A. [Reserved]
B. Capitalization and indebtedness
Not applicable.
C. Reasons for the offer and use of proceeds
Not applicable.
D. Risk Factors
We operate in a market environment that is difficult to predict and that involves significant risks, many of which will be beyond our control. Certain of these risk factors are described below. Additional risks not currently known to us, or that we currently consider as immaterial, may also adversely impact our business, operations, financial results or prospects, should any such other events occur. This Annual Report contains forward-looking statements that involve risks and uncertainties, and actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks described below and elsewhere in this Annual Report.
Risks Related to Our Business Strategy and Operations
The digital assets industry is rapidly evolving and increasingly regulated, and our operations are subject to significant legal, regulatory, operational, reputational, financial, tax, market, credit and other risks. Changes in the regulatory environment may affect our ability to adapt quickly, innovate, and pursue growth strategies, which could adversely impact our business, financial condition and results of operations.
The digital assets industry is characterized by rapid innovation, substantial market volatility, and an evolving, complex global regulatory landscape. Our success depends on our ability to navigate these significant challenges and risks and our ability to grow our customer base and revenue. We must continually innovate and adapt to new technologies and services to avoid our offerings becoming obsolete, which requires substantial expenditure, may not be successful, and any new products or services could fail to attract customers or generate revenue. Competitors may be better capitalized and able to respond more quickly to new opportunities, standards, or customer requirements. Our ability to compete may be inhibited by regulatory constraints, intellectual property rights, or other factors.
Our integrated operating model, which includes the Bullish Exchange, CoinDesk Data, CoinDesk Indices, and CoinDesk Events, exposes us to a wide array of interconnected risks. Operational risks such as cybersecurity threats or technological failures could have a cascading effect across our business units. Furthermore, our treasury management strategy involves significant direct exposure to the volatility of digital assets, primarily BTC and ETH, and a failure to manage our liquidity or raise additional capital could adversely affect our financial condition.
We face risks and significant challenges in an evolving and competitive digital assets industry, including, among other things, with respect to our ability to:
● provide accurate and reliable information services and proprietary data products;
● operate a reliable and quality trading platform for digital assets;
● obtain necessary regulatory approvals in a timely manner;
● build a well-recognized and respected brand;
● establish and expand our customer base across various businesses;
● implement, maintain and improve our operational efficiency;
● execute our business model and maintain reliable, secure, high-performance and scalable technology infrastructure;
● navigate in a new and rapidly evolving and changing space;
● predict our future revenues and appropriately budget for our expenses;
● attract, retain and motivate talented employees;
● anticipate trends that may emerge and affect our business;
● anticipate and adapt to changing market conditions, including technological developments and changes in the competitive landscape; and
● navigate an evolving and complex global regulatory environment.
If we fail to adequately address any or all of these risks and challenges, such failure could have an adverse effect on our reputation, business, financial condition, results from operations and share price.
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Furthermore, our ability to adapt and compete is deeply intertwined with the complex and uncertain global regulatory environment. As the digital assets ecosystem has grown, it has attracted increasing regulatory attention, which varies significantly by jurisdiction. The cost and complexity of complying with a multi-jurisdictional regulatory footprint can be substantial, and changing laws can hinder or delay our ability to bring new products to market in a timely and cost-effective manner, which could adversely impact our results of operations. If our offerings or technology solutions fail to meet the required quality of our customers or regulators, it could make transacting business less efficient and more prone to errors, diminishing the value we provide.
Conversely, a perceived shift toward a more favorable regulatory environment can introduce a different set of risks. Such a perception can lead to a buildup of valuation pressures and expose investors to increased risks of price manipulation, fraud, scams, and hacks. This resulting volatility can cause investors to lose confidence in the market for digital assets.
Ultimately, our success depends on our ability to navigate both the rapid pace of technological change and the dual-sided risks of the regulatory environment. If we are unable to develop new offerings and adapt to these evolving industry practices and regulations in a timely and cost-effective manner, our business, operating results, financial condition, and ability to attract new customers may be adversely affected.
We operate in a highly competitive industry and we compete against unregulated and less regulated companies, entities and platforms, including a growing number of decentralized finance (“DeFi”) and noncustodial platforms, decentralized exchanges (“DEXs”) and other distributed autonomous organizations (“DAOs”), which may be able to innovate faster than us and offer unregulated products and services that we cannot offer. Our business, operating results, and financial condition may be adversely affected if we are unable to respond to our competitors effectively.
We compete against a number of companies, entities and platforms operating both within the United States and abroad, and both those that focus on traditional financial services and those that focus on digital asset-based services, including a growing number of decentralized finance (“DeFi”) and noncustodial platforms, decentralized exchanges (“DEXs”) and distributed autonomous organizations (“DAOs”). On many of these platforms, users can interact directly with a market-making smart contract or on-chain trading mechanism to exchange one type of digital asset for another without any centralized intermediary. These competing platforms may be more difficult to use than the Bullish Exchange, and some lack the speed and liquidity of centralized platforms, but various innovative models and incentives have been designed to bridge the gap. In addition, such platforms have low startup and entry costs as market entrants often remain unregulated or less regulated and have minimal operating and regulatory costs. A significant number of decentralized platforms have recently been developed and released, including on Ethereum, Tron, Polkadot, and Solana, and many such platforms have experienced significant growth and adoption. We have observed increased interest in certain decentralized platforms, and interest in decentralized and noncustodial platforms may continue to grow as the industry develops. If we are unable to secure or maintain substantial market share quickly, we may face intensified challenges in competing effectively with other entrants, which could harm our operating results.
Concerns about the security of assets following incidents on centralized exchanges, such as the Chapter 11 bankruptcy filing of FTX Trading Ltd (“FTX”) after its collapse in November 2022 and allegations of fraud and mismanagement of funds against its founder and former CEO, may increase user adoption of decentralized and noncustodial platforms. Decentralized exchanges may also not require their users to fill out KYC forms, or may impose less stringent customer identification procedures, offering an additional layer of privacy to their users. If our users move to these decentralized platforms, our revenues will decline and our business, financial condition, cash flows and results of operations will be adversely affected.
We believe that these platforms generally lack the speed and liquidity of centralized platforms, but various innovative models and incentives have been designed to bridge the gap. For example, decentralized and noncustodial platforms are often thought to be less vulnerable to the risk of a custodian’s misuse or loss of user funds since users do not need to transfer their assets to a third party, instead relying on a system of users to operate critical functions on the blockchain, which allows such users to have full and exclusive control over their assets. However, some DeFi or other decentralized applications are also designed to provide anonymity, which can allow malicious and criminal actors to evade traditional financial regulatory tools which can lead to manipulation or exploitation in the use of a DeFi platform in ways that were not intended or envisioned by their creators and may negatively impact confidence in digital asset markets more broadly.
We have expended significant managerial, operational, and compliance costs to meet the legal and regulatory requirements applicable to us in the United States and other jurisdictions in which we operate. We expect to continue to incur significant costs to comply with these requirements, which these unregulated or less regulated competitors, particularly those structured as DEXs, DAOs, and DeFi or other noncustodial platforms, have not had or may not choose to incur. Further, if we are unable to compete successfully, or if competing successfully requires us to take costly actions in response to the actions of our competitors, our business, operating results, and financial condition could be adversely affected.
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Our ownership and operation of multiple businesses presents a number of significant risks, including those arising from perceived or actual conflicts of interest.
Bullish’s ownership and operation of multiple complimentary businesses may also create a perception among market participants of conflicts of interest. To address these concerns, Bullish has implemented a conflicts of interest policy to identify, manage and mitigate potential conflicts. The policy is applicable to all entities and individuals acting on behalf of the Bullish Group. Key areas in the conflicts of interest policy include conflict identification and management, guiding principles for transparency, procedures, such as structural segregation, regular training and governance oversight by the Bullish board of directors. These controls are subject to testing on an annual basis. However, there is no assurance that our conflicts of interest policy will be effective in preventing or mitigating all conflicts of interest or perceptions thereof. Any perceived or actual conflicts of interest could damage Bullish’s or its subsidiaries reputation and undermine investor confidence. Negative press and public opinion could adversely impact our business and the price of our Ordinary Shares.
For example, CoinDesk, a leading online news publication and data provider in the digital asset industry, is our subsidiary and affiliate. CoinDesk plays a significant role in aggregating, creating and disseminating news and other editorial content across the global digital asset industry. Although CoinDesk has policies and procedures in place to shield its editorial operations from Bullish’s control, it is possible that CoinDesk’s news coverage could influence trading prices and demand for digital assets, and it is also possible that consumers of CoinDesk’s content may not appreciate that CoinDesk’s owner has substantial financial interests in digital assets, despite information to that effect on CoinDesk’s website. As a result, some consumers of CoinDesk’s content may place greater weight on such content than they would if they were aware of Bullish’s ownership stake, which could affect the trading prices or volatility of digital assets or our Ordinary Shares.
In addition, as a public company, Bullish expects to have access to material non-public information regarding market activities, trading volumes and other proprietary information from the Bullish Exchange and other businesses that could influence trading decisions. CoinDesk, while intended to provide objective news coverage, may inadvertently become privy to such material non-public information. The sharing of such material non-public information, whether intentional or inadvertent, could lead to allegations of insider trading, market manipulation or other claims if CoinDesk broadcasts or leverage this information in a manner that could advantage certain customers of, or investors in, Bullish, or advantage certain digital assets in which Bullish holds a large financial position.
Investors may question the integrity of CoinDesk’s reporting, fearing that it may be influenced by Bullish’s business objectives or by efforts to manage its public image, particularly during periods of heightened volatility in the prices of our Ordinary Shares or digital assets generally, or during periods of operational challenges. Furthermore, the dual operation of an exchange and a news publication may attract heightened scrutiny from regulatory bodies. Regulators may closely monitor Bullish’s compliance with securities laws and regulations governing the use and dissemination of material non-public information, which could lead to investigations or sanctions if Bullish or CoinDesk are alleged to have violated any applicable laws.
While we have implemented policies and procedures to limit and mitigate such risks, including information barriers to ensure compliance with securities laws relating to material non-public information, there is no assurance that such policies and procedures will be effective, or that we will be able to manage such conflicts of interest adequately. If we fail to manage these conflicts of interests, or if any of the foregoing risks were to materialize or be perceived negatively by market participants, we may be exposed to adverse media coverage, regulatory investigations and legal proceedings, leading to adverse impacts on our reputation, business, financial position and share price.
We may make early-stage investments in crypto-adjacent companies and protocols, including pre-ICO tokens and token warrants, which are subject to high levels of risk, complex vesting structures, and potential impairment.
We regularly deploy capital into early-stage enterprises and nascent blockchain protocols through seed-stage equity, Simple Agreements for Future Tokens (SAFTs), and other pre-initial coin offering (pre-ICO) instruments. These investments are inherently speculative and often include token warrants or similar rights that entitle us to receive digital assets over a period of time. Such assets are typically subject to stringent unlock schedules and vesting periods, which prevent us from liquidating our position during periods of significant market volatility or declining asset value. These early-stage ventures involve a higher degree of risk than investments in established digital assets, as many projects possess unproven business models, incomplete technology stacks, or founding teams without a track record of operational success. Furthermore, these investments are often highly illiquid, with no active secondary market for tokens prior to—or even immediately following—their initial unlock. The valuation of such positions is highly subjective and vulnerable to shifts in the regulatory landscape—such as a protocol’s tokens being classified as unregistered securities—or the failure of the project to reach technical milestones. If a project fails to achieve market adoption, suffers a critical security breach, or encounters significant selling pressure in connection with token unlocks, we may be required to recognize a significant impairment of the asset’s carrying value, leading to losses on our investment.
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Financial Risks
Our operating results and cash flows are subject to volatility and may not achieve consistent profitability due to our strategy and focus, increasing operating expenses, and heavy reliance on the unpredictable digital asset market. Revenues and balance sheet figures are sensitive to fluctuations in digital asset prices, volume of transactions, exchange rates, as well as the performance of the liquidity provisioning activities (AMMI), all of which are beyond our control.
We take actions that we believe are in the best long-term interests of our business, even if they do not maximize short-term results, such as expending significant resources on compliance and making acquisitions or investments. We also anticipate that our operating expenses will increase substantially as we continue to hire, expand, and incur significant costs as a public company. Our revenue growth may not be sufficient to offset these higher expenses, and our strategic decisions may not produce the long-term benefits that are expected. While our strategy involves leveraging our balance sheet for growth, it is not intended to continuously cover operating expenses. If we are unable to effectively manage these risks and achieve profitability on a consistent basis, our business, operating results, and financial condition may suffer.
Our operating results are dependent on the broader digital asset industry and are therefore subject to significant fluctuation. Our results are impacted by a variety of unpredictable factors, including digital asset trading volume and prices, our ability to attract and retain customers, macroeconomic conditions, regulatory changes, and system failures. As a result of these factors, our business and future prospects are difficult to evaluate, and period-to-period comparisons of our operating results may not be meaningful as an indication of future performance. Our operating results may fall below the expectations of securities analysts and investors, which could cause the trading price of our shares to decrease.
A substantial portion of our revenues, including transaction and margin fees, is generated from the trading of digital assets. Consequently, our operating results are subject to significant uncertainty and volatility, as a decline in the price, trading volume, or market liquidity of digital assets would result in lower AMMI fees, transaction fees, perpetual fees and margin fees in the future and negative changes in fair value.
This volatility is driven by numerous factors, including overall market conditions, investment activity, regulatory changes, negative publicity, competition from other digital assets, and the ongoing technical maintenance and security of blockchain networks. There is no assurance that any supported digital asset will maintain its value, and a decline in trading demand would adversely affect our business and operating results.
We hold digital assets on our balance sheet, a portion of which is deployed using AMMI to provide liquidity to the Bullish Exchange. Due to the highly volatile nature of digital assets, our financial condition may fluctuate significantly. Even stablecoins are not immune to fluctuations and can "de-peg" from their underlying asset. De-pegging can trigger individual investment and trading losses, while also posing systemic market risks related to solvency and liquidity. In addition, because revenue and expenses from our international operations are denominated in local currencies, fluctuations in fiat currency exchange rates could also have an adverse effect on the results of our operations as reflected in our U.S. dollar-denominated financial statements.
Due to competition in the industry, our competitors may create pricing pressure, and it is expected that the fees charged will decline over time. Fee levels in the digital asset trading industry have declined over time and may continue to decline. Our Bullish Exchange services pricing is impacted by a number of factors. If we are unable to effectively manage our pricing and respond to pricing pressure, we may not be successful in attracting and retaining customers, which could have an adverse effect on our business, financial condition, and results of operations.
We may depend on dividends and distributions from our subsidiaries to fund our obligations, but regulatory and other legal restrictions may limit their ability to transfer funds. A significant decrease in our ability to access cash from our subsidiaries could reduce our liquidity and investor confidence. While the PRC government imposes controls on currency remittance out of mainland China, we currently have no operations there. However, if such capital controls were to extend to Hong Kong, it could restrict our Hong Kong subsidiaries' ability to remit currency to our offshore entities to pay dividends or fund business activities. This could have an adverse effect on our business and financial condition.
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Lack of sufficiently diversified market participants interacting with our liquidity could also result in reduced revenues. Use of the AMMI order type to provide liquidity may also result in us buying assets at prices higher than their future market value and selling assets at prices lower than their future market value, and we may not be able to offset such trading losses through sufficiently large trading flows or cost-effective hedging solutions.
For CoinDesk Insights, we derive substantial revenues from advertising, which is sensitive to macroeconomic conditions and advertiser budgets. We compete for these budgets against large digital platforms that have greater audience reach and targeting capabilities. Our ability to deliver and target advertising is also adversely affected by evolving industry standards and regulations, including ad blocking, the phase-out of cookies and advertising identifiers, and rapidly evolving privacy regulations. Furthermore, our advertising operations rely on technologies (particularly ad servers) that, if interrupted or changed, could adversely impact our revenues and operating costs.
We have and may incur further indebtedness and other obligations, including our obligations under the loan from SPV KY Limited. If we are unable to generate sufficient cash to service our debt and other obligations, it could adversely affect our financial position and prevent us from fulfilling our obligations.
