Executive Summary / Key Takeaways

• BTCS is strategically focusing on Ethereum blockchain infrastructure, particularly its high-growth Builder operations and NodeOps, while streamlining non-core activities.
• First Quarter 2025 revenue saw a significant 274% year-over-year increase to $1.69 million, primarily driven by the rapid scaling of the Ethereum block-building (Builder) segment.
• Despite strong top-line growth, Q1 2025 resulted in a net income of $17.27 million, heavily influenced by a large non-cash gain from the change in fair value of crypto assets ($14.53 million unrealized depreciation), contrasting with a prior-year gain ($13.10 million unrealized appreciation), highlighting significant exposure to crypto market volatility.
• The Builder segment, while driving revenue, incurred a gross loss in Q1 2025 due to substantial Validator Payments ($1.48 million), indicating potential margin pressure as this operation scales.
• Recent financing activities, including an AAVE loan and a $7.81 million convertible note issuance (purchase price $7.42 million), are specifically earmarked for acquiring additional Ethereum, underscoring the commitment to scaling core operations and providing liquidity runway.

A Strategic Pivot in the Digital Asset Landscape

BTCS Inc. is positioning itself as a key player in the burgeoning blockchain infrastructure space, with a sharpened focus on the Ethereum network. The company, which traces its roots back over a decade, has evolved significantly, moving from earlier ventures to concentrate on the foundational layers of decentralized networks. This strategic evolution is centered around two primary activities: Validator Node Operations (NodeOps) and the rapidly expanding Ethereum Block Building (Builder) segment. Complementing these is ChainQ, an AI-powered data and analytics platform currently in beta, designed to enhance transparency within the ecosystem.

The competitive landscape for BTCS is dynamic, encompassing both direct rivals in blockchain operations and staking, such as Bit Digital (BTBT), Marathon Digital Holdings (MARA), Riot Platforms (RIOT), and Hut 8 (HUT), as well as indirect competitors like decentralized finance platforms and large AI/HPC providers. BTCS differentiates itself through its focus on user-centric analytics and aims for efficiency in its staking operations. However, it faces challenges related to scale, operational efficiency, and financial health metrics when compared to some larger, more established players who are also increasingly pivoting towards high-performance computing and AI infrastructure.

BTCS's technological foundation is built upon proprietary systems designed to optimize its blockchain activities. The Builder operation leverages advanced algorithms to construct Ethereum blocks, aiming to maximize gas fee revenue. While specific quantifiable performance metrics for these algorithms are not detailed, the strategic intent is clear: to gain a competitive edge in the profitable block-building market. ChainQ, the AI-powered platform, is intended to simplify on-chain data analysis, leveraging insights from the company's infrastructure activities and recently integrating historical Bitcoin data. This platform aims to provide a unique value proposition in accessibility and analytics, potentially offering faster portfolio evaluation compared to some competitors. The company's R&D efforts, which saw increased investment in Q1 2025, are primarily directed towards enhancing Builder strategies and developing ChainQ. Recent infrastructure upgrades, including migrating to bare metal servers and transitioning the Builder+ platform to Rust, target improved operational efficiency, system performance, and cost optimization. Utilizing protocols like Rocket Pool is part of a strategy to drive revenue growth and improve margins within Ethereum infrastructure. While some competitors may offer greater scalability in data centers or faster HPC processing speeds, BTCS is attempting to carve out its niche through specialized analytics and operational efficiency in its core areas.

Builder: The New Growth Engine with Margin Questions

The most compelling story from BTCS's recent performance is the explosive growth of its Builder operations. Launched in 2024, this segment has quickly become the primary revenue driver. For the three months ended March 31, 2025, Builder contributed approximately $1.35 million in revenue, a dramatic increase from just $33,033 in the same period last year. This nearly 40x increase underscores the rapid scaling and increasing importance of Ethereum block-building to the company's top line.

