Summary Bit Digital has had a busy March with partnership announcements and a new CEO. With Mega Matrix, Bit Digital hopes to get exposure to an institutional-grade ETH staking protocol. I have doubts about this. Bit Digital has also invested in Auros Global, a market maker and crypto derivatives business. I think this deal will bear much more fruit. It's been a busy month of announcements for Bit Digital (BTBT). In March alone, the company has announced investments in a derivatives protocol, a staking platform, and a change in leadership. I'll share some general thoughts on the partnership-specific developments in a moment and take a stab at how I think the company likely views potential synergies between its core Bitcoin (BTC-USD) mining business and the two entities that it will now be working closely with. First though, last week Bit Digital announced CEO Bryan Bullett would be finished in the role at the end of the month: Effective March 31, 2023, Bryan Bullett, the Company's Chief Executive Officer, will conclude his term as CEO. Mr. Bullett will assume the role Senior Advisor, in which he will lead strategic growth initiatives for the Company. Sam Tabar, the Company's Chief Strategy Officer, will be appointed CEO. Bullett is to be replaced by Sam Tabar. Judging from the company's website and his presence at a Bitcoin conference earlier this month, it appears as though Tabar is already in the role and this announcement has been more of a formality than anything else. Mega Matrix: Intentions vs. Operations On March 7th, Bit Digital announced the launch of a staking joint venture with Mega Matrix Corp (MPU). Capitalizing on staking as an incremental revenue driver certainly makes sense given Bit Digital's focus on Ethereum (ETH-USD) staking, it's the choice to work with Mega Matrix that I find a bit bizarre. There isn't much detail about the deal from Bit Digital's press release aside from Bit Digital's 40% ownership in a new joint venture entity that will utilize "MarsProtocol" as a client-facing ETH staking solution: Through MarsProtocol, the Joint Venture will seek to provide non-custodial staking tools whereby users' private keys are not stored in its database to ensure the safety of its users' digital assets. Pursuant to the Agreement, Bit Digital will own 40% of the Joint Venture Company. Mega Matrix doesn't appear to have a viable business at the moment. The company had virtually no operating revenue from the prior 2 quarters, recently closed down a flopped GameFi project, and is running out of cash very quickly. Furthermore, MarsProtocol doesn't appear to be operational yet. I can't help but wonder why this is the company Bit Digital picked to build what appears to be a very basic front end application for ETH staking. And an application that doesn't appear to provide a liquid staking token for use in other DeFi activities or address the 32 ETH minimum requirement problem: MarsProtocol I can understand not offering pooled staking since the stated intention is for institutional clients who may not see the staking minimum as a hurdle, but I have a hard time believing a company with seemingly no expertise in Ethereum staking will be able to attract large institutional flows. What would make more sense would be if Bit Digital intends to use a staking protocol that it partially owns for ETH staking rather than paying a fee to a service provider run by a separate entity. But so far, that's purely speculation on my part. It would be a savvy move if that is indeed the goal, I'm just not sure Mega Matrix is the team to go with given the results of a recent security audit. The security audit of the MarsProtocol demo site by Certik raised three issues; two of which were considered "major" flaws that involved poor security configurations pertaining to password strength and unencrypted communications. While all of the findings from Certik's audit have apparently been resolved, it doesn't exactly give confidence that a staking protocol that utilizes cryptography didn't have encrypted communications or proper password strength parameters in place from the jump. Given the Mega Matrix pivot from a failed GameFi/NFT exchange business in November to an Ethereum staking platform now, it's unfortunate that we don't know how much capital Bit Digital poured into this joint venture because I'm not sure how much fruit this business will actually bear. It isn't all bad news though. Auros Global: Distressed Investment The other recent partnership announcement from Bit Digital this month is a strategic investment in Auros Global. Auros is a market maker and derivatives trading firm that ended up restructuring debt after having $20 million tied up in FTX (FTT-USD). Without any ability to access those funds, Auros couldn't pay back $18 million in Maple Finance DeFi loans. One of the company's creditors is M11 Credit. In February, M11 Credit wrote that an agreement had been reached with Auros that would see all of the outstanding loans paid back. According to M11 more than half of it already has been: 55% of the outstanding debt has been repaid already 40% of the outstanding debt was reissued for 9 months at 8.64% interest - spread over three 90 day cycles 5% of the outstanding debt was reissued for 90 days at 0% Auros' CEO is Benjamin Roth. In a recent interview with CoinDesk, Roth stated Auros Global accounted for roughly 1-2% of total crypto market trading volume and was a profitable business before the FTX collapse. For Bit Digital, this partnership seems to make a lot more sense to me. Tabar is quoted in a blog post from Auros and said this deal will allow Bit Digital to generate yield on digital assets and possibly even hedge pricing volatility from BTC production: Bit Digital's investment in Auros underscores our confidence in the firm's robust infrastructure and its ability to complement our core business. Through unique yield generation opportunities and bespoke hedging solutions, Auros is able to provide sophisticated support to Bit Digital whilst also working to bring much needed liquidity and market making capabilities to the industry. Unlike the Mega Matrix/MarsProtocol partnership, Auros Global is already an established business. But it is a business that was in the unfortunate position of being caught up in the FTX drama. Auros needed funding and probably didn't have too many options in an environment like the one we're currently in. Bit Digital has assets and potential synergies as a digital asset producer that may want to hedge pricing volatility from production and/or put assets to work in DeFi protocols. This deal makes considerably more sense to me. Summary I'm looking forward to both Bit Digital's March production update and the company's next earnings report. I've spent some time watching and listening to interviews featuring Sam Tabar and he seems to "get it." I like the Auros Global move quite a bit. Mega Matrix is a bit more of a head scratcher and I don't have high hopes for MarsProtocol but I'd love to be proven wrong. I still think there are a lot of risks in this name and it's not a company that I think crypto equity investors or traditional equity investors should get over-exposed to. But it is an interesting company that I believe warrants a speculative bet given the balance sheet health relative to peers and the ETH Staking strategy . I have small long BTBT position.