We have a substantial amount of indebtedness and other obligations. As of December 31, 2025, we had approximately $505.6 million in aggregate principal amount of outstanding long-term indebtedness (excluding digital asset borrowings). See section entitled ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Debt and Convertible Preference Shares”. This could make it difficult for us to satisfy our financial obligations, as a substantial portion of our cash flow may be required for debt service payments. Consequently, it limits our ability to use cash for working capital, capital expenditures, and other business purposes, places us at a competitive disadvantage compared to less leveraged competitors, and increases our vulnerability to adverse economic and industry conditions. In addition, covenants in our debt agreements may restrict our operational flexibility.
Our ability to make payments on our indebtedness (see section entitled “Certain Relationships and Related Party Transactions”), depends on our financial and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We may be unable to attain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness and other obligations. We may need to refinance or restructure all or a portion of our debt obligations prior to maturity or sell our digital assets which may be at a loss. Our ability to refinance or restructure our debt and other obligations will depend upon market conditions and our financial condition at such time. Any refinancing or restructuring could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. If our cash flows are insufficient to service our debt and other obligations, we may not be able to refinance or restructure any of these obligations on commercially reasonable terms or at all, which could have a material adverse effect on our business, operating results or financial condition. Statutory, contractual or other restrictions may also limit our subsidiaries’ ability to pay dividends or make distributions, loans or advances to us. For these reasons, we may not have access to any assets or cash flows of our subsidiaries to make interest and principal payments on our indebtedness.
If our cash flows are insufficient to fund our debt and other obligations and we are unable to refinance or restructure these obligations, we could face substantial liquidity problems and may be forced to reduce or delay investments and capital expenditures, or to sell material assets or operations to meet our debt and other obligations. We may not be able to implement any of these alternative measures on satisfactory terms or at all and the proceeds from such alternatives may not be adequate to meet our debt or other obligations when due. If it becomes necessary to implement any of these alternative measures, our business, operating results, or financial condition could be materially and adversely affected.
With respect to the loan from SPV KY Limited, which carries a 7% per annum interest rate, the total outstanding amount as of December 31, 2025 was $514.4 million, consisting of the $505.6 million principal amount and $8.8 million accrued and unpaid interest.
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Failure to manage growth, maintain operational control, or devote sufficient management attention to strategic investments could disrupt our operations, impair efficiency, and adversely affect our financial condition, operating results, and ability to achieve business objectives.
To manage periods of growth, we must invest heavily in our information technology and financial systems, which may strain our resources and requires significant expenditure before any substantial associated revenue is generated. This, combined with the rapidly evolving nature of the digital asset market, reduces our ability to accurately forecast growth. Conversely, from time to time we realign resources through actions like workforce reductions, but these carry risks of unforeseen expenses and may not result in the expected cost savings. Our failure to effectively manage any growth or any scaling back of our operations could lead to inefficiencies, undermine our financial reporting or internal controls, and have an adverse effect on our business, operating results, and financial condition.
As our business grows, its scope and complexity may increase, and we may experience difficulties maintaining this growth. Growth can increase the strain on resources and personnel, causing operating difficulties, including in daily operations, maintaining internal controls, and meeting customer needs. If we do not adapt to meet these challenges, it could have an adverse effect on our business, financial condition, and results of operations.
We may acquire other companies, but we may not be able to complete acquisitions on favorable terms, and there is no assurance of a favorable return on our investment. Our ability to acquire and integrate companies may be limited; the integration process requires significant time and resources, and we may not be able to manage it successfully or accurately forecast the financial impact. To pay for any acquisition, we may have to pay cash, incur debt, or issue equity, any of which could adversely affect our financial results, cause dilution to our shareholders, or result in restrictive covenants that impede our ability to manage our operations.
Fluctuations in interest rates could negatively impact us.
The level of prevailing interest rates could affect our profitability. Where rates increase, we may have indebtedness at floating interest rates or may need to refinance maturing indebtedness at higher cost. We could also suffer a decrease in the value of our investments that are interest rate sensitive. There may also be an adverse impact to us due to our financing partners’ solvency as a result of higher interest rates. When rates decrease, our margin fees or other sources of income that are interest dependent could correspondingly decline, which could negatively impact our profitability. Changes in interest rates can also affect our customers’ risk appetite and trading volume activity, potentially leading to reduced trading volumes on our platform. In addition, when interest rates change, investors may choose to shift their asset allocations, which could negatively impact our stock price or the digital asset economy more generally.
We face significant customer concentration risk across the Bullish Exchange, CoinDesk Data, CoinDesk Indices and CoinDesk Insights businesses, which could adversely affect our operating results and financial condition.
A relatively small number of institutional market makers, arbitrageurs, and high-transaction volume customers account for a significant amount of the trading volume on our platform and our net revenue from the Bullish Exchange business. Furthermore, in our CoinDesk business, a relatively small number of customers account for a significant portion of our total revenue, and while this revenue is not material to Bullish as a whole, this customer concentration at CoinDesk has become more pronounced in recent periods, especially with certain major customers’ assets under management growth and marketing commitments. The loss of these key customers from any of our Bullish Exchange, CoinDesk Indices, CoinDesk Data, and CoinDesk Insights businesses, or a reduction in their trading volume, media spending, or use of our indices, and our inability to replace these customers with others, could have an adverse effect on our business, operating results, and financial condition.
Our business requires the application of complex financial accounting rules and significant judgment. Changes in accounting rules or misapplication of critical estimates could adversely affect our financial condition, operating results, and compliance with regulatory requirements.
The accounting rules we must comply with are complex. This creates significant uncertainty in the appropriate accounting for digital assets and requires us to apply estimates and assumptions. Such uncertainties could result in the need to change our accounting policies or restate our financial statements, which could adversely affect our business, and operating results.
We are required to make estimates and assumptions in the preparation of our financial statements that affect reported amounts, including for the valuation of goodwill, share-based compensation expense, and legal and other contingencies. We base these estimates on historical experience and other assumptions we believe to be reasonable as provided in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates”. Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from our assumptions.
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We are exposed to risks relating to the availability of capital to fund working capital, including regulatory capital requirements, margin requirements and required advances to third-party providers.
We are required to possess sufficient financial soundness and strength to adequately support our operations. We are exposed to risks relating to the availability of capital to fund working capital, including regulatory capital requirements, margin requirements, our ability to deploy capital for our business including lending and required advances to third-party providers. We have incurred and may from time to time incur indebtedness and other obligations which could make it more difficult to meet these capitalization requirements or any other requirements. Insufficient working capital may limit our ability to meet financial obligations or liquidity requirements as needed. In addition, we could become subject to new capital requirements introduced or imposed by regulators. Any change or increase in these regulatory requirements could have an adverse effect on our business, operating results and financial condition. For example, we or our regulated subsidiaries may be required to hold sufficient amounts of fiat currency reserves to maintain operations. We may be required to sell our digital assets to raise sufficient reserves, which could adversely impact our ability to deploy capital through AMMI to provide liquidity on our platform. In addition, we may incur significant social costs (employer portion of payroll taxes) with respect to our share-based compensation upon and subsequently to listing.
We believe that our capital allocated to the Bullish Exchange complies with the regulatory requirements set by our regulators. However, we may face increased regulatory capital requirements based on changes to our business, or we may experience errors in fiat currency and digital asset handling, accounting and regulatory reporting that lead us to be out of compliance with these requirements. Additionally, as we look to be regulated in the U.S., we may face diverse and new capital requirements imposed by different regulatory bodies. Any modifications or an increase in the amount of regulatory capital, or requirements as to the type of regulatory capital that we are required to maintain for our operations could adversely affect our business, operating results and financial condition. If we are unable to maintain the required reserves, we may have to change our business operations, and may be subject to regulatory sanctions, penalties, the revocation of licenses or other adverse regulatory actions as well as adverse impact on our business, reputation, and financial condition.
We may suffer losses due to abrupt and erratic market movements, which can also cause stress to all aspects of our business and operations.
The digital asset market has been characterized by significant volatility and unexpected price movements. Certain digital assets may become more volatile and less liquid in a very short period of time, resulting in market prices being subject to erratic and abrupt movements, which could harm our business. During times of market volatility, an asset price may move up or down suddenly in a single large movement or over a short period of time. Our products and services may be exposed to unforeseen operational risks. Our ability to respond to market risk and extreme market conditions is unlimited. At times of extreme market conditions, certain product features, particularly the automated market making services, may not function as expected or at all and may need to be suspended or recalibrated. For example, stablecoin prices may de-peg, and any digital asset that we have staked or similarly deployed may experience longer periods of de-staking than expected. Because of this sudden movement, we may be unable to execute or adjust risk management practices in a timely manner, which could result in losses. We may also be unable to recover losses suffered. Since digital assets are a significant portion of our liquid assets, this may exacerbate the foregoing impacts. Failure to effectively manage such events can adversely impact our reputation, business operations and financial condition.
The emergence of DeFi subjects us to evolving risks and uncertainties relating to our investments and our services.
DeFi refers to a variety of blockchain-based applications or protocols that provide for peer-to-peer financial services using smart contracts and other technologies rather than through such services being offered by central intermediaries. There are various DeFi applications and protocols, each with their own unique risks and uncertainties. Common DeFi applications include borrowing/lending digital assets and providing liquidity or market-making in digital assets and derivatives referencing digital assets. DeFi applications and ecosystems may significantly alter the manner in which certain financial services are provided, but the nascent technology comes with several risks that could materially and adversely affect our investments and trading strategies. It is difficult to quantify the amount of leverage that exists within the DeFi ecosystem and price volatility can result in deleveraging that moves asset prices dramatically. In addition, smart contracts may contain cybersecurity bugs which put funds at risk of theft or loss. Furthermore, in certain decentralized protocols, it may be difficult or impossible to verify the identity of a transaction counterparty necessary to comply with any applicable anti-money laundering, countering the financing of terrorism, or sanctions regulations or controls.
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The complexity and interconnectedness of digital asset networks, applications, and economic systems enables new forms of malicious attacks that leverage a feature or vulnerability of one system to attack another. Such an attack may take the form of a temporary manipulation of the price of certain digital assets that triggers second order behaviors, such as automatic collateral liquidations on decentralized applications or digital asset trading platforms. Such an attack could adversely affect investments. A malicious actor can exploit the structure of one or a series of smart contracts or applications in ways that do not technically constitute exploitation of a “bug” or flaw in the smart contract or application. For example, there have been numerous instances of such exploitation in the Ethereum DeFi ecosystem, whereby a decentralized trading platform or lending application is designed to reference an external pricing source of a particular digital asset to determine when to liquidate collateral. By manipulating the price of the particular digital asset on a third-party platform (such as a digital asset trading platform), the pricing source used by the decentralized trading platform or application is consequently manipulated, which then leads to uneconomic collateral liquidations on the decentralized trading platform or application. Such liquidations may be processed automatically and could have a material adverse effect on our investments and trading strategies.
We engage in DeFi activities and may suffer losses if the DeFi protocols, or our activities thereon, do not function as expected.
We engage in various DeFi activities that involve borrowing and lending operations. These activities are integral to our financial strategy, utilized both for maintaining operational liquidity—ensuring we have the necessary capital for day-to-day functions—and for yield enhancement, where we deploy idle digital assets to generate returns.
DeFi protocols achieve these purposes through self-executing smart contracts. Some of these protocols allow users to transfer digital assets to a pool from which other users can borrow without requiring an intermediate party to facilitate these transactions. Digital assets transferred to a pool generally earn interest for the lender, based on the rates at which borrowers repay the loan, and can generally be withdrawn subject to the terms of the applicable protocol and prevailing market conditions. Conversely, our borrowing activities allow us to access capital for working purposes by providing digital asset collateral.
However, these DeFi protocols pose heightened regulatory concerns and are subject to various risks, including:
● Hacking & Smart Contract Vulnerability: The risk that the underlying code is insecure or contains bugs that can be exploited.
● Liquidation Risk: The risk that borrowers may default and the protocol’s liquidation mechanisms fail, meaning the lender (or the pool) cannot recover its digital assets, creating "bad debt" within the protocol.
● Governance & Administrative / Fraud / Rug Pull Risk: The risk that core developers or those with protocol administration rights ("admin keys") can make unauthorized, malicious, or harmful changes to the smart contract logic.
● Oracle Risk: The risk of a protocol acting on bad external data (for example a manipulated price feed), leading to incorrect liquidations or losses.
● Upgradability Risk: The risk that a protocol upgrade introduces new, unforeseen bugs or vulnerabilities into code we are already using.
● Network Congestion / Gas Fee Risk: The risk that high network fees or delays prevent us from executing time-sensitive transactions, like topping up collateral to avoid liquidation.
● Contagion Risk: The risk that a failure in one DeFi protocol causes a cascading failure in another protocol that we use.
● MEV Risk: The risk of sophisticated actors exploiting the public nature of blockchain transactions to front-run ours, resulting in us getting worse prices.
● Doxing / On-Chain Privacy Risk: The risk that our blockchain addresses are publicly linked to our company, exposing our trading strategies and holdings to competitors and malicious actors.
If any of these risks materialize, our digital assets deployed in these DeFi protocols may be adversely impacted, our liquidity could be constrained, and we may lose a portion or, in certain circumstances, all of our digital assets.
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Our operations involve exposure to a variety of market and operational risks, lending and leveraged trading activities, reliance on banking and insurance relationships, and the processing of payments and other manual processes. Failures or losses in these areas could result in financial loss, reputational harm, and adverse impacts on our business operations, liquidity, and results of operations.
We extend credit and leverage to customers, which exposes us to the risk of borrowers being unable to repay and subjects us to lending laws and regulations in the applicable jurisdiction. Our credit approval processes may be ineffective, and loan loss rates may be significantly affected by economic downturns or digital asset price fluctuations. If a borrower files for bankruptcy, an automatic stay may prevent or delay collection actions, and the efficacy of our security interest in collateral may be subject to legal or practical limitations. While we have not incurred material losses to date, if any of these events were to occur, our reputation and financial results could be adversely affected.
Our ability to operate our business and offer fiat rails is dependent on our ability to secure and maintain banking partners, but we face difficulty as banks view the digital asset industry as high-risk. The loss of these banking partners, as shown by the closures of Silvergate Capital Corp. and Signature Bank in March 2023, may result in service disruptions that adversely impact our business and financial condition. We also rely on insurance carriers to provide coverage required for our licenses. Our ability to maintain this insurance is subject to the carriers' continued appetite to underwrite the risks, and a failure to do so could adversely impact our business and reputation. In addition, our business involves payment processing and various manual processes across the organization which could present operational, security, financial, and reputational risks due to human errors. While we maintain a framework of internal controls to mitigate these risks, human errors can still inherently occur and adversely impact our business and results of operation.
Our recent expansion into crypto options trading may expose us to increased operational, regulatory, and credit risks, which could adversely affect our business and reputation.
Our recent expansion into offering crypto options trading introduces new and complex risks that could materially and adversely affect our business, financial condition, results of operations, and reputation. These risks include, but are not limited to, the following:
● The underlying infrastructure required for options trading is inherently more complex than that for spot markets. It demands sophisticated real-time pricing models, high-throughput matching engines, and robust risk management systems to handle complex calculations for margining and settlement. Any flaw, error, or failure in our pricing algorithms, margin calculation models, or liquidation engines could lead to inaccurate trades, improper liquidations, and significant financial losses for both our customers and for us. Furthermore, the complexity of these systems increases our exposure to sophisticated cyberattacks and technical failures, which could disrupt our services, erode customer trust, and result in material financial liabilities.
● Offering leveraged options products exposes us to significant credit risk from our customers. If a customer's position moves against them and their collateral is insufficient to cover their losses, we may be unable to liquidate their position in a volatile market without incurring a loss. This risk is amplified by the extreme price volatility inherent in the digital asset markets, which can cause rapid and severe changes in the value of both the options contracts and the underlying collateral. While we have implemented risk management procedures, such as collateral requirements and liquidation protocols, these measures may not be sufficient to protect us from all losses in the event of extreme market turmoil or a large-scale default, which could have a material adverse effect on our financial condition.
● Success depends in part on our ability to grow, innovate and enhance our crypto options platform offerings. This requires us to keep pace with a rapidly changing industry and make significant, continued investments to develop and scale this new business line and attract and retain users. If we fail to innovate successfully or do not invest adequately in this area, or we fail to attract or retain users, this could have a material adverse effect on our business, operating results, and financial condition.