However, this growth comes with significant costs. The cost of revenues for Builder operations totaled approximately $1.52 million in Q1 2025, resulting in a gross loss of $172,249 for the segment. The primary driver of these costs is Validator Payments, which amounted to approximately $1.48 million. These payments are made to external parties to secure block space for the block-building activities. Management anticipates that as block-building operations continue to expand, cost of revenues will rise correspondingly, and potentially at a greater rate than revenue, which could further reduce gross margins in this segment. The recent expansion into block-building on Binance Smart Chain, subsequent to the quarter end, suggests a strategic move to diversify this high-growth activity across networks.

NodeOps: A Stable, High-Margin Foundation

Alongside the dynamic Builder segment, BTCS continues to operate its NodeOps business, providing validator node services and staking-as-a-service. This segment generated approximately $339,000 in revenue in Q1 2025, a decrease of about 18.8% from $418,353 in the prior-year quarter. Despite the revenue decline, NodeOps maintained a high gross margin of approximately 86.2%, contributing $292,525 in gross profit.

The decrease in NodeOps revenue reflects, in part, strategic decisions to streamline operations. During Q1 2025, BTCS ceased operating validator nodes on Avalanche, and in April 2025, it also exited operations on the Akash and Kava networks. This indicates a strategic focus on optimizing resource allocation towards core, potentially more profitable or strategically important, networks, aligning with the broader pivot towards Ethereum infrastructure. The non-custodial nature of BTCS's Staking-as-a-Service model remains a key operational detail, mitigating certain custodial risks associated with holding third-party assets.

Financial Performance: Volatility and Expense Growth

Overall, BTCS reported total revenues of $1.69 million for the three months ended March 31, 2025, a substantial 274% increase from $451,386 in the prior-year period, primarily driven by the Builder segment's growth. However, the company's bottom line was significantly impacted by operating expenses and non-cash adjustments related to its crypto asset holdings.

Total operating expenses increased by 171% year-over-year to $3.08 million in Q1 2025. This rise was driven by increases across several categories:

• General and administrative expenses grew by 15% to $558,388, reflecting higher payments for order flow supporting Builder, expanded investor relations, and increased accounting/audit fees.
• Research and development expenses increased by 43% to $209,251, primarily due to continued investment in Builder strategies and ChainQ development.
• Compensation and related expenses rose by 51% to $688,202, attributed to increased headcount and larger accruals for performance-based bonuses tied to operational and financial milestones.
• Marketing expenses saw a significant jump of 326% to $245,172, reflecting expanded advertising and promotional activities.
• Realized losses on crypto asset transactions amounted to $1.38 million in Q1 2025, primarily from the strategic sale of Kusama (KSM) holdings, compared to a small gain in the prior year.

The most significant factor influencing the net result was the change in unrealized appreciation/depreciation of crypto assets, recorded within Other Income/Expense. In Q1 2025, the company recognized $14.53 million in unrealized depreciation of crypto assets, a sharp reversal from the $13.10 million in unrealized appreciation recognized in Q1 2024. This swing of over $27 million highlights the profound impact of crypto market volatility on BTCS's reported net income, which is measured at fair value each period.

As a result of these factors, BTCS reported net income of $17.27 million for Q1 2025, compared to net income of $12.26 million in Q1 2024. While the net income figure appears positive, it is crucial to understand that it is heavily skewed by the non-cash fair value adjustments of crypto assets. The operating loss (revenue less cost of revenue and operating expenses) was approximately $1.39 million in Q1 2025 ($1.69M - $1.57M - $3.08M), compared to an operating loss of approximately $850,000 in Q1 2024 ($451k - $161k - $1.14M).

Looking at TTM financial ratios provides additional context. BTCS's TTM Gross Profit Margin stands at 14.63%, significantly lower than its historical levels, reflecting the impact of the high-cost Builder operations. TTM Operating and Net Profit Margins are deeply negative (-155.86% and -579.85%, respectively), underscoring the current lack of operating profitability and the impact of non-operating items. The TTM EBITDA Margin is also negative at -163.71%. These figures highlight the company's current stage of investing in growth and infrastructure, where expenses and non-cash volatility impacts outweigh operating revenues.

