In
    addition, if bitcoin prices dropped to levels below that experienced in 2022 and held at those levels for a significant period of
    time, it could impact our profitability to the point that we would have to consider whether there would be less diminution of value
    if we were to leave certain of our miners to idle until the price of bitcoin recovered.

    Theoretically,
    there is a minimum bitcoin price that is so low that Marathon would want to turn off its miners. However, this is a complex projection
    involving multiple ever-changing, dynamic variables. Marathon has multiple mining sites and hosting partners, all with different
    hosting prices, electricity prices, and contract structures. These costs, some fixed and some variable, would need to be compared
    to the current revenue being produced by the miners.

We
may have further restrictions on our liquidity due to unique risks which we could face in 2023, page 24

    3.
    We
    note your response to prior comment 23 regarding various risks due to disruptions in the crypto asset markets. Please address the
    termination of your term loan and line of credit with the now closed Silvergate Bank, which was your primary lender. Clarify here
    and in your MD&A section how the lack of access to up to $200 million of bank loans and credit will impact your operations and
    liquidity. For example, clarify whether the lack of a lender and current market conditions will make it difficult to meet your funding
    obligations for the Abu Dhabi joint venture or the buildout of your mining operations in 2023. Further, clarify whether you may have
    difficulty finding another lender that will offer you similar or favorable terms given the current volatile environment in the crypto
    asset markets.

    Response:
    We will add the following disclosure in the 10-K/A:

    The
    termination of the $200 million in loan facilities with Silvergate Bank did not have a material impact on our operations or forecasts
    with regard to liquidity. The loans were fully collateralized by our holdings of bitcoin and as such, we were only permitted to borrow
    up to a percentage (65%) of the value of the bitcoin held as collateral. Specific percentages and conditions are set forth in our
    Management’s Discussion and Analysis in disclosure regarding Bitcoin held as collateral for loans (“Digital assets,
    restricted”).

    Securities Exchange Commission

May 3, 2023

Page 4

    In
    response to the disruptions in the crypto markets and rising interest rates during the fourth quarter of 2022, we decided to move
    away from leverage and instead chose to rely on increased levels of cash and higher balances of unrestricted bitcoin holdings, which
    we are now selling periodically (starting in January 2023) as a means of generating cash for operations. By
    selling bitcoin outright, we can realize 100% of the then value of the bitcoin when addressing liquidity needs (refer to the Liquidity
    outlook disclosure in MD&A on page 49 for further disclosure regarding our liquidity analysis).

    It
    is important to note that in measuring our prospective liquidity forecasts, we did not include loan availability given the loans
    were collateralized. In addition, we believe that with the consistently higher bitcoin mining levels which we have achieved, selling
    bitcoin is a more conservative and sustainable methodology for providing liquidity given current market conditions and interest rates.

    We
    believe that with the increased cash, access to our ATM Facility, as needed, and bitcoin holdings and with periodic access to capital
    markets, we have sufficient liquidity to fund operations and growth initiatives, including our investment in the UAE joint venture.

    4.
    We
    note that your cash is primarily held at Signature Bridge Bank, NA, as overseen by the FDIC, since Signature Bank, NA, was closed
    by New York State banking regulators. Please address the risk to your cash, acknowledging that your deposits are only insured up
    to $250,000 at the bank, however, the federal government will provide you access to your funds but are not required to do so under
    current banking laws or in the future. Address how you will mitigate such risks in the future for bank failure of any institution
    where you will hold a material amount of cash assets.

Response:
We did not experience a risk or damage as a result of the recent bank closures, and will address as follows in our 10-K/A:

In
response to the closure of Signature Bank, we have moved all of our cash to other FDIC insured institutions and did not suffer any loss
of funds whatsoever from this event. In order to help mitigate and avoid concentration risk with a single bank, we have diversified our
cash holdings and now maintain cash management relationsips at four commercial banking institutions. In addition, as a result
of the current elevated risk of possible insolvency of banks, we have implemented a policy of purchasing short-term US treasury bills
as an additional means of risk mitigation for periods when our cash balances are higher than our near-term anticipated and planned operating
cash flow needs.