Risks Related to the Growth of Our Products and Services
We are constantly developing, testing or launching new products or services that may not lead to successful launches or achieve steady adoption in the market. If our products fail to perform properly due to undetected errors or similar problems, it could have a material adverse effect on our business, financial condition or results of operation.
We are developing new products and services, but it is not certain that all technical requirements can be fulfilled or that these products will be demanded by the market. There is no guarantee of a successful launch, and the legal frameworks are complex. We may not be successful in obtaining the necessary licenses or approvals, and potential non-compliance could lead to legal liability and have a material adverse effect on our business, financial condition, and reputation.
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Products we develop may contain undetected errors despite testing, which can be found at any point in a product’s life cycle. Such errors could have a material adverse effect on our business and result in harm to our reputation, lost sales, delays in product releases, or third-party claims. Furthermore, our customers may use our products with their own software or third-party products, making it difficult to identify the source of problems when they occur. Even when our products are not the cause, these errors might cause us to incur significant costs, divert resources, and result in legal claims against us.
CoinDesk Indices, including many of the Index-focused assets acquired in the October 2024 CCData acquisition, support investment products with substantial AUM, and undetected flaws, errors, or technical failures in our index data or calculations could lead to losses for users and claims against us. Updates to our indices or manual data handling can increase the risk of error. While our customer contracts aim to limit our liability, these provisions could be invalidated or prove inadequate. Any such claims, even if resolved favorably, could negatively impact our reputation, operations, and financial position.
Our brands and reputation are key assets of Bullish. Negative perceptions or publicity could adversely affect our business, financial condition, and results of operations.
We believe the Bullish, CoinDesk Indices, CoinDesk Data, CoinDesk Insights, and Consensus brands are well-recognized brands within the digital asset industry and are key elements of our business. Our brands might be damaged by incidents that erode consumer trust, such as negative publicity, a perception that our journalism or financial services are unreliable, or a decline in the perceived value of independent journalism or trust in financial institutions. This may be exacerbated by changing political and cultural environments or active campaigns by political and commercial actors.
We may introduce new products or services that are not well-received and that may negatively affect our brands. Our brands and reputation could also be adversely impacted by negative claims or publicity regarding Bullish or our operations, products, employees, practices (including social, data privacy, and environmental practices), or business affiliates (including advertisers and partners), as well as our potential inability to adequately respond to such negative claims or publicity, even if untrue. Additionally, our brands and reputation could be damaged if we fail to provide adequate customer service or by failures of third-party vendors we rely on.
For the Bullish Exchange, the security and reliability of our financial services are paramount. Any incidents such as cybersecurity breaches, loss of digital assets, or failure to comply with regulatory standards could harm our reputation. CoinDesk Indices provide benchmarks in the digital asset market. Any errors, miscalculations, or perceived biases in our indices could damage our reputation and the trust that market participants place in our data. CoinDesk Data offers comprehensive digital asset market data and analytics. Any inaccuracies, delays, or perceived biases in our data offerings could undermine confidence among investors, analysts, and industry professionals, affecting our credibility and market position. For CoinDesk Insights, maintaining the integrity and independence of our journalism is crucial. Any perception that our journalism is biased or influenced by external factors could erode trust in our content. Consensus, as a leading conference and events brand, relies heavily on its reputation for delivering high-quality, insightful, and industry-leading events. Any failure to meet attendee expectations, logistical issues, or negative publicity could adversely affect the brand.
We invest significantly in defining and enhancing our brands, but these investments may not always be successful. To the extent our brands and reputation are damaged, our ability to attract and retain readers, subscribers, advertisers, investors, and employees focused on digital assets could be adversely affected. Further, we may in the future, be the target of social media campaigns criticizing actual or perceived actions or inactions that are disfavored by our customers, employees, or society at-large, which campaigns could materially impact our customers’ decisions to engage with our products and services. More broadly, because the digital asset and blockchain technology sectors are relatively nascent, public opinion is underdeveloped and will continue to evolve over time. For example, there has been focus on the environmental impact of the use of electricity and other resources for digital asset mining operations. Public debate regarding the regulation of the digital asset sector will continue to take shape as regulators and lawmakers make their positions known. Moreover, in 2022, each of Celsius Networks, Voyager Digital, Three Arrows Capital and FTX declared bankruptcy or otherwise became insolvent. In particular, in November 2022, FTX, which was at the time one of the world’s largest and most popular digital asset trading platforms, became insolvent, and it was revealed that the platform had been misusing customer assets, resulting in a loss of confidence in participants of the digital asset ecosystem and negative publicity surrounding digital assets more broadly. Unfavorable media coverage in relation to the digital asset industry, including allegations of fraud and illicit activity, the societal impact of digital assets and the infrastructure that supports them and/or the viability of any particular digital asset, digital asset trading platform, or firm engaged in digital asset-related businesses, could have a cascading impact on digital assets as an investable asset class, or even the digital asset ecosystem at large, and adversely impact our business, our operating results and the value of any investment in us.
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Furthermore, the interconnected nature of our business means that negative events affecting one part of our business could have a ripple effect on the other. For example, a security breach involving the Bullish Exchange could undermine trust in CoinDesk Insights’s coverage of the digital asset industry, and vice versa. This interconnectedness raises the stakes for maintaining the integrity and reliability of all our brands.
Our brands and reputation are vital assets, and any negative perceptions or publicity could harm our business, financial condition, and results of operations.
We are dependent on third-party software, data, and service providers for critical aspects of our digital asset market data, analytics, and index products, and any reduction in the quality, availability, or reliability of these third-party products or services, the loss of key suppliers, or our or our vendors’ failure to comply with applicable licensing, consumer protection, competition, or antitrust laws across multiple jurisdictions could have a material adverse affect on our business, financial condition, results of operations, our ability to provide products and services, orresult in consumer complaints or claims.
We rely on third-party providers for software and data that are integral to our products and operations. Our business faces risks if this third-party software becomes obsolete or incompatible, if license fees increase, or if our use is legally challenged. A failure in a provider’s service could prevent us from serving our customers, forcing us to incur significant costs to either internalize the service or find a replacement. Replacing certain key providers would be difficult, disruptive, and could adversely affect our business, particularly where certain suppliers also compete with us.
CoinDesk Data and CoinDesk Indices are fundamentally dependent on third-party suppliers for the digital asset market data required to produce our index products. The accuracy, quality, and timely delivery of this data are critical; any errors, delays, or supply disruptions could prevent us from delivering our services. The stability of our data supply is not guaranteed, as some suppliers lack established operating histories and could fail or be acquired.
We face contractual risks, as some data agreements can be canceled on short notice, and we lack formal agreements with all sources. Competitive risks are also significant. Suppliers, some of whom are our competitors, could change terms to their advantage or enter into exclusive contracts with our rivals, restricting our data access. An inability to renegotiate licensing fees or find alternative data sources could reduce our profit margins. Finally, we also rely on third-party vendors to distribute our data, and a refusal to do so would impact revenue. Any of these factors could have a material adverse effect on our business, financial condition, and share price.
Furthermore, we rely on third-party vendors for critical functions and their ability to comply with applicable laws and regulations and are exposed to their compliance failures. A supplier's inability to comply with laws could force a suspension of their services, causing significant disruption to our operations. Certain jurisdictions have regulatory requirements for performing adequate diligence and supervision of these vendors. Any failure by us or our service providers to comply with these various legal obligations could adversely impact our reputation, business operations, financial condition, and results in operations.
We also rely on third-party open-source software, which inherently carries more risk than commercial software due to a lack of warranties, support, and indemnification, as well as increased cybersecurity risks. The most significant risk comes from "open source" licenses that could compel us to release our proprietary source code if we combine it with open-source code, that could result in the loss of certain intellectual property protections or competitive advantage.
Although we monitor our usage, compliance is challenging because license terms are often ambiguous and have not been interpreted by U.S. or foreign courts. A failure to comply, or an ownership dispute, could force us into litigation, require costly re-engineering, or result in the forced release of our proprietary code, any of which could adversely affect our business, operations, financial condition, and results in operations.
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Catastrophic events could lead to interruptions in our operations, which may materially adversely affect our business, financial condition or results of operations.
Our operations depend on our ability to protect our equipment and the information stored in our database, as well as our reliance on third-party data centers, cloud infrastructure providers and telecommunications networks against fires, earthquakes and other natural disasters, as well as power losses, computer and telecommunications failures, technological breakdowns, unauthorized intrusions, terrorist attacks on sites where we or our customers are located, pandemics, public health emergencies, geopolitical conflicts, civil unrest, acts of war, sanctions regimes, and other catastrophic events. We also depend on accessible office facilities for our employees in order for our operations to function appropriately. There is no assurance that the business continuity measures we have taken to reduce the risk of interruption in our operations caused by these events will be sufficient. Such events could have a material adverse effect on our business, financial condition or results of operations. For example, during the COVID-19 pandemic, many of our customers were focusing on crisis management and business continuity rather than investing in additional products. In addition, the delivery of some of the data we receive from suppliers was delayed due to disruptions in their operations. Travel restrictions and lockdowns impaired our ability to conduct sales visits and other meetings at customer sites. During the periods of market volatility and temporary closures, some of the data updates supporting our products were interrupted. These types of interruptions could affect our ability to sell and deliver products and could have a material adverse effect on our business, financial condition, or results of operations.
Although we currently estimate that the total cost of developing and implementing our business continuity measures will not have a material impact on our business, financial condition or results of operations, actual costs could exceed our expectations, and we cannot provide any assurance that our estimates regarding the timing and cost of implementing these measures will be accurate.
Trading and Liquidity Infrastructure
The Bullish Exchange is responsible for the custody and safeguarding of digital assets held for customers. Failures in custody controls, security measures, or operational processes could result in loss, theft, or misappropriation of digital assets and cause regulatory scrutiny, reputational harm, or financial loss. The loss or compromise of private keys may be irreversible, and the transition to managing custody through an in-house solution introduces additional operational and execution risks.
We hold customer assets in custody in the United States, Germany, Hong Kong and Gibraltar, operating on the principle that these assets are held on trust or otherwise for customers’ benefit and segregated from our own assets. While our security includes a mix of hot and cold wallets and a private blockchain, we face significant risks.
Operational & Third-Party Risks: We depend on third-party custodians like BitGo and Fireblocks, and any failure in their controls, security, or financial stability could lead to asset loss. Our insurance is limited (e.g., $250 million per cold wallet) and shared on a first-loss basis, which may not fully indemnify losses.
Legal & Insolvency Risks: Our use of omnibus accounts means that in the event of a sub-custodian's failure, our claim may be unsecured, and customers could lose assets. While we believe assets held in custody or on trust would be safe from our creditors in an insolvency, this conclusion is subject to legal risks and uncertainties.
Any security incident or custody failure could result in substantial financial losses, regulatory penalties, litigation, and damage to our business and reputation.
Control over all digital assets, both ours and our customers', is maintained exclusively through private keys. The loss, destruction, or compromise of a private key for any of our wallets—whether through a hack, employee error, or other breach— could adversely affect our customers’ ability to access or sell their digital assets, and may result in losses for our customers
This risk is magnified by the fact that the total value of digital assets we control is significantly greater than our insurance coverage, which would not be sufficient to cover a large-scale loss. Such an event would likely result in significant financial losses, regulatory action, litigation, and material damage to customer trust and adversely affect our business, financial condition, operating results, cash flows and the market price of our shares.
The custody services and underlying blockchain technology we use are unproven, and we cannot guarantee they are fully secure. Loss of customer assets could occur through a wide range of failures, including cyberattacks that alter withdrawal instructions, hardware malfunctions, malicious manipulation of the blockchain, or bad acts by employees and third-party service providers.
While we take steps to protect against such incidents, any significant security failure could result in litigation, regulatory fines, and substantial reputational damage. Furthermore, it could seriously curtail the broader market's adoption of digital assets, adversely affecting our business, financial condition, and the market price of our shares.
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Dependency on external pricing sources for certain products may adversely affect the Bullish Exchange operations and integrity.
Certain products offered by the Bullish Exchange, such as derivatives, rely on external pricing sources and dependencies. A number of these external pricing sources are relatively new rather than established players like traditional financial providers and may not have strong financial backing or established operating histories due to the nature of the industry. Any disruptions, manipulation, inaccuracies, or issues arising from these external price sources could adversely impact the functioning, fairness, and integrity of the perpetual markets offered by the Bullish Exchange. We may be forced to adjust, settle, or halt trading for these products in response to fluctuations or aberrations from relied-upon external pricing sources outside our control.
Reliance on external pricing sources may make us vulnerable to market manipulation, data feed errors, and latency issues, which could lead to incorrect pricing and unfair trading conditions. These incidents could result in significant financial losses for our customers, damage to our reputation, regulatory scrutiny, and potential legal liabilities.
Additionally, if external pricing sources experience prolonged outages or systemic issues, our ability to offer and maintain perpetual contracts could be severely compromised, leading to a loss of customer confidence and a decrease in trading volume on our platform. We are continuously monitoring and assessing these external dependencies, but their performance and reliability remain outside our control. Consequently, the inability to fully control these external pricing sources could have a material adverse effect on our business, financial condition, and results of operations.
Risks associated with leveraged trading may adversely impact the Bullish Exchange operations and expose customers to amplified losses.
The Bullish Exchange offers leveraged trading services which amplifies both potential profits and losses compared to standard spot trading. Customers may underestimate the risks of leverage and experience rapid losses stemming from illiquid market conditions, extreme volatility events, and other market developments. Despite our efforts to provide educational resources, leverage disclosures, and risk management tools, some customers may not fully understand or appreciate these heightened risks.
Leveraged trading naturally produces a broader distribution of customer profits and losses versus spot trading. Periods of extreme volatility and liquidations can rapidly deplete margin balances and concentrate losses among a subset of participants. The inherent complexity and risk profiles of leveraged trading therefore expose the Bullish Exchange to various forms of potential customer losses, adverse financial impact, regulatory scrutiny, litigation, and reputational damage that our risk management practices may not fully mitigate.
Information Services
We face significant competition in the digital asset information services landscape.
CoinDesk Insights operates in a highly competitive environment that is subject to rapid change within the digital asset and blockchain space. Through CoinDesk Insights, we compete for audience share, subscribers, as well as advertising, sponsorships and other revenues such as licensing and affiliate referral revenues. Our competitors include digital asset content providers and distributors, traditional news outlets, news aggregators, social media platforms, digital asset and Web3 conference organizers, and emerging products and tools powered by generative AI. The sector is fragmented, and this fragmentation may cause pricing pressure as peers compete for market share. Competition among these companies is robust, and new competitors can quickly emerge.
Our ability to compete effectively depends on many factors both within and beyond our control, including among others:
● Our ability to continue delivering a breadth of high-quality, independent journalism and content that is differentiated and relevant to our audience within the digital asset and blockchain space;
● Our reputation and brand strength relative to those of our competitors in the digital asset media landscape;
● The popularity, usefulness, ease of use, format, performance, reliability, and value of our digital products, compared with those of our competitors;
● The sustained engagement of our audience directly with our digital asset-focused products;
● Our ability to reach new users interested in digital assets and blockchain technology globally;
● Our products’ pricing and proposed subscription plans, and our content access models for digital asset-related content;
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● Our visibility on search engines, social media platforms, and in mobile app stores, compared with the visibility of our competitors in the digital asset space;
● Our ability to effectively protect our intellectual property, including from unauthorized use by generative AI developers in ways that may harm our brand and promote the spread of misinformation related to digital assets;
● Our marketing and selling efforts, including our ability to differentiate our digital asset-focused products and services from those of our competitors;
● Our ability to attract, retain, and motivate talented employees, including journalists and people working in digital product development disciplines focused on digital assets and blockchain technology, who are in high demand;
● Our ability to provide advertisers with a compelling return on their investments in our digital asset-focused products and events; and
● Our ability to manage and grow our digital asset-focused business in a cost-effective manner.
Some of our current and potential competitors of CoinDesk Insights in the digital asset media and events space provide free and/or lower-priced alternatives to our products, and/or have greater resources than we do, which may allow them to compete more effectively than us. Developments in generative AI are increasing such competition. In addition, several companies with competing digital asset news destinations, subscriptions, and other products can affect our ability to compete effectively by controlling how content is discovered, displayed, and monetized in some of the primary environments in which we develop relationships with users interested in digital assets.