Liquidity and Capital Strategy: Fueling the Ethereum Ambition

As of March 31, 2025, BTCS had approximately $270,000 in cash and cash equivalents and working capital of approximately $20.20 million, largely comprised of staked crypto assets. Recognizing the need for additional capital to fuel its strategic focus on Ethereum, the company has been active in financing activities, both during and subsequent to the quarter end.

During Q1 2025, BTCS raised approximately $229,000 in net proceeds through its At-The-Market (ATM) Offering Agreement. Subsequent to the quarter, from April 1 to May 13, 2025, the company sold an additional 888,510 shares under the ATM, generating approximately $1.39 million in net proceeds. Since the ATM's inception in September 2021 through May 13, 2025, BTCS has raised approximately $25.00 million in net proceeds. However, due to SEC 'baby shelf' rules, the company's ability to raise funds via the ATM is currently limited to approximately $12.14 million over any 12-month period, subject to changes in its public float and stock price.

Further demonstrating its commitment to expanding Ethereum holdings, in April 2025, BTCS borrowed $320,000 USDT from the AAVE decentralized lending protocol. This loan is collateralized by Ethereum and has a variable interest rate. Crucially, the proceeds from this loan were used to acquire additional ETH. This strategy introduces liquidation risk if the price of ETH declines significantly relative to the loan amount.

The most significant recent financing event occurred on May 13, 2025, when BTCS issued $7.81 million in 5% Original Issue Discount Senior Secured Convertible Notes for a purchase price of $7.42 million. These notes mature in 24 months, accrue 6% annual interest (payable quarterly in cash or shares), and are convertible into common stock at $5.85 per share, subject to a beneficial ownership blocker. The notes are secured by substantially all of the company's assets, excluding the ETH collateralizing the AAVE loan. The participation of CEO Charles Allen and a related trust in this offering underscores management's belief in the company's strategy.

Management believes that its existing cash and crypto assets, combined with the proceeds from the May 13 financing and the ability to raise additional funds through the ATM, provide sufficient liquidity to meet operational needs, capital expenditures, and strategic funding requirements for at least the next twelve months from the filing date. This assessment is, however, contingent on market conditions and the volatile nature of crypto assets, which may not always serve as a readily liquid source of funds, especially considering potential lock-up periods for staked assets (ranging from hours to six months).

Risks and Challenges on the Path Forward

Investing in BTCS is not without significant risks, many of which are inherent to the volatile and rapidly evolving blockchain and cryptocurrency sectors. Key risks highlighted include:

• Market Volatility: Fluctuations in the price of crypto assets, particularly Ethereum, directly impact the fair value of the company's holdings, leading to significant non-cash gains or losses that can materially affect reported net income, as seen in the swing from Q1 2024 to Q1 2025. It also affects the value of earned rewards and the ability to liquidate assets for operational needs.
• Regulatory Uncertainty: The blockchain and crypto landscape faces ongoing regulatory scrutiny and potential changes, which could impact BTCS's business model, including its staking and block-building operations.
• Technological Risks: While technology is a differentiator, risks exist related to the rewards and costs associated with staking and block building, the potential for loss or theft of private withdrawal keys (leading to complete loss of assets), and the need for continuous R&D investment to maintain a competitive edge.
• Liquidity Risks: Despite recent financing, the ability to timely unstake and liquidate crypto assets can be hindered by lock-up periods, technical issues, network congestion, or market instability, potentially impacting the company's ability to fund operations.
• AAVE Loan Liquidation Risk: The loan collateralized by ETH is subject to liquidation if the health factor falls below one, exposing the company to potential losses if the price of ETH declines significantly.
• Competitive Pressures: BTCS operates in a competitive environment with larger, better-capitalized players who are also innovating and expanding into related areas like HPC and AI. BTCS must successfully execute its strategy and leverage its technological advantages to maintain and grow market share.