    Securities Exchange Commission

May 3, 2023

Page 5

Management’s
Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policies and Estimates Digital assets,
page 36

    5.
    Please
    explain how you determined that the price of digital assets used for purposes of assessing impairment is a Level 2 input under ASC
    820. Refer to ASC 820-10-35-37 through 35-54A. Also explain how the use of “multiple observable inputs (exchanges) that provide
    slightly differing benchmarks of digital asset value” is consistent with the guidance in ASC 820-10-35-5.

    Response:
    The data the Company utilized in assessing impairment for the years ended December 31, 2021, December 31, 2022, and all interim
    periods within, was sourced from CoinMarketCap as reported by Yahoo Finance. The prices quoted on CoinMarketCap are not based on
    any single exchange but are based on volume weighted average of several exchanges including Coinbase. As a result, CoinMarketCap
    is not a market and is not considered to be the principal market for Company’s bitcoin but uses inputs that include quoted
    prices from Coinbase and other exchanges, the CoinMarketCap price used by the Company in its assessment of impairment as reported
    in the 10-K is considered to be a Level 2 input.

    The
    Company acknowledges the Staff’s comment and that ASC 820-10-35-5 and 35-5A assume that the fair value measurement ordinarily
    assumes transactions of the asset in its principal market and that absent evidence to the contrary, the market on which an entity
    normally transacts for the relevant asset is presumed to be the principal market. The Company transacts in bitcoin through a broker
    (NYDIG), which is in itself not a market. Therefore, the Company has no transactional market for bitcoin and determined that Coinbase
    is its principal market as it provides the most reliable and greatest volume and level of activity for bitcoin for which the Company
    can access at each of the impacted measurement dates. Management has determined that Coinbase was its principal market for the years
    ended December 31, 2021, December 31, 2022, and all interim periods within. The Company further notes that volume and activity data
    for bitcoin is reasonably available from Coinbase, and that ASC 820-10-35-36B states in part “in all cases, if there is a quoted
    price in an active market (that is a Level 1 input) for the asset or a liability, a reporting entity should use that quoted price
    without adjustment when measuring fair value, except as specified in paragraph 820-10-35-41-C.” The Company therefore determined
    that its use of CoinMarketCap pricing data was not in compliance with GAAP for the years ended December 31, 2021, December 31, 2022,
    and the interim periods within.

    Securities Exchange Commission

May 3, 2023

Page 6

    The
    Company notes that the CoinMarketCap and Coinbase daily closing prices are on average 99.97% similar, and intraday low prices are
    on average 99.65% similar. The Company evaluated the impact resulting from its use of a Level 2 input and determined that the misstatement
    is both quantitatively and qualitatively immaterial to the Company’s financial statements as of and for the years ended December
    31, 2021 and December 31, 2022 as well as for each interim periods within. The cumulative difference is immaterial and will
    be corrected as an out-of-period adjustment in the financial statements for the quarterly period ended March 31, 2023 (along with
    transparent disclosure as to the nature and effect of the adjustment) as the effect is immaterial to the projected 2023 full year
    income statement. Management further notes that the misstatement does not mask any changes in earnings or trends, does not change
    income to a loss, and is not expected to result in any negative market reaction. As such, the misstatement is not considered to be
    qualitatively material to reasonable users of the Company’s financial statements.

    The
    Company will disclose the movement of bitcoin pricing from a Level 2 to a Level 1 input in accordance with disclosure requirements
    in Topic 820. Management also confirms that as of January 1, 2023 it utilizes Coinbase pricing in its determination of impairment
    of its bitcoin. As Coinbase is the Company’s principal market, observable pricing from Coinbase is therefore a Level 1 input
    and will be disclosed as such.

    Additionally,
    we will revise our disclosure in the 10-K/A to remove “multiple observable inputs” and state the following instead “as
    these were based on observable quoted prices in the Company’s principal market for identical assets.”

    6.
    Please
    tell us why your policy indicates that any realized gains or losses from sales of digital assets are included in other income (expense).
    In this regard, we note the classification of realized and unrealized gains (losses) on digital assets loan receivable and digital
    assets within operating loss on your statements of other comprehensive income (loss). Also refer to your response to 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.

    Response:
    We advise the Staff that realized gains (losses) from sales of digital assets are included in operating expenses, which is part
    of our operating income (loss) subtotal. We will revise our MD&A critical accounting policy discussion in the 10-K/A to correct
    the disclosure language.

    Securities Exchange Commission

May 3, 2023

Page 7

Revenues
from contracts with customers, page