Key business and other metrics are subject to inherent challenges in measurement and to change as our business evolves, and our business, operating results, financial condition, and reputation could be adversely affected by real or perceived inaccuracies in those metrics or any changes in metrics we disclose.
We regularly review key business metrics to evaluate our business, measure our performance, identify trends affecting our business, and make strategic decisions. We also track certain metrics, such as unique visitors, pageviews, newsletter subscribers, podcast downloads, among other metrics, which are used to measure our performance and evaluate growth trends and strategic decisions related to CoinDesk Insights. While these metrics are based on what we believe to be reasonable estimates for the applicable period of measurement at the time of reporting, they are calculated using internal data as well as information from third parties and are subject to inherent challenges in such measurements. For example, monthly unique visitors may overstate the number of unique visitors to our site, as there may be individuals with multiple CoinDesk accounts or email addresses. The complex systems and methodologies used to measure these metrics require significant effort and judgment and are susceptible to errors and vulnerabilities. Accordingly, our metrics may not reflect the actual number of people using our digital asset products and may result in overstatement where a user intentionally or inadvertently maintains multiple accounts using different email addresses, phone numbers, or usernames. While we actively monitor for duplicate, fraudulent, or spam accounts and exclude those from our key metrics, we may not fully eliminate all duplication among legitimate users. Further, the introduction and increasing reliance on artificial intelligence (“AI”) as a primary tool for internet search presents challenges in accurately quantifying audience interaction. AI generated search summaries may not be captured in metrics used when evaluating the performance of our information services.
In addition, while we believe the third-party data we have used in the past or may use in the future is reliable, we have not independently verified and may not in the future independently verify the accuracy or completeness of the data contained in such sources and there can be no assurance that such data is free of error. Any inaccuracy in the third-party data we use could cause us to overstate or understate our key business and other metrics. Inaccuracies or limitations in these metrics may affect our understanding of our CoinDesk Insights business, leading to suboptimal decisions and strategies. As we seek to improve our metric estimates, there may be unexpected changes. Real or perceived inaccuracies in our reported metrics could harm our reputation, subject us to legal or regulatory actions, and adversely affect our operating and financial results.
We may also change our key business and other metrics from time to time, which may be perceived negatively. Given the rapid evolution of the digital asset markets and our revenue sources, we regularly evaluate whether our key business and other metrics remain meaningful indicators of the performance of our business. As a result of these evaluations, in the past we have decided to make changes, and in the future may make additional changes, to our key business and other metrics, including eliminating or replacing existing metrics.
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The successful execution of the Consensus conference depends on third-party contractors and service providers. General economic conditions, public health emergencies, disruptions in global or local travel, and an increased focus on digital marketing could adversely affect event operations, attendee experience, reputation, and financial results.
The success and profitability of our Consensus conference are subject to a variety of risks. Demand from exhibitors and attendees is sensitive to general economic conditions and corporate spending patterns, particularly in the digital asset sector. A prolonged downturn or a continued shift in marketing budgets away from physical events toward digital media could materially reduce exhibitor revenue.
Furthermore, attendance is vulnerable to factors outside our control. Public health emergencies can lead to government restrictions forcing cancellation or virtualization, while other travel disruptions—such as high costs, security issues, or natural disasters—can also depress attendance levels.
Operationally, we rely on a limited number of outside contractors for critical services like facility set-up. The partial or complete loss of these contractors, or a union strike at one of our venues, could cause significant delays and added costs. An inability to replace these services in a timely or cost-effective manner could have a material adverse effect on our business, financial condition, and results of operations.
Data Products
Acquisitions, investments and other transactions involve significant risk that could adversely affect our business, results of operations and financial position.
In order to position our business to take advantage of growth opportunities, we intend to continue to engage in discussions, evaluate opportunities and enter into agreements for possible additional acquisitions, investments and other transactions.
Acquisitions involve significant risks and uncertainties, including failure to correctly anticipate liabilities, deficiencies, or other claims and/or other costs or obligations; diversion of management attention from other business concerns or resources; use of resources that are needed in other parts of our business; possible dilution of our brand or harm to our reputation; difficulties in integrating acquired businesses (including cultural challenges associated with transitioning employees from the acquired company into our organization); the potential loss of key employees; risks associated with integrating operations and systems, such as financial reporting, internal control, compliance and information technology (including blockchain, cybersecurity and data privacy controls) systems, in an efficient and effective manner; and other unanticipated problems and liabilities.
Competition for acquisitions in our industry is significant. We may not be able to find suitable acquisition candidates, and we may not be able to complete acquisitions or other strategic transactions on favorable terms, or at all. Even if successfully negotiated, closed and integrated, certain acquisitions may prove not to sufficiently advance our business strategy or provide the anticipated benefits, may cause us to incur unanticipated costs or liabilities, may result in write-offs of impaired assets, and may fall short of expected return on investment targets, any of which could adversely affect our business, results of operations and financial condition.
We may also make minority investments in companies. Such investments subject us to the operating and financial risks of these businesses and also to the risk that we do not have sole control over the operations of these businesses. Such investments are generally illiquid, and the absence of a market may inhibit our ability to dispose of them. In addition, if the book value of an investment were to exceed its fair value, we would be required to recognize an impairment charge related to the investment.
Although in completing any acquisition or investment, we will conduct a due diligence investigation of the target company that we deem reasonable and appropriate, such investigation may not reveal or highlight all relevant facts that may be necessary or helpful in evaluating such transaction for any of several factors. Given the fast-paced nature with which our industry has been and will continue to be developed, any acquisitions or investments we undertake may occur on an accelerated timeline, and this may limit our ability to conduct a thorough diligence investigation. Our investigation may also be constrained by limited information available to us with respect to the target. Further, in any diligence investigation, instances of fraud, accounting irregularities and other improper, illegal, or deceptive practices can be difficult to detect, and fraud and other deceptive practices can be present in our industry and in certain jurisdictions in which we may pursue acquisitions, including Asia Pacific countries. In addition, investment opportunities in our industry may involve companies that have historic and/or unresolved regulatory, tax, fraud or accounting-related investigations, audits or inquiries and/or have been subject to public accusations of improper behavior. Even specific, enhanced due diligence investigations with respect to such matters may not reveal or highlight all facts and circumstances that may be relevant to evaluating the target and/or accurately identifying and assessing settlements, enforcement actions and judgments that could arise and have a material adverse effect on the target company’s operations, financial condition, cash flow, reputation and prospects. Our due diligence investigations may not result in us making successful acquisitions or investments due to a failure to identify risks associated with a transaction that could have a material adverse effect on our business, results of operations and financial condition.
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In addition, we may divest certain assets or businesses that no longer fit within our strategic direction or growth targets. Divestitures involve significant risks and uncertainties that could adversely affect our business, results of operations and financial condition. These include, among others, the inability to find potential buyers on favorable terms, disruption to our business and/or diversion of management attention from other business concerns, loss of key employees and possible retention of certain liabilities related to the divested business.
The market demand for digital asset indices, data, and analytics is highly competitive and continues to evolve. Increased competition, including from providers offering free or low-cost data, could result in pricing pressure, reduced demand, or loss of market share for our CoinDesk Indices, data, and insights businesses. These dynamics could also adversely affect our revenues, margins, business growth, and financial performance.
We face competition across all markets for our products. Our competitors range in size from large firms with greater resources to highly specialized businesses. A more significant risk, however, comes from the growing accessibility of free or low-cost information sources driven by the internet, public cloud, and open-source software. These low barriers to entry mean even our partners could become competitors.
During economic downturns, customers may be incentivized to use these free alternatives over our paid offerings. This competitive pressure could result in fewer customers, price reductions, and increased operating costs, adversely affecting our revenue and profitability.
Risks Inherent in the Digital Asset Industry
Volatility in the price of digital assets could cause significant fluctuation in our operating results and adversely affect our business and financial position.
The prices of digital assets, including Bitcoin, Ethereum, and other digital assets have historically been subject to dramatic fluctuations and are highly volatile. For example, over the past year, the market prices of Bitcoin and Ethereum have experienced significant declines from prior peak levels, as well as periods of sharp intraday and short-term volatility. A significant decline in the price of a major digital asset may trigger broader market volatility. Digital assets can also become highly volatile or illiquid over short periods, resulting in abrupt price movements. Such conditions may place pressure on the Bullish Exchange’s platform and infrastructure and could lead to temporary service disruptions or suspensions. In addition, a security breach that affects purchaser or customer confidence in Bitcoin or Ethereum may also affect the industry as a whole. This volatility may adversely affect interest in and demand for the products and services that we seek to offer and cause our operating results to fluctuate. This may adversely affect our reputation, business, financial condition, results of operations and share price.
We operate in a rapidly evolving digital asset market that is difficult to predict and subject to regulatory, competitive, and adoption-related factors. If the digital asset market does not grow as we expect, if competition from existing platforms or traditional financial institutions intensifies, or if customers lose confidence due to negative publicity or highly publicized hackings, our business, operating results, and financial condition could be adversely affected.
Our business viability is fundamentally tied to the success of the digital asset ecosystem, which remains in an early and early stages of development. The growth of this market is subject to a wide variety of risks:
● Technical & Developmental Risk: The underlying blockchain technology is still evolving. Many networks face challenges with scalability, speed, and energy consumption. They are vulnerable to bugs during upgrades, network forks causing disruption, and the future threat of quantum computing breaking current cryptographic standards.
● Security & Malicious Actors: Security is a major concern, with risks ranging from hacks and smart contract bugs to network-level threats like 51% attacks, where a single party can manipulate transactions.
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● Governance & Economic Risk: The governance of many networks is decentralized and unpredictable. In other cases, concentrated ownership or an "admin key" allow a small group to have significant influence over the protocol and market price.
● Adoption & Regulatory Risk: Adoption is not guaranteed and faces headwinds from an uncertain global regulatory environment and potential opposition from established financial institutions.
A failure to overcome these challenges could slow or halt the growth of digital assets, thereby materially harming our business and financial condition.
Additionally, we operate in a dynamic and rapidly evolving competitive landscape. We face pressure from new, disruptive competitors and the potential for existing rivals to consolidate. A more significant challenge is the entry of large, traditional financial institutions (TradFi) like CME Group and Bloomberg, who possess substantial resources, extensive customer bases, and established brands.
The entry of these TradFi players could reshape the market by increasing pricing pressure, reducing our margins, and drawing away our customer base. Their superior access to capital may also allow them to innovate more rapidly than we can. Our ability to adapt and enhance our value proposition in the face of these threats is critical, and a failure to compete effectively could materially and adversely affect our business and financial condition.
The digital asset industry is marked by numerous unlicensed competitors, with a history of platform failures due to fraud and security breaches. The collapse of major platforms like FTX, which was found to have misused customer assets, has severely damaged public confidence in the entire ecosystem.
As a larger, more visible platform, we are also a more appealing target for both hackers and intense regulatory scrutiny from bodies like the SEC and DOJ. Any negative news, platform failure, or major enforcement action—even one not involving us—can trigger a loss of confidence, increase price volatility, and invite stricter regulation that could adversely impact our reputation, business, and financial results.
Further, we utilize stablecoins in our business, but they are subject to significant risks. Their core function—maintaining a stable 1:1 peg to an underlying asset—is not guaranteed. This "redemption risk" stems from the composition and liquidity of the issuer's reserve assets. While some, like USDC and PYUSD, report being backed by cash and U.S. treasuries, others have held less liquid assets. Even fully backed stablecoins can depeg during a crisis, as seen when USDC's price fell after its issuer's funds were temporarily trapped at Silicon Valley Bank. A failure of a major stablecoin could cause a contagious loss of confidence in the broader digital asset economy.
The regulatory environment is also a source of risk. While the recent passage of the GENIUS Act in the U.S. provides a federal framework, its ultimate impact and the treatment of stablecoins in other jurisdictions remain uncertain. Complying with the various banking, money transmission, and anti-money laundering laws that stablecoins touch is a significant undertaking. These combined risks could lead to enforcement actions, litigation, and a material adverse effect on our business and financial results.
As an alternative to fiat currencies that are backed by central governments, digital assets, which are relatively new, are subject to supply and demand forces based upon the desirability of an alternative, decentralized means of buying and selling goods and services, and it is unclear how such supply and demand will be impacted by geopolitical events. For example, political or economic crises could motivate large-scale acquisitions or sales of digital assets either globally, regionally or locally. Geopolitical events, including sanctions, may also necessitate our exit from certain geographies or jurisdictions, further impacting our operations and market presence. Large-scale sales of certain digital assets could result in a reduction in their value and could adversely affect our reputation, business, financial condition, results of operations and share price.
We and our customers rely on secure systems, internet infrastructure, and blockchain networks. Cyberattacks, security breaches (internal and external), system failures, or vulnerabilities in third-party blockchain networks could compromise our operations, customer assets, or brand, and could adversely affect our business, operating results, and financial condition. Additionally, depositing, withdrawing, and transacting in digital assets with the Bullish Exchange involves operational and technical risks that could result in loss of customer assets, disputes, or other liabilities.
Our products and services may be subject to bugs, technical defects, and errors, which can arise from issues like unauthorized changes or faulty system algorithms. Efforts to remediate such issues may require technical solutions, such as automated trading features, that introduce additional operational risks, including potential accusations of market abuse. Such errors or defects may delay launches or cause service-level disruptions, leading to trading losses for both Bullish and its customers. This can result in a loss of consumer confidence, claims against Bullish, and regulatory investigations, adversely impacting our brand, reputation, business, and financial condition.
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As a digital asset platform, we are a target for frequent and sophisticated cyberattacks, which can occur through hacking, malware, employee error, or third-party service provider failures. The techniques used are constantly evolving, and despite our security measures and external audits, we cannot guarantee absolute protection. This risk is compounded by our reliance on third-party service providers and our lack of dedicated cyber insurance, as our partners' coverage is limited.
Any actual or perceived security breach could have consequences, including the theft of our or our customers' assets, significant remediation costs, regulatory investigations and fines, and litigation. Such an event would harm our reputation and brand, leading to a loss of customer confidence and a reduction in the use of our services. Moreover, any major cyberattack in the broader digital asset industry, even if it does not affect us directly, could damage public trust and adversely affect our business and operating results.
Our success depends on the continued development of a stable and scalable blockchain infrastructure. There is no assurance this infrastructure can support continued growth, and the underlying protocols may have undiscovered flaws, be vulnerable to network scale attacks, or be broken by future advancements like quantum computing. Any such technological failure could adversely affect our business and financial results.
The control of digital assets relies on the proper handling of private keys and wallet addresses. While we secure our assets with measures like multi-signature cold storage and screen transactions, the process is highly susceptible to user error. A customer may incorrectly enter a wallet address, forget required transaction information, or, most critically, send an asset to an address on an incompatible blockchain (e.g., sending Bitcoin to an Ethereum address).
In such cases, the assets are permanently and irretrievably lost with no means of recovery. These incidents may occur from time to time and can lead to customer disputes, legal claims, and damage to our brand, adversely affecting our business.
Lastly, we and our customers may incur losses from various types of fraud and physical security threats. Our personnel or external parties may commit fraudulent acts, while physical threats—such as intimidation, extortion, or sabotage of our facilities—could disrupt operations and compromise our staff.
Despite measures to detect and reduce fraud, we cannot guarantee their effectiveness. Under our regulatory obligations (such as with the GFSC), we are required to maintain professional indemnity insurance and protect customer assets. In the event assets are lost due to fraud, we may be subject to a regulatory investigation, regardless of any limitation of liability clauses in our terms of service. If we are found to be in breach of a regulatory requirement, we could face penalties, including the suspension or revocation of our license.
Our failure to adequately detect or prevent these fraud and physical security risks could harm our reputation, result in litigation, and lead to expenses that could adversely affect our business, financial condition, and results of operations.
Temporary or permanent blockchain "forks", technical failures, network upgrades, miner or validator fee demands, could result in the loss of digital asset value, transaction reversals, or other operational disruptions. If smart contracts associated with supported assets do not perform as expected, the value of those assets and our business could be adversely affected.
Because blockchain protocols are open source, modifications can lead to a "fork" if they are not adopted by a substantial majority of users, resulting in two parallel but non-interchangeable networks. This has occurred multiple times, creating new assets like Bitcoin Cash and Ethereum Classic and may cause confusion over asset treatment and naming conventions.