Competitive Positioning and Strategic Response

BTCS operates within a competitive landscape where scale, efficiency, and technological innovation are critical. Compared to larger peers like MARA and RIOT, who boast significant data center capacity and are making substantial pivots into AI/HPC, BTCS is currently smaller in scale and operational footprint. These larger players often demonstrate higher operational efficiency metrics, such as lower energy consumption per unit or faster processing speeds in certain areas, contributing to potentially better gross and operating margins. BTCS's TTM gross margin of 14.63% trails behind the reported gross margins of competitors like BTBT (40-50%) and MARA (50-60%), largely due to the cost structure of its nascent Builder operations, particularly the significant Validator Payments.

BTCS's strategic response involves focusing on its strengths and seeking efficiency within its chosen niche: Ethereum infrastructure. The development of proprietary algorithms for Builder aims to optimize revenue generation from block building, directly addressing a key operational challenge. The investment in ChainQ and data science personnel is intended to leverage data for improved operational strategies and potentially create a user-facing product differentiator. While direct quantitative comparisons of the efficiency gains from these specific technologies are not fully detailed, the strategic intent is to improve margins and competitive standing.

The company's non-custodial NodeOps model offers a specific value proposition to third-party delegators, differentiating it from custodial services offered by some exchanges. However, the decision to exit certain dPoS networks (AVAX, AKT, KAVA) suggests a pragmatic approach to resource allocation, focusing on networks deemed more strategic or profitable, which is a necessary response in a competitive market requiring capital efficiency.

Recent financing activities, specifically earmarked for ETH acquisition, directly support the core strategy of scaling Ethereum operations. This capital infusion, while increasing debt (via the convertible notes and AAVE loan), provides the necessary resources to expand the asset base required for both staking (NodeOps) and potentially enhancing Builder capabilities, allowing BTCS to compete more effectively in terms of operational scale within the Ethereum ecosystem. The strategic partnerships with institutions like Lehigh University and Wharton's Mack Institute, and industry players like Figment and WonderFi, suggest an effort to leverage external expertise and build industry relationships to enhance technology and market positioning, potentially addressing some of the scale and innovation challenges relative to larger competitors.

Ultimately, BTCS's competitive position hinges on its ability to successfully scale its Builder operations to achieve profitability, maintain the high-margin NodeOps business while focusing on key networks, and effectively leverage its technological developments (Builder algorithms, ChainQ, infrastructure enhancements) to drive operational efficiency and differentiate its offerings in a crowded and rapidly evolving market.

Conclusion

BTCS is undergoing a significant strategic transformation, narrowing its focus to capitalize on the growth potential within Ethereum blockchain infrastructure. The dramatic revenue increase in Q1 2025, fueled almost entirely by the nascent Builder segment, highlights the operational progress and the potential of this core strategic pillar. However, the current cost structure of Builder, particularly the substantial Validator Payments, presents a clear challenge to achieving operating profitability and requires careful monitoring as the company scales.

While the reported net income in Q1 2025 was heavily influenced by non-cash crypto asset volatility, the underlying operating performance reflects increased investment in infrastructure, R&D, and personnel necessary to support the strategic shift. The recent financing activities provide crucial capital, specifically directed towards expanding the company's Ethereum asset base, which is fundamental to both its Builder and NodeOps operations.

For investors, the core thesis centers on BTCS's ability to execute its focused Ethereum strategy, leveraging its technological efforts to improve efficiency and margins in Builder, maintaining the profitability of NodeOps, and successfully navigating the inherent volatility and competitive pressures of the digital asset market. The strategic exits from non-core networks and the dedicated financing for ETH acquisition signal a clear commitment to this path. The key factors to watch will be the trajectory of Builder's gross margins, the impact of crypto market price movements on asset values and revenue, the successful integration of new technologies and infrastructure, and the company's ability to manage liquidity and debt obligations in a dynamic environment. BTCS is making a clear bet on Ethereum, and its future performance will largely depend on the successful execution of this focused strategy.