Forks introduce significant security concerns. For example, splits in the Ethereum and Bitcoin Cash networks led to replay attacks, which allow for “double-spending”. A fork may decrease a network's security by splitting its mining or validation power, potentially making digital assets that rely on proof-of-work or similar consensus mechanisms more susceptible to attack.
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Furthermore, we face legal and operational risks from forks. While we do not believe we are required to support forked digital assets, customers may assert claims that they are entitled to receive forked assets, which could result in disputes or potential liability. A fork can also disrupt our technology systems, impact trading volumes, and lead to the temporary or permanent loss of assets, or suspension of certain services, which could adversely affect our business, results of operations and financial condition.
Our platform supports digital assets that rely on smart contracts, which are vulnerable to bugs, technical defects, and errors. Since smart contracts typically cannot be stopped or reversed, these vulnerabilities can lead to security exposures, declines in value or reduced liquidity for assets held by our customers.
Furthermore, some smart contracts can be controlled by "admin keys" or "super users" with special privileges. These users can make changes to protocol parameters or, in certain cases, access assets held within a protocol. Even for digital assets that have adopted a decentralized governance mechanism, such as smart contracts that are governed by the holders of a governance token, such governance tokens can be concentrated in the hands of a small group of core community members, who would be able to make similar changes unilaterally to the smart contract. If an attacker gains access to these privileges or a super user acts maliciously, customers may experience a total loss of their assets' value. Although we do not control these smart contracts, such events could cause customers to seek damages against Bullish and adversely impact our business, financial condition, and the market price of our shares.
Supporting any new digital asset requires significant front-and back-end technical integration, which is not guaranteed to be successful and may introduce software errors or security weaknesses into our existing infrastructure. Even if integration is initially successful, subsequent changes to the underlying blockchain network, such as forks or upgrades, can cause incompatibility or disruptions. If we are unable to successfully identify and resolve these issues, we may no longer be able to support the asset, customer access to certain assets may be delayed or restricted, and our business could be adversely impacted.
We may charge withdrawal fees to customers based on our cost to process transactions on the blockchain. We also pay unpredictable miner fees for operational purposes, such as transfers between hot and cold wallets, for which we do not charge customers. If miner fees become excessively high, our payment of these fees in excess of what we charge customers would negatively impact our operating results.
The value and continued existence of the digital assets held by us and our customers depend on the existence, integrity, and governance of the underlying blockchain networks. Blockchain networks may experience events or implement changes that adversely affect the value or functionality of digital assets held by us or our customers, or result in transaction delays, reversals, or cancellations.
Technical changes, software upgrades, soft or hard forks, cybersecurity incidents, governance decisions, or other modifications to an underlying blockchain network may occur from time to time. These developments may cause incompatibility with our platform, technical disruptions, security vulnerabilities, or other operational challenges. In certain circumstances, such changes may materially impair the value or functionality of particular digital assets.
If we are unable to identify, troubleshoot, or resolve such issues in a timely and effective manner, we may be required to suspend or discontinue support for the affected digital asset. Customer access to certain assets may be delayed or restricted, transactions may be disrupted or reversed, and wallet security may be adversely affected. Any such events could adversely impact our reputation, business, operating results, financial condition, and the market price of our shares.
Risk Related to the Legal and Regulatory Environment
We operate in a complex, multi-jurisdictional legal and regulatory environment, which can be inconsistent, conflicting, unclear, unpredictable, and subject to rapid change. Our regulatory compliance efforts may not fully mitigate all applicable risks, and we may not be able to obtain or maintain required licenses or approvals or to comply with evolving laws, any of which could limit our ability to offer products in certain jurisdictions or subject us to fines, penalties and/or other adverse action by regulators, law enforcement authorities, customers or other stakeholders. We may need to adapt our operations, or change or limit our businesses, in response to changes in this environment. Customers may circumvent restrictions we impose, which could expose us to regulatory investigations, fines, or other consequences.
Due to the international span of our business, we are subject to a complex, multi-jurisdictional legal environment that can result in conflicting obligations. We have implemented a compliance framework to address these requirements, but we cannot guarantee it will be sufficient to mitigate all legal and regulatory risks.
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Our failure to comply with applicable laws and regulations —including those relating to market and business conduct, financial crime prevention, data protection, and consumer protection—may lead to the loss of our licenses, enforcement actions, investigations, and significant fines. In the future, we may receive examination reports citing violations that require us to incur significant costs to remediate, and a failure to do so could result in penalties ranging from fines to the forced removal of employees or revocation of licenses.
New laws or adverse changes to regulations could cause us to incur extraordinary expenses or prevent us from offering certain products. These risks, inherent in our international business model, could have a material adverse effect on our reputation, business, financial condition, and results of operations.
Acquiring and maintaining the necessary regulatory licenses is a costly, time-consuming, and uncertain process. We face the risk that we may not meet license requirements, that regulators may disagree with our interpretations, or that our controls may not be fully effective.
In the United States, we hold money transmission licenses from a number of states, including New York, and the New York BitLicense. We are in the process of applying for money transmission licenses from other states and are registered as a Money Services Business (“MSB”) with the U.S. Financial Crimes Enforcement Network (“FinCEN”). Significant uncertainty still remains regarding the jurisdiction of the SEC and CFTC, including the development of the Market Structure legislation and the implementation of GENIUS Act through federal agency rule-making, as well as how these federal laws and regulations will interact with the state regulations in the future. If we are deemed to be operating an unregistered securities or derivatives exchange, we could face significant enforcement actions. Globally, while we hold licenses in Gibraltar, Hong Kong, and Germany, these are subject to changing rules.
Even obtained licenses may have conditions that limit our business. A failure to comply with this complex web of regulations could adversely affect our ability to operate, harm our reputation, and materially affect our business and financial condition.
Given our complex products and services are available in numerous jurisdictions, it is difficult to ensure they meet all regulatory requirements. We use a risk-based assessment to decide where and how to offer our products, which often requires us to make interpretive judgments on unclear legal and regulatory requirements. Even when we obtain external advice, there is no assurance that local regulators will share our conclusions. If a regulator disagrees with our interpretation, we may be subject to investigations, enforcement actions, and fines, which could adversely affect our brand, reputation, business, and financial condition.
The fast and unpredictable pace of change in the legal and regulatory environments relevant to our business presents a significant risk. New laws, regulations, or interpretations may adversely impact the development of digital assets and our legal status by changing how we operate our business, how our products are regulated, and what services we can offer. This could require us to make costly adaptations to our systems, impose new licensing requirements, or even force us to stop or reduce services in certain countries. Our failure to comply with any of these new or changing laws and regulations may adversely impact our reputation, brand, business, and operating results.
As blockchain technology and digital assets have grown in popularity, governments and regulators around the world are examining the industry and may introduce regulations at a fast pace. To the extent that any government agency exerts regulatory authority, the issuance of, and transactions involving, digital assets may be adversely affected suddenly. We may not have a sufficient time frame or resources to appropriately respond to such sudden adverse changes, which could adversely impact our business, financial condition, results of operations, and share price.
Various governmental organizations and consumer agencies are examining digital asset platforms, focusing on how they can be used for illicit activities like money laundering. This has led to calls for heightened regulatory oversight. The digital assets industry is still relatively new and has comparatively more limited access to policymakers, while competitors from more established industries have greater influence.
Consequently, legislators may adopt new laws or interpretations without taking into account the full input from the digital asset industry or to adopt more restrictive laws or interpretations less favourable to the digital asset industry. We may not be able to adapt to such sudden adverse legal and regulatory changes, which could result in our being unable to offer certain services in certain jurisdictions. This could also lead to enforcement actions, litigation, and fines, which may adversely impact our reputation, business, operating results, and financial condition.
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We are subject to extensive and complex laws in multiple jurisdictions that evolve frequently and may conflict. The uncertainty surrounding digital asset regulation requires us to exercise judgment, but governmental bodies may disagree with our conclusions. We may lack sufficient resources to adapt to and comply with increased legal requirements, which will impose substantial compliance costs. To the extent we have not complied with such laws, we could be subject to investigations, legal proceedings, significant fines, revocation of licenses, and reputational harm, any of which could adversely affect our business, operating results, and financial condition.
As business operations become more global, regulators are increasingly exercising extraterritorial jurisdiction over entities operating outside their borders. Consequently, we face a growing risk of regulatory actions from governments worldwide, even where we have no local presence. Such actions could lead to investigations, fines, or cease-and-desist orders that negatively impact our brand, reputation, and financial condition.
Finally, our international office locations and our use of remote work arrangements subject us to the employment laws and regulations of multiple jurisdictions. These arrangements can increase the complexity of our legal and tax obligations. Compliance with these varied laws increases our cost of doing business, while a violation could lead to fines, penalties, or even a prohibition on our ability to conduct business in certain countries.
Customers may attempt to exploit our platforms for illegal or unethical activities. Despite our controls and due diligence systems, we may not detect or prevent such misuse. Any platform exploitation could adversely affect our reputation, subject us to regulatory action, and harm our business and operating results.
The Bullish Exchange may be exploited to facilitate illegal activity such as fraud, money laundering, and market manipulation. Digital assets have characteristics that make them susceptible to such illicit use, and we may be held subject to regulatory scrutiny or potential liability if customers violate the law. While we have implemented a risk management and compliance framework, including KYC controls, we cannot guarantee these will be effective in preventing all material violations. If we inadvertently onboard sanctioned customers or our platform is used for illegal activities, we may be subject to legal proceedings resulting in loss of licenses, fines, and other penalties, which could adversely affect our brand, reputation, business, financial condition, and the market price of our shares.
If persons in jurisdictions that we intend to prevent from accessing our services circumvent our onboarding restrictions, we may be subject to investigations, fines, and other penalties. We may be required to cease offering services to customers in such jurisdictions, which could harm our ability to access those and other regulated markets in the future. While we are developing internal controls to mitigate this risk, there is no assurance such measures will be effective, and a failure could adversely impact our reputation, business, financial condition, and the market price of our shares.
The legal and regulatory treatment of the digital assets included in our business lines is unclear, may be subject to inconsistent recognition or treatment in different jurisdictions and fast, unpredictable and potentially retrospective changes, which may adversely impact our business and operations and financial condition.
The Bullish Exchange supports numerous digital assets. Subject to internal governance processes and applicable laws and regulations, we also intend to add new digital assets to the Bullish Exchange and other business lines in the future. However, the laws and regulations applicable to these digital assets and transaction types related to these digital assets are often unclear and may result in differing interpretations or treatment across jurisdictions. We will need to make a judgment call with respect to the legal or regulatory treatment of such digital assets. Regulators in the relevant jurisdictions may disagree with our view regarding such treatment. For example, even if a digital asset itself is not a security, certain activities or services may be construed by the SEC or certain U.S. states as constituting the offer or sale of securities by us. We may also have incomplete information about the relevant digital asset when making a determination as to the legal treatment of such asset in the relevant jurisdictions. This would arise where information is not publicly available, non-existent or was not otherwise obtained, or because available information proves to be unreliable or incomplete. The lack of information may not alleviate our responsibility to comply with the applicable laws of the relevant jurisdictions and may not provide a defense against enforcement action for non-compliance. The applicable legal or regulatory treatment may also change and apply to our supported digital assets retrospectively. The uncertainties regarding the legal and regulatory treatment of the digital assets may result in us being required to obtain additional licenses and approvals which may be costly and time consuming, or having to suspend, restrict and/or remove certain digital assets from our platform, all of which may result in losses to our customers.
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For example, the SEC and its staff have historically taken the position that certain digital assets fall within the definition of a “security” under the U.S. federal securities laws, and have in the past brought enforcement actions and entered into settlements with numerous digital asset industry participants alleging that certain digital assets are securities. Whether a digital asset is a security under the federal securities laws depends on whether it is included in one of the enumerated categories of securities in the definition of “security” in the Securities Act, the Exchange Act and the Investment Company Act. Digital assets are not one of the enumerated categories, however, the terms “investment contract” and “note” are and the SEC generally has analyzed whether a particular digital asset is a security by reference to whether it meets the tests developed by the federal courts interpreting these terms, known as the Howey and Reves tests, respectively. For many digital assets, whether the applicable tests are met is difficult to resolve definitively, and substantial legal arguments can often be made both in favor of and against a particular digital asset qualifying as a security under one or both of the Howey and Reves tests. The legal test for determining whether any given digital asset is a security is a highly complex, fact-driven analysis that evolves over time, and the outcome may be difficult to predict. Adding to the complexity, the SEC staff has indicated that the security status of a particular digital asset may change over time as the relevant facts evolve. Although the SEC has recently provided guidance regarding whether certain activities related to digital assets, such as staking and proof-of-work mining activities, may involve transactions in securities, the SEC generally does not provide advance guidance or confirmation on the status of any particular digital asset as a security, and its statements and enforcement actions are not rules or regulations of the SEC and are not binding precedent applicable to all market participants. Certain SEC officials have indicated that they intend to reassess the framework for determining which digital assets, digital assets transactions, or digital assets services are securities. We cannot predict the outcome of any such reassessment or its impact for the categorization of any specific digital asset, transaction or service.
Moreover, a determination that a digital asset included in our business lines is a “security” or that our business line constitutes the offer or sale of a security or an instrument that otherwise require a license to trade by the SEC or any other governmental agency in the U.S. or elsewhere, or in a proceeding in a court of law or otherwise, could adversely affect the market price of digital assets supported by the Bullish Exchange or held by Bullish generally and our ability to offer products and services in the relevant jurisdictions. Such determination may also lead to regulatory investigations, enforcement actions, litigations (including securities class actions in the US) and other legal proceedings, resulting in significant costs being incurred and fines, damages or other penalties.
The Bullish Exchange’s internal governance processes for listing digital assets for trading include an assessment of whether such assets could be considered “securities” under applicable law. While this assessment is risk-based and conducted by Bullish, it is not a determination binding on regulators. In the future, if certain digital assets are determined to be securities under applicable law, these assets could not be supported by the Bullish Exchange, or if already supported, would need to be removed from trading unless the Bullish Exchange obtains the necessary additional authorizations from relevant regulatory authorities. Prior to offering a digital asset to the U.S. market, the digital asset will need to be assessed in accordance with the Bullish Exchange’s approval policies and having regard to U.S. securities laws, which assessment would be a risk-based assessment by Bullish and not a determination binding on U.S. regulators.
The uncertain legal and regulatory treatment of digital assets across relevant jurisdictions may adversely impact our reputation, business, financial position, operating results and share price.
Legal and regulatory uncertainty regarding our leveraged trading services and custody of customer assets could limit our ability to offer products and impede business operations.
The legal treatment of leveraged trading services is unclear across jurisdictions, forcing us to make interpretive, risk-based decisions that regulators may disagree with. Laws may change quickly and even apply retrospectively. For example, U.S. customers wishing to participate in the Margin Services may need to be "eligible contract participants", although the law is not settled in this area. If we fail to obtain required local licenses or if regulators challenge our interpretations, we may be subject to investigations, fines, and be forced to suspend providing such services, which could adversely impact our reputation, business, and financial condition.
The legal treatment of custody for customer assets is unclear and may be inconsistent across jurisdictions, requiring us to make interpretive, risk-based decisions that regulators may challenge. This risk also extends to the third-party custodians we utilize, and any regulatory action against them could impact our access to customer assets. Because laws can change quickly, we or our third-party providers may be forced to suspend services or obtain new licenses. This could lead to customer losses and legal actions, resulting in an adverse impact on our reputation, business operations, and financial condition.
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If we are deemed to be an investment company under the Investment Company Act of 1940, we may not be able to successfully execute our business strategy.
In general, under the Investment Company Act of 1940, as amended, and the rules and regulations thereunder (the “Investment Company Act”), a company that does not qualify to use one of the “private investment company” (or other specialized) exemptions from investment company status, that has made (or proposes to make) a public offering of its securities into the United States and that is, or holds itself out as being, engaged primarily in the business of investing, reinvesting or trading in securities must register, and is subject to regulation, as an investment company under the Investment Company Act. In addition, in general, investment company status may apply (again, unless a specialized exemption is available) because a company owns “investment securities” (essentially, non-controlling interests in other companies’ securities or controlling interests in companies that have the characteristics of an investment company) constituting more than 40% of the value of its unconsolidated total assets (disregarding U.S. government securities and “cash items”).
We may be subject to the registration provisions of the Investment Company Act if we are considered to be primarily engaged in the business of investing, reinvesting, or trading in assets that are “securities” under the U.S. federal securities laws, or acquire or hold assets that are “investment securities” under the Investment Company Act which together constitute more than 40% of the value of our unconsolidated assets, exclusive of U.S. government securities and “cash items.”
Our legal and regulatory treatment under the Investment Company Act depends in part on our conclusion that digital assets supported by the Bullish Exchange and other business lines, and in particular our business activities involving such digital assets (including the contribution of digital assets to the use of AMMI and other services relating to such digital assets), do not constitute “securities” and therefore “investment securities.” The SEC has stated that certain digital assets may be considered “securities” under the U.S. federal securities laws. Public non-binding statements by current and former senior officials at the SEC indicating which digital assets may or may not be currently treated as securities are not official policy statements by the SEC and reflect the views of the individual speaker and are not binding precedent applicable to other digital assets or market participants.
If any of the digital assets supported by the Bullish Exchange, or our activities regarding such assets, are determined to be a “security” under the U.S. federal securities laws by the SEC or any other agency, or in a proceeding in a court of law or otherwise, it may have adverse consequences for us, including potential classification as an “investment company” under the Investment Company Act. Moreover, the blockchain technologies underlying our Exchange platform and services more generally are novel technologies that are relatively untested. As a consequence, the applicability of the U.S. federal securities and derivatives laws to these blockchain technologies and their application to the services provided through our platform is unclear in certain respects. Due to such novelty and continued uncertainty regarding the regulatory classification of digital assets, it is possible that securities regulators may interpret current or future laws in a manner that adversely affects us, or causes us or certain or all of our operating subsidiaries to be classified as an “investment company.”
Additionally, there remain significant uncertainties and unresolved issues with respect to the accounting treatment of digital assets under applicable accounting rules. As detailed above in the risk factor “The nature of our business requires the application of complex financial accounting rules that are uncertain and may change from that presented” we have made certain assumptions in our interpretation of the accounting treatment of digital assets and its application to us. If any of these interpretations or their related assumptions turn out to be incorrect, this could adversely affect the analysis of whether we are an “investment company” under the Investment Company Act. Further, the clarification of existing accounting principles and standards applicable to digital assets, or the adoption of new accounting principles and standards, could require changes in our processes and business strategy (including the relative extent to which we conduct certain business activities as it relates to our Investment Company Act analysis), which would in turn affect the results of our operations and growth prospects.
To the extent we are deemed an “investment company” under the Investment Company Act, we will be subject to significant additional regulatory controls that could adversely affect our ability to successfully execute our business strategy, and which may require us to substantially change the manner in which we conduct our activities and the products and services that we offer on our platform. Such substantive additional regulatory requirements include, among others: (i) limitations on capital structure; (ii) restrictions on operating activities or permissible investments, including with respect to the acquisition of interests in affiliated companies; (iii) restrictions on the ability to incur borrowings; and (iv) specific compliance with reporting, recordkeeping, voting, proxy disclosure and other substantive requirements under the Investment Company Act. Registration as an “investment company” and the imposition of such regulatory requirements would likely result in extraordinary, non-recurring expenses, thereby adversely impacting an investment in us. If we determine not to comply, or if we cannot comply with such registration and additional regulatory requirements, we may need to cease all or certain parts of our operations, which can adversely impact our reputation, business, financial condition and the market price of our shares.
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We may become subject to litigation, including regulatory actions, regarding use of our products by our customers, and disputes with employees or counterparties or others. Engaging in cross-border business can complicate enforcement of legal rights and expose us to liability. We rely on external counsel for guidance, but their advice may be inaccurate or insufficient. Any litigation or adverse legal developments could materially affect our business, financial condition, or reputation.
We may become a party to material litigation and regulatory proceedings, the outcomes of which are inherently difficult to predict. These risks are greater for us because the digital asset industry is new, and responding to such matters is time-consuming and expensive, regardless of the ultimate outcome. Specifically, if we are found to be holding assets related to illicit activities, we may be required to "freeze the assets," leading to litigation and reputational harm. Any of these proceedings could result in substantial fines, the loss or non-renewal of licenses, the diversion of management resources, and damage to our brand, all of which could have an adverse impact on our business and financial condition.
Engaging in cross-border business makes it difficult to ensure we can adequately protect our legal rights, as we are subject to numerous and often conflicting laws. We may be unable to enforce legal rights consistently across jurisdictions. This is particularly true for our terms of service, which are untested and intended to apply to users in disparate locations.
There is uncertainty as to whether courts in other jurisdictions will enforce our forum selection clause or whether they will impose additional liabilities on us based on local consumer protection or tort law. Because of this legal uncertainty, we may find it difficult to rely on our contractual terms to enforce our rights or reduce our liabilities, which could lead to unanticipated legal liability and adversely impact our business and financial condition.
Our products support the investment processes of our customers, creating the risk that they may pursue claims against us for very significant dollar amounts. Our customer agreements have provisions designed to limit our exposure to liability claims, but these provisions have exceptions and could be invalidated by unfavorable judicial decisions or by law. Any such claim, even if ultimately favorable to us, would involve a significant commitment of management and financial resources, could damage our reputation, and could have a material adverse effect on our business, financial condition, or results of operations.
We obtain and process a large amount of customer data, including sensitive customer data. Any real or perceived improper use of, disclosure of, or access to such data could result in liability, regulatory scrutiny, reputational harm, and adversely affect our business.
To provide our services, our operations involve the collection, storage, transmission, and/or other processing of customers’ personal data, including personal data related to our customers and their transactions, such as their names, addresses, social security numbers, copies of government-issued identification, trading data, tax identification, and bank account information. We also collect customer data, including usage and technical data, through the use of automated technologies such as logging tools and cookies. We process, store and use biometric data from customers and prospective customers as part of our KYC process, as well as client onboarding processes and/or ongoing customer engagement. Biometric personal data is considered sensitive personal data under certain global privacy laws, and may be subject to heightened requirements around its collection, processing, and storage. We are subject to complex and evolving federal, state, and international laws and regulations governing privacy, data protection, e-commerce transactions and financial institutions that require us to safeguard our customers’, employees’ service providers’ and other counterparties’ personal data. Consequently we face risks of non-compliance with applicable privacy regulations in the handling and protection of personal data, and such risks may increase as our business expands and regulatory requirements evolve. For more information on risks related to compliance with laws and regulations on data privacy and data protection, see section entitled “Risks Related to the Legal and Regulatory Environment — We are subject to the evolving laws and regulations on data privacy and data protection in multiple jurisdictions, including the EU General Data Protection Regulation (the “GDPR”), which can be complex and conflicting. We may face investigations, fines and sanctions for our or our service providers’ actual or perceived failure to comply with such laws and regulations and incur increased operational costs in order to ensure future compliance.”
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We may use AI in our business, and challenges with properly managing its use, as well as uncertainty regarding the legal landscape surrounding the use of AI, could result in reputational harm, competitive harm, and legal liability, and adversely affect our results of operations.
We currently leverage third-party developed AI in certain aspects of our business and we anticipate that AI will become increasingly important to our operations in the future. Our competitors and other third parties may incorporate AI into their businesses or offerings more quickly or more successfully than us, which could impair our ability to compete effectively and adversely affect our business, operating results, and financial condition.
We also utilize AI, data analytics, and related tools to collect, aggregate, and analyze data. We may incorporate AI solutions into our business, products and services, and these applications may increase over time. However, there are significant risks involved in utilizing AI and we cannot assure that our use of AI will enhance our business or improve efficiency or profitability. For example, AI algorithms may be flawed, insufficient, of poor quality, reflect unwanted forms of bias, or contain other errors or inadequacies, any of which may not be easily detectable; AI has been known to produce false or “hallucinatory” inferences or outputs; AI can present ethical issues and may subject us to new or heightened legal, regulatory, ethical, or other challenges; and inappropriate or controversial data practices by developers and end-users, or other factors adversely affecting public opinion of AI, could impair the acceptance of AI solutions, including those incorporated in our services. If the AI solutions that we create or use are deficient, inaccurate or controversial, we could incur operational inefficiencies, competitive harm, legal liability, brand or reputational harm, or other adverse impacts on our business, operating results and financial conditions. If we do not have sufficient rights to use the data or other material or content on which our AI solutions or other AI tools we rely, we also may incur liability through the violation of applicable laws, third-party intellectual property, privacy or other rights, or contracts to which we are a party.
In addition, regulation of AI is rapidly evolving worldwide as legislators and regulators are increasingly focused on these powerful emerging technologies. The technologies underlying AI and its uses are subject to a variety of laws, including intellectual property, privacy, data protection and cybersecurity, consumer protection, competition, and equal opportunity laws, and are expected to be subject to increased regulation and new laws or new applications of existing laws. For example, in August 2024 the European Parliament passed the EU's Artificial Intelligence Act (the “EU AI Act”), which establishes broad obligations for developing and using AI technologies in the EU, with requirements determined by their level of risk and potential impact. AI is the subject of ongoing review by various U.S. governmental and regulatory agencies, and various U.S. states and other foreign jurisdictions are applying, or are considering applying, their platform moderation, cybersecurity, and data protection laws to AI or are considering general legal frameworks for AI.
We are subject to complex and evolving data privacy and data protection laws in multiple jurisdictions, and any failure to comply could adversely affect our business.
Our collection, use, retention, protection, disclosure, transfer and other processing of personal data, including sensitive data such as government identification information and, in certain cases, biometric data, subjects us to data privacy and data protection laws and regulations in multiple jurisdictions. These laws are complex, frequently evolving, and may be interpreted or applied inconsistently. Compliance requires significant resources and may become more burdensome as our business expands.
In the European Economic Area, the EU General Data Protection Regulation, or GDPR, imposes strict requirements on the processing and transfer of personal data outside the European Economic Area, including to the United States. The EU U.S. Data Privacy Framework and the related UK U.S. Data Bridge currently facilitate certain transfers of personal data from the European Economic Area and the United Kingdom to the United States. However, these transfer mechanisms have been subject to legal challenges and may be modified or invalidated. Any restriction on cross border data transfers could require changes to our operations or limit how we provide our products and services.
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In the United States, we are subject to a combination of federal and state laws. As a financial institution, we are subject to the Gramm Leach Bliley Act, which requires us to maintain safeguards to protect customer information. We are also subject to the New York Department of Financial Services Cybersecurity Regulation, 23 NYCRR 500, which imposes specified cybersecurity requirements. In addition, we may be subject to comprehensive state privacy laws, including the California Consumer Privacy Act, as amended by the California Privacy Rights Act, collectively the CCPA, which grants California residents rights relating to access, deletion, and certain restrictions on the use of personal data and provides a private right of action for certain data breaches.
If we or our service providers fail to comply with applicable data privacy and data protection laws, or if we experience a data breach or other unauthorized access to personal data, we may be subject to investigations, enforcement actions, fines, litigation, remediation costs, and reputational harm. In addition, evolving laws, data localization requirements, or regulatory interpretations may require us to modify our systems and business practices, increase compliance costs, or limit certain business activities.
Any failure, or perceived failure, to comply with applicable data privacy and data protection laws could materially and adversely affect our business, financial condition, results of operations, and the market price of our shares.
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Risks Related to Intellectual Property
We rely on our trademarks and intellectual property rights to protect our brands and business. If we fail to obtain, maintain, protect, or enforce our intellectual property rights, or if such protections are insufficient, we may incur significant costs, suffer reputational harm, or experience reduced brand value. Any such failure could adversely affect our business, financial condition, results of operations, and the market price of our shares.
Our business depends on our ability to protect our intellectual property through a combination of trade secret, patent, and trademark rights, as well as contractual protections. The steps we take may be inadequate, as our intellectual property rights may be circumvented, infringed, or challenged. We rely significantly on trade secrets, as software patents are difficult to obtain and enforce, but there is no assurance that our rights will be sufficient to protect against competitors developing products or services that are similar to or competitive with ours. Intellectual property protection may also not be available in every country in which our services are available, which could adversely affect our competitive position. Finally, we rely on technologies licensed from third parties, which we may not be able to continue to obtain on commercially reasonable terms.
The recognition and reputation of our brands are important to our success, but the steps we take to protect our trademarks may not be adequate to prevent unauthorized use by third parties. We may fail to obtain trademark protection for our brands in all jurisdictions, and third parties may challenge our rights to certain trademarks. Defending against such proceedings may be costly and, if unsuccessful, could result in the loss of important intellectual property rights. If we are unable to protect our trademarks, we may not be able to establish name recognition, which could adversely affect our ability to compete effectively.
Third parties may make claims or bring legal proceedings against us for alleged infringement, misappropriation or other violation of their intellectual property rights and consequences could include having to cease offering our products or services.
In recent years, there has been considerable patent, trademark, domain name, trade secret and other intellectual property development activity in our industry, as well as litigation, based on allegations of infringement, misappropriation or other violation of intellectual property rights. Furthermore, individuals and groups can purchase patents and other intellectual property assets for the purpose of making claims of infringement to extract settlements from companies like ours.
In conducting our business, we may be subject to claims of infringement, misappropriation or other violation of third-party intellectual property rights. We cannot guarantee that our internally developed or acquired technologies and content do not or will not infringe the intellectual property rights of others. From time to time, our competitors or other third parties may claim that we are infringing upon, misappropriating or otherwise violating their intellectual property rights, and we may be found to be infringing upon such rights. Although we take steps to evaluate intellectual property risks, we cannot assure that we have identified all potential third-party rights that may be implicated by our technologies or services..
Moreover, competitors and other third parties may infringe, misappropriate, or otherwise violate our issued patents or other intellectual property. As a result, we may need to file infringement, misappropriation, or other intellectual property-related claims, which can be expensive and time-consuming. Any claims we assert against perceived infringers could provoke such parties to assert counterclaims against us alleging that we infringe, misappropriate, or otherwise violate their intellectual property, which could result in our intellectual property rights being narrowed in scope or declared invalid or unenforceable.
In addition, if others have or obtain a valid patent or other intellectual property covering technology critical to our business, there can be no guarantee that they would be willing to license such technology at acceptable prices or at all, which could have an adverse effect on our business, financial condition and results of operations. Moreover, if for any reason we were to fail to comply with our obligations under an applicable agreement, we may be unable to operate, which would also have a material adverse effect on our business, financial condition and results of operations.
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Any claims or litigation, regardless of merit, could cause us to incur significant expenses and, if successfully asserted against us, could require that we enter into unfavorable license agreements, pay substantial damages or make ongoing royalty payments, prevent us from offering our products or services or using certain technologies, force us to implement expensive work-arounds, or impose other unfavorable terms. Even at an interim stage, we could be enjoined from using the relevant intellectual property and have to cease offering our products or services as a result. We expect that the occurrence of infringement claims is likely to grow as the digital assets market grows and matures. Accordingly, our exposure to damages resulting from infringement claims could increase and this could further exhaust our financial and management resources. Further, during the course of any litigation, we may make announcements regarding the results of hearings and motions, and other interim developments. If securities analysts and investors regard these announcements as negative, the market price of our Ordinary Shares may decline. Even if intellectual property claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and require significant expenditures. Any of the foregoing could prevent us from competing effectively and could have an adverse effect on our reputation, business, operating results, financial condition and share price.
We could incur significant costs and management distraction in pursuing claims to enforce our intellectual property and proprietary rights through litigation and defending any alleged counterclaims. If we are unable to protect or preserve the value of our patents, trade secrets, trademarks and service marks, or other intellectual property and proprietary rights for any reason, our brand and reputation could be damaged and our business, financial condition, results of operations and share price could be adversely affected.
We are subject to risks associated with information disseminated through our products and services.
Companies providing data or information may be subject to claims relating to information disseminated through them, including claims alleging defamation, libel, breach of contract, invasion of privacy, negligence, or trademark infringement, among other things. The laws relating to the liability of companies providing information disseminated through their services are subject to frequent challenges both in the U.S. and foreign jurisdiction and may evolve in ways that increase potential exposures. We are also subject to potential liability to third parties for the customer-provided content on our products and services, particularly in jurisdictions outside the U.S. where the applicable laws are unsettled. If we become liable for information provided by our customers and carried on our products and services, we could be subject to damages, regulatory penalties, or reputational harm, and we may be forced to implement new measures to reduce our exposure to this liability, including expending substantial resources or discontinuing certain product or service offerings, which could adversely affect our business, financial condition, and results of operations.
Risks Related to Personnel
We depend on talented, experienced, and committed personnel to operate and grow our business. Competition for qualified employees is intense, and we may incur increased costs to recruit, train, motivate, and retain key personnel. Employees we invest in may leave to join competitors, and non-compete or similar arrangements may be difficult, costly, or unenforceable. The loss of key personnel, increased labor costs, or our inability to attract and retain talent could adversely affect our business, financial condition, results of operations, and growth prospects.
Our future success is highly dependent on the talents of our employees, and our growth strategy is based on our ability to attract and retain highly skilled personnel. Due to the relatively new and evolving nature of digital assets, the pool of qualified talent is limited in certain specialized areas, and we face intense competition. The loss of one or more qualified employees, or an inability to attract and retain them, could adversely impact our operating results and impair our ability to grow. If we are unable to successfully identify and retain qualified professionals, our business, prospects, and financial condition may be adversely affected.
We face intense competition for qualified individuals and are highly dependent on key personnel for our operations. As we operate in a relatively new industry, we must invest significant time and resources in employee training and development. To attract and retain the necessary talent, we incur significant costs, but even these measures may not be enough, in part because non-compete agreements are not permissible or limited in certain jurisdictions. Consequently, the loss of one or more of our key personnel could adversely impact our reputation, business, operating results, and financial condition.
The economy in the countries where we employ staff and globally has experienced increases in inflation and labor costs, and as a result, average wages are expected to continue to increase. In addition, in some countries we are required by laws to pay various statutory employee benefits. We expect that our labor costs, including wages and employee benefits, will continue to increase, which could materially and adversely affect our financial condition and results of operations.
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Our officers, directors, employees and large shareholders may encounter potential conflicts of interests with respect to their positions or interests in certain digital assets, entities and other initiatives.
We may engage in a wide variety of transactions and develop relationships with a number of digital asset projects, their developers, members of their ecosystem and investors. These transactions and relationships could create potential conflicts of interests in management decisions that we make. For instance, certain of our officers, directors and employees are active investors in digital asset projects themselves, and may be involved in making investment decisions in respect of projects that they have personally invested in. Many of our large shareholders also make investments in these digital asset projects. Similarly, certain of our directors, officers, employees and large shareholders may hold digital assets that we are considering supporting for trading on our platform, and may be involved in making decisions in respect of such approval process. While we are implementing policies and procedures to limit and mitigate such risks, there is no assurance that such policies and procedures will be effective, or that we will be able to manage such conflicts of interests adequately. If we fail to manage these conflicts of interests, we may be exposed to adverse media coverage, regulatory investigations and legal proceedings, leading to adverse impact to our reputation, business, financial position and the market price of our shares.
Misconduct, errors, mistakes and/or inappropriate conduct (including breach of laws, regulations and internal policies) or public statements by our personnel and/or service providers, and/or our failure to appropriately respond to such conduct or situation, may result in legal liability for us and adversely impact our business operations as well as reputation.
There is a risk that an employee of ours, or service provider to us, or any of our affiliates could engage in misconduct that adversely affects our business. It is not always possible to deter such misconduct, and the precautions we take to detect and prevent such misconduct may not be effective in all cases.
Employee or service provider misconduct or error, including breach of laws, regulations and/or our internal policies, could subject us to legal liability, financial losses and regulatory sanctions and could seriously harm our reputation and negatively affect our business. Such misconduct could include breach of anti-bribery and corruption laws, engaging in improper or unauthorized transactions or activities, misappropriation of customer funds, insider trading and misappropriation and misuse of information (including material non-public information), failing to supervise other employees or service providers, improperly using confidential information, as well as improper trading activity such as spoofing, layering, wash trading, manipulation and front-running. Employee or service provider errors, including mistakes in executing, recording, or processing transactions for customers, could expose us to financial losses even if the errors are detected. Although we have implemented and continue to enhance processes and procedures and provide training to our employees and service providers to reduce the likelihood of misconduct and error, these efforts may not be successful.
Moreover, the risk of employee or service provider error or misconduct may be even greater for novel products and services and may be compounded by the fact that many of our employees and service providers are accustomed to working at tech companies which generally do not maintain the same compliance customs and rules as financial services firms. This can lead to high risk of confusion among employees and service providers, particularly in a fast growing company like ours, with respect to compliance obligations, particularly including confidentiality, data access, trading and conflicts.
It is not always possible to deter misconduct, and the precautions we take to prevent and detect this activity may not be effective in all cases. If we were found to have not met our regulatory oversight and compliance and other obligations, we could be subject to regulatory sanctions, financial penalties and restrictions on our activities for failure to properly identify, monitor and respond to potentially problematic activity and seriously damage our reputation. Our employees, contractors and agents could also commit errors that subject us to financial claims for negligence, as well as regulatory actions, or result in financial liability. Further, allegations by regulatory or criminal authorities of improper trading activities could affect our brand and reputation. Our failure to appropriately respond to such conduct or situation can also adversely impact our business operations as well as reputation.
Our personnel or service providers may also make inappropriate or harmful public statements in their own capacity that are not authorized by us, including posting on social media platforms. By virtue of their association with us, the public may react negatively against us. Such unauthorized public statements may damage our brand, reputation and public perception and adversely impact our business, financial condition and the market price of our shares.
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Risks Related to Taxation
Changes in tax laws, regulations, interpretations, or enforcement practices—including initiatives targeting the digital economy, such as those led by the OECD—or adverse developments in the tax treatment of digital assets could increase our tax burden, impose additional compliance obligations, or could have a material adverse effect on our business, operating results, financial condition and liquidity.
Tax laws, including tax rates, in the jurisdictions in which we operate are subject to changes. For example, in the United States, changes to the Tax Cuts and Jobs Act of 2017 (the “TCJA”), One Big Beautiful Bill Act of 2025 (the “OBBBA”), the Inflation Reduction Act of 2022 (the “IRA”), the IRA’s new corporate alternative minimum tax of 15% on adjusted financial statement income and an excise tax on share buybacks. Additionally, various governments and organizations such as the European Union and the OECD are increasingly focused on tax reform and other legislative or regulatory action to increase tax revenue.
Over the last few years, the OECD has been discussing fundamental changes in allocation of profits among tax jurisdictions in which companies do business (base erosion and profit shifting), as well as the implementation of a global 15% minimum tax (referred to as “Pillar One” and “Pillar Two” respectively). The first pillar is focused on the allocation of taxing rights between countries for in-scope large multinational enterprises (with revenue in excess of €20 billion and profitability of at least 10%) that sell goods and services into countries with little or no local physical presence. Discussions on this pillar and its implementation are still ongoing. Pillar Two is focused on ensuring large multinational enterprises (“MNEs”) pay a minimum level of tax on the income arising in each jurisdiction where they operate. Taxpayers in scope (MNEs with global revenue of at least €750 million in at least two years out of the four previous years) whose effective tax rate according to the OECD model rules as implemented in each jurisdiction is less than 15% would be subject to a top-up tax on the difference between their effective tax rate per jurisdiction and a 15% minimum tax rate. In addition, such taxpayers will be subject to compliance requirements in the relevant jurisdictions.
Pillar Two legislation has been enacted or substantially enacted in certain jurisdictions in which we operate, including Germany and the United Kingdom, with implementation effective January 1, 2024 and January 1, 2025, respectively. Neither the United States nor the Cayman Islands has introduced Pillar Two legislation. In the case of the United States, the Trump Administration issued an executive order on January 20, 2025 declaring that the OECD/G20 inclusive framework on Base Erosion and Profit Shifting has no force or effect in the U.S. absent congressional action, and directing the U.S. Department of Treasury to (i) investigate whether any non-U.S. countries are not in compliance with any U.S. tax treaty or have implemented or are likely to implement tax rules that are extraterritorial or disproportionately affect U.S. companies, which may include actions or taxes imposed under Pillar One or Pillar Two, and (ii) develop options for “protective measures” in response to any such noncompliance or tax rules.
On June 28, 2025, the G7 released a statement announcing an agreement that U.S. parented groups would be exempt from the OECD Pillar Two income inclusion rule (“IIR”) and undertaxed profits rule (“UTPR”), in recognition of the existing GILTI and corporate alternative minimum tax rules in the Internal Revenue Code. On January 5, 2026, the OECD released administrative guidance that introduced a “side by side” safe harbor. This safe harbor, which is generally available for fiscal years beginning on or after January 1, 2026, effectively deems the Pillar Two top-up tax to be zero for eligible U.S. parented multinational groups.
We cannot predict whether the U.S. will adopt any such protective measures, or whether or how any non-U.S. countries may change their tax laws, including with respect to taxes imposed under Pillar One or Pillar Two, in response to the executive order or the January 2026 OECD guidance. It is possible that any changes in U.S. or non-U.S. tax law could have material adverse effect on our future tax liabilities and our effective tax rate.
Given these developments, it is generally expected that tax authorities in various jurisdictions in which we are regulated, or in which we operate or serve customers, may increase their audit activity and may seek to challenge some of the tax positions we have adopted. It is difficult to assess if and to what extent such challenges, if raised, might impact our effective tax rate, increase our tax costs and cash outflows, and impose additional reporting and compliance obligations.
We are assessing our tax obligations under such tax legislations on an ongoing basis.
Tax rules and interpretation on digital assets products and transactions such as lending, staking or perpetuals are not settled and uncertain and it is unclear whether, when and what guidance may be issued in the future on the treatment of digital asset transactions for tax purposes. Although in 2014, the United States Internal Revenue Service (“IRS”) released Notice 2014-21, discussing certain aspects of “virtual currency” for U.S. federal income tax purposes and, in particular, stating that such virtual currency (i) is “property,” (ii) is not “currency” for purposes of the rules relating to foreign currency gain or loss, and (iii) may be held as a capital asset and subsequently the IRS has released other notices and rulings relating to the tax treatment of virtual currency, the IRS has not addressed many other significant aspects of the U.S. federal income tax treatment of digital assets and related transactions. Similar uncertainties exist in the various international markets in which we operate with respect to direct and indirect taxes, and these uncertainties and potential adverse interpretations of tax law could impact the amount of tax we are required to pay or collect from our customers, resulting in increased costs and adversely impacting our results, financial condition, liquidity and cash flow.
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In addition, current and developing rules for tax reporting and withholding requirements with respect to our customers’ digital asset balances and transactions are complex and raise uncertainty. In November 2021, the U.S. Congress passed the Infrastructure Investment and Jobs Act (the “IIJA”), providing that brokers (which potentially applies to the Bullish Exchange would be responsible for reporting to the IRS the transactions of their customers in digital assets, including transfers to other exchanges or non-exchanges. On June 28, 2024, the U.S. Treasury Department and the IRS released final regulations (“Regulations”) that require information reporting by digital asset brokers on certain digital asset sales or exchanges that occur on or after January 1, 2025, and basis tracking for digital assets that are treated as “covered securities” if acquired on or after January 1, 2026. The Regulations introduce new rules related to our tax reporting and withholding obligations on our customer transactions in ways that differ from our existing compliance protocols and there is risk that we will not have proper records to ensure compliance for certain legacy customers or transactions. If the IRS determines that we are not in compliance with our tax reporting or withholding requirements with respect to customer crypto asset transactions, we may be exposed to significant taxes and penalties, which could adversely affect our financial position. The Regulations will require us to invest substantially in new compliance measures and that may require significant retroactive compliance efforts, which also could adversely affect our financial position.
Similarly, many jurisdictions are in process of implementing OECD and EU proposals for reporting customer digital assets under the global “common reporting standard” as well as the “crypto-asset reporting framework.” These rules, as applicable to our operations, will create new obligations and a need to invest in new onboarding and reporting infrastructure resulting in increased costs and adversely impacting our financial results and profitability. These new rules may give rise to potential liabilities or disclosure requirements for prior customer arrangements and new rules that affect how we onboard our customers and report their transactions to taxing authorities. Additionally, the EU has issued directives, commonly referred to as “CESOP” (the Central Electronic System of Payment information), requiring payment service providers in the European Union to report cross-border fiat transactions to taxing authorities on a quarterly basis beginning in January 2024. Any actual or perceived failure by us to comply with the above or any other emerging tax regulations that apply to our operations could harm our business.
We may be or become classified as a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes, and U.S. persons owning at least 10% of our Ordinary Shares may be subject to adverse U.S. federal income tax consequences. Such classifications or ownership thresholds could make our Ordinary Shares less attractive to certain investors and adversely affect shareholder returns and market perception.
Under United States federal income tax laws, we would be classified as a passive foreign investment company (“PFIC”) for any taxable year if, after the application of certain look-through rules, either: (i) 75% or more of our gross income for such year is “passive income” (as defined in the relevant provisions of the Internal Revenue Code of 1986, as amended (the “Code”)), or (ii) 50% or more of the value of our assets (generally determined on the basis of a quarterly average) during such year is attributable to assets that produce or are held for the production of passive income. The determination of PFIC status is made annually after the close of each taxable year and rules are complex and uncertain, particularly where our assets include digital assets. Moreover, the value of our assets for purposes of the PFIC determination may be determined by reference to the public price of our Ordinary Shares, which could fluctuate significantly. If we are a PFIC for any taxable year during which a U.S. investor owns our Ordinary Shares, that investor may be subject to adverse tax consequences, including an increased tax liability on dispositions or certain distributions, as well as additional reporting requirements.
If a United States person is treated as owning (directly, indirectly, or constructively) at least 10% of the value or voting power of our Ordinary Shares, such person may be treated as a “United States shareholder” with respect to each “controlled foreign corporation” in our group (if any). For tax periods ending on or before December 31, 2025, because our group includes one or more U.S. subsidiaries, certain of our non-U.S. subsidiaries could be treated as controlled foreign corporations, regardless of whether or not we are treated as a controlled foreign corporation. The OBBBA modifies, for tax periods ending after December 31, 2025, various rules regarding determining whether a non-U.S. corporation is a controlled foreign corporation, and reduced the likelihood that our non-U.S. subsidiaries could be treated as controlled foreign corporations, if we are not treated as a controlled foreign corporation. A United States shareholder of a controlled foreign corporation may be required to report annually and include in its U.S. taxable income its pro rata share of “Subpart F income,” “global intangible low-taxed income,” and investments in U.S. property by controlled foreign corporations, regardless of whether we make any distributions. An individual that is a United States shareholder with respect to a controlled foreign corporation generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a United States shareholder that is a U.S. corporation. Failure to comply with reporting obligations may subject a United States shareholder to significant monetary penalties. We cannot provide any assurances that we will assist investors with determining their status or furnishing the necessary information to comply.
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Changes in our effective tax rate, tax liabilities, or the availability of tax benefits could adversely affect our results of operations. In addition, we may not be able to utilize all or any portion of our net operating loss carryforwards or other deferred tax assets due to changes in law, limitations on use, or insufficient future taxable income, which could negatively impact our financial performance.
Our effective tax rate or tax liability could increase due to several factors, including, but not limited to: changes in our operating structure or the amount of income earned in various jurisdictions; changes in tax laws, regulations, or their interpretation; changes to our assessment of our ability to realize our deferred tax assets; the outcome of tax audits; and significant changes to our ownership that may inhibit our utilization of net operating losses.
We have significant net operating loss carry-forwards in Gibraltar. If we are unable to earn sufficient income to utilize such carry-forwards before they expire, they will no longer be available to offset future income. Jurisdictions where we have loss carry-forwards may also limit or eliminate our ability to utilize them due to events such as a change in control. This may limit the amount of net operating loss carry-forwards that can be utilized to offset future taxable income, resulting in an adverse impact to our liquidity, and cash flow.
Our global business and structure subject us to complex tax regimes in multiple jurisdictions. We may be subject to audits, investigations, or tax proceedings, including liability for value-added tax, goods and services tax, sales and use tax, digital services taxes, or similar taxes that we did not collect or pay. Any such outcomes could adversely affect our business and operating results..
We are subject to income and non-income taxes in Gibraltar, Hong Kong and the United States, and the determination of our tax liability involves significant judgment on complex issues. Our intercompany relationships are subject to transfer pricing rules, and if tax authorities successfully challenge our positions, we may be liable for additional tax and penalties. In addition, certain jurisdictions require "pay-to-play," meaning we must pay assessed taxes before contesting them, which could materially impact our liquidity. Finally, ongoing changes to our business structure, while intended to manage risk, may lead to unanticipated material tax liabilities that could adversely affect our business.
We are currently not collecting sales, use, goods and services, value-added, and similar taxes in all jurisdictions where we have customers, based on our understanding that such taxes are not applicable. However, the application of tax rules to digital assets and related online services is uncertain, and several countries have adopted or may adopt digital services taxes. Jurisdictions where we do not collect such taxes may assert that they are applicable, which could result in tax assessments, penalties, and interest. Such requirements could adversely impact our results of operations and potentially result in higher charges to customers.
Failure to comply with Cayman “economic substance” requirements applicable to our group’s Cayman entities may result in fines or ultimately “striking off” of the relevant entity which will impact our group businesses in Cayman entities.
Under the Cayman Islands’ International Tax Co-operation (Economic Substance) Act (as revised) (the “ES Law”), Cayman Islands “relevant entities” that are engaged in “relevant activities” including, for example, a financing and leasing business or an intellectual property business, and receive “relevant income” (i.e., gross income generated from the “relevant activities”) are required to satisfy the economic substance test pursuant to the ES Law and related compliance requirements including performance of substantive functions in the Cayman Islands. Certain of Bullish’s group entities that are incorporated in the Cayman Islands may be subject to significant compliance obligations to ensure that they satisfy the requirements of the ES Law. There is lack of detailed guidance on interpretation and application of such rules to certain activities expected to be undertaken by Bullish group entities that are incorporated in the Cayman Islands. If such Cayman Islands group entities are subject to ES Law and are unable to comply with the ES Law, they may be subject to significant fines and penalties and, if the authorities determines that the relevant entities have failed to satisfy the ES Test under ES Law for a period of time, the Registrar of Companies of the Cayman Islands may apply to the Grand Court of the Cayman Islands for an order to struck off such relevant entities. Other taxing authorities may take the position that the activities of such Cayman Islands subsidiaries may be properly taxable in such taxing authorities’ jurisdictions, which could significantly increase the overall taxes to which Bullish is subject and Bullish tax compliance obligations.
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Risk Related to Doing Business in Hong Kong
Although we do not have business operations or subsidiaries incorporated in mainland China, changes in the laws, regulations, or policies of the People’s Republic of China (“PRC”) or their application to us could materially adversely affect our business, financial condition, results of operations, or the value of our securities. The PRC government exercises significant oversight and discretion over business activities, and increased regulatory scrutiny, including the implementation of the Hong Kong National Security Law or other policy developments affecting Hong Kong, may create uncertainty and negatively impact our existing or future operations in the region.
Our group includes companies operating in Hong Kong that perform integral services across our businesses.
Furthermore, while PRC national laws on matters like data security and their ban on digital asset trading do not currently apply in Hong Kong, the PRC government can change policies with little notice. If certain PRC laws and regulations were to become applicable in Hong Kong in the future, the legal and operational risks associated with operating in the PRC would become applicable to our Hong Kong entities, which could have a material adverse impact on our business, financial condition, and results of operations.
We do not operate in mainland China and believe that PRC laws and regulations, including recent developments on cybersecurity and overseas listings (such as the CSRC Draft Rules), do not currently apply to us. However, there is no guarantee that the PRC government will not seek to affect our operations in the future due to our Hong Kong subsidiary. The PRC legal system is evolving rapidly, and if we were to become subject to its direct oversight, we may require a material change in our operations and could incur significant compliance costs. Any action by the PRC government to exert more control over offerings conducted overseas by issuers with Hong Kong subsidiaries could significantly limit our ability to offer securities to investors and cause their value to decline or become worthless.
Following the passage of a new National Security Law for Hong Kong, there is significant uncertainty regarding the legal landscape. The PRC government has recently increased supervision of overseas-listed companies in mainland China, particularly concerning data security. Although these PRC laws are not currently expected to apply to companies in Hong Kong, there can be no assurance that the Hong Kong government will not enact similar laws and regulations. If this were to occur, it could lead to a material adverse change in our operations and hinder our ability to offer securities or remain listed in the U.S., which could cause the value of our shares to significantly decline.
The continued U.S. regulatory and legislative focus, including the enactment of the HFCAA, may adversely affect the market price of our Ordinary Shares and may eventually require us to delist our securities from the U.S. markets.
Over the past decade, the U.S. securities regulators (SEC and PCAOB) and their Chinese counterparts (the CSRC and the MoF) have been at an impasse over the PCAOB’s ability to inspect or investigate the audit work of accounting firms that audit the financial statements of China-based companies. Under U.S. securities laws, publicly listed companies are required to have their financial statements audited by independent public accounting firms registered with the PCAOB. Under the Sarbanes-Oxley Act, the PCAOB is required to inspect the PCAOB-registered accounting firms to assess compliance with auditing standards and bring enforcement actions for non-compliance with such standards. If requested by the PCAOB or the SEC, PCAOB-registered accounting firms are required to provide the audit work papers and other related information for inspection. The PCAOB is currently unable to conduct inspections without the approval of the Chinese government authorities. Currently, our U.S. independent registered accounting firm is inspected by the PCAOB, and we have no operations in mainland China. However, if there is significant change to current political arrangements between mainland China and Hong Kong, companies operated in Hong Kong like us may face similar regulatory risks as those operated in PRC and we cannot assure you that our auditor’s work will continue to be able to be inspected by the PCAOB. The Holding Foreign Companies Accountable Act, or the HFCAA, was enacted on December 18, 2020. The HFCAA states that if the SEC determines that an issuer has filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive years, the SEC shall prohibit the securities of the issuer from being traded on a national securities exchange or in the over the counter trading market in the United States.
On December 2, 2021, the SEC adopted finalized rules implementing the submission and disclosure requirements in the HFCAA. The rules apply to registrants that the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that PCAOB is unable to inspect or investigate. We will be required to comply with these rules if the SEC identifies us as having a “non-inspection” year under a process to be subsequently established by the SEC. The final amendments require any identified registrant to submit documentation to the SEC establishing that the registrant is not owned or controlled by a government entity in the public accounting firm’s foreign jurisdiction, and also require, among other things, disclosure in the registrant’s annual report regarding the audit arrangements of, and government influence on, such registrants. The SEC will impose a trading prohibition on an issuer after it is identified as a Commission-Identified Issuer for three consecutive years. If we are identified as a Commission-Identified Issuer and has a “non-inspection” year, there is no assurance that we will be able to take remedial measures in a timely manner.
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On September 22, 2021, the PCAOB adopted a final rule implementing the HFCAA, which provides a framework for the PCAOB to use when determining, as contemplated under the HFCAA, whether it is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction.
On November 5, 2021, the SEC approved the PCAOB’s Rule 6100, Board Determinations Under the Holding Foreign Companies Accountable Act. Rule 6100 provides a framework for the PCAOB to use when determining, as contemplated under the HFCAA, whether it is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction.
On December 16, 2021, the PCAOB issued a report on its determinations that it was unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in mainland China and in Hong Kong, because of positions taken by PRC authorities in those jurisdictions. The PCAOB made its determinations pursuant to PCAOB Rule 6100. The report further listed in its Appendix A and Appendix B, Registered Public Accounting Firms Subject to the Mainland China Determination and Registered Public Accounting Firms Subject to the Hong Kong Determination, respectively. Our auditor, being headquartered in the U.S., did not appear as part of the report under the lists in its Appendix A or Appendix B.
On August 26, 2022, the China Securities Regulatory Commission, or CSRC, the Ministry of Finance of the PRC, and the PCAOB signed a Statement of Protocol, or the Protocol, governing inspections and investigations of audit firms based in China and Hong Kong. Pursuant to the Protocol, the PCAOB shall have independent discretion to select any issuer audits for inspection or investigation and has the unfettered ability to transfer information to the SEC.
On December 15, 2022, the PCAOB determined that the PCAOB was able to secure complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong and voted to vacate its previous determinations to the contrary. However, should PRC authorities obstruct or otherwise fail to facilitate the PCAOB’s access in the future, the PCAOB will consider the need to issue a new determination. Notwithstanding the foregoing, in the event it is later determined that the PCAOB is unable to inspect or investigate completely our auditor, then such lack of inspection could cause our securities to be delisted from the stock exchange.
On June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act and on December 29, 2022, the Consolidated Appropriations Act was signed into law by President Biden, which contained, among other things, an identical provision to Accelerating Holding Foreign Companies Accountable Act and amended the Holding Foreign Companies Accountable Act by requiring the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three, thus reducing the time before our Ordinary Shares may be prohibited from trading or delisted if the HFCAA were to apply to us.
On August 26, 2022, the PCAOB signed a Statement of Protocol with the CSRC and the MoF which contains provisions that, if abided by, would give the PCAOB access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong completely. On December 15, 2022, the PCAOB announced that it was able to conduct inspections and investigations completely of PCAOB registered public accounting firms headquartered in mainland China and Hong Kong in 2022. The PCAOB vacated its previous determinations accordingly. As a result, we do not expect to be identified as a “Commission-Identified Issuer” under the HFCAA.
However, whether the PCAOB will continue to conduct inspections and investigations completely to its satisfaction of PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong is subject to uncertainty and depends on a number of factors, including positions taken by authorities of the PRC and the PCAOB. The PCAOB is expected to continue to demand complete access to inspections and investigations against accounting firms headquartered in mainland China and Hong Kong in the future and states that it has already made plans to resume regular inspections in early 2023 and beyond. The PCAOB is required under the HFCAA to make its determination on an annual basis with regards to its ability to inspect and investigate completely accounting firms based in mainland China and Hong Kong.
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Although our U.S. independent registered accounting firm is inspected by the PCAOB, and we have no operations in Mainland China, there can be no assurance that we will be able to comply with requirements imposed by U.S. regulators if there is significant change to current political arrangements between Mainland China and Hong Kong, or if any component of our auditor’s work papers become located in Mainland China in the future. Delisting of our Ordinary Shares likely would force holders of our Ordinary Shares to sell their Ordinary Shares. The market price of our Ordinary Shares could be adversely affected as a result of anticipated negative impacts of these executive or legislative actions upon, regardless of whether these executive or legislative actions are implemented and regardless of our actual operating performance.
Risks Related to Effecting Service of Legal Process, Enforcing Judgments or Bringing Actions against Us and Certain of Our Officers or Directors
You may experience difficulties and incur additional costs in effecting service of legal process, enforcing foreign judgments or bringing actions against us and certain of our officers or directors based on foreign laws.
We are a Cayman Islands company with operations and assets in various non-U.S. jurisdictions, including Hong Kong. In addition, certain of our officers and directors of Bullish Group entities are based in Hong Kong. Therefore, service of process upon Bullish or its officers or directors may be difficult or costly to obtain within the United States. In addition, you may experience difficulties and incur additional costs in enforcing foreign judgments or bringing actions against Bullish or its officers or directors in the Cayman Islands, Hong Kong or other jurisdictions.
Risks Related to Being a Public Company
As a foreign private issuer, we are permitted to rely on exemptions from certain U.S. securities law disclosure and corporate governance requirements, and we are required to file less information than U.S. public companies. As a result, investors may receive less information or fewer shareholder protections than they would from U.S. issuers, which could adversely affect investment decisions and market perception. If we lose foreign private issuer status in the future, we could become subject to additional reporting, governance, and compliance requirements, causing us to incur significant legal, accounting and other expenses.
We are a foreign private issuer and, consequently, are not subject to all the disclosure requirements applicable to U.S. companies, including rules related to the solicitation of proxies. In addition, although recent legislation in the U.S. will require our officers and directors to begin compliance with the reporting provisions of Section 16(a) of the Exchange Act and related rules with respect to their purchases and sales of our securities, they will remain exempt from the “short-swing” profit recovery provisions of Section 16(b). Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or promptly as U.S. public companies. As a result, there may be less publicly available information concerning Bullish, which may adversely impact investors’ decision-making.
As a foreign private issuer, we may generally follow our home-country practice with respect to certain matters of corporate governance in lieu of the comparable governance provisions of the NYSE listing rules. The Cayman Islands home-country practices that we follow may afford less protection to holders of our securities than that provided under the NYSE listing rules, and as a result, our shareholders may be afforded less protection.
In the summer of 2025, SEC sought public comment regarding whether and how it should reassess the definition of foreign private issuer under the federal securities laws, which could ultimately result in future rulemaking by the SEC to modify the definition and various accommodations that foreign private issuers are provided today. Moreover, we may in the future lose our foreign private issuer status. This would make certain U.S. regulatory provisions mandatory, and the compliance costs under U.S. securities laws would be more burdensome. For instance, we would lose our ability to rely on the exemption from the “short swing” profit recovery provisions of Section 16(b) of the Exchange Act, we would become subject to the rules related to the furnishing and content of proxy statements and we would be required to file more frequent periodic and current reports under the Exchange Act. Additionally, if we are not a foreign private issuer, we may lose our ability to rely upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers.
If we fail to comply with the NYSE listing standards, our Ordinary Shares could be suspended or delisted, which could adversely affect our business and the market price of our shares.
As a public company listed on the NYSE, we are subject to continued listing standards, including requirements relating to share price, market capitalization, shareholder equity, corporate governance, and public float. We may not be able to maintain compliance with these standards at all times. If we fail to meet the NYSE’s continued listing requirements, the NYSE may require corrective action, suspend trading in our Ordinary Shares, or delist our Ordinary Shares. A suspension or delisting could reduce liquidity, limit shareholders’ ability to trade, decrease analyst coverage and investor interest, increase our cost of capital, impair our ability to raise financing, and negatively affect our reputation. Any such action could materially and adversely affect our business, financial condition, results of operations, and the market price of our shares.
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If we fail to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial condition or results of operations or prevent fraud which may adversely affect the market for and market price of our Ordinary Shares.
We will be required, pursuant to the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), to furnish a report from management on, among other things, the effectiveness of our internal control over financial reporting in our second annual report on Form 20-F that is filed with the SEC (subject to any change in applicable SEC rules), which will be our annual report on Form 20-F for the for the fiscal year ending December 31, 2026. As a public company, we will be required to report, among other things, control deficiencies that constitute a “material weakness” or changes in internal controls that, or that are reasonably likely to, materially affect internal controls over financial reporting. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A “significant deficiency” is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of our financial reporting.
During the course of documenting and testing our internal control procedures, in order to satisfy the requirements of Sections 302 and 404 of the Sarbanes-Oxley Act, we may identify weaknesses and deficiencies in our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Sections 302 and 404 of the Sarbanes-Oxley Act. If we fail to achieve and maintain an effective internal controls environment, it could result in material misstatements in our financial statements and a failure to meet our reporting obligations, which may cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets and harm our results of operations. We may also be required to restate our financial statements from prior periods if such weaknesses and deficiencies are identified. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, as well as regulatory investigations and civil or criminal sanctions. All of the preceding could adversely impact our reputation, business, results of operations, financial condition and share price.
Adverse incidents, publicity, or regulatory actions involving related parties could negatively impact our reputation, business, financial position, and share price. In addition, operating as a publicly listed company and a regulated exchange increases the visibility of our business and subjects us to heightened disclosure obligations, which may amplify the impact of operational issues, regulatory matters, or negative publicity and could affect our ability to attract and retain customers.
Significant negative news, adverse legal or regulatory findings, material litigation, reputational damage and other material adverse developments associated with related parties may also adversely impact our reputation, business and financial position and share price. For example, in 2019, block.one reached a settlement with the SEC over findings that it conducted an unregistered token distribution, and in 2025, block.one settled a class action lawsuit related to its ERC-20 token sale and EOS tokens. These settlements, and any future litigation involving currently or previously related parties, could still negatively impact our reputation, business, financial condition, and ability to raise capital.
We, as a Cayman Islands exempted company, may indemnify our directors or officers and that of members of the Bullish Group, except with regard to dishonesty, willful default or fraud. We have or will enter into indemnification agreements with our and Bullish Group members’ directors and executive officers, pursuant to which we may agree to indemnify our directors and executive officers against certain liabilities and expenses incurred by such persons in connection with claims made by reason of their being such a director or executive officer. We may also maintain directors’ and officers’ liability insurance policies. We may therefore incur liability from the acts and omissions of our and Bullish Group members’ directors and officers.
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Risks Related to Owning Our Ordinary Shares
The price of our Ordinary Shares may fluctuate significantly, and you could lose all or part of your investment.
The price of our Ordinary Shares may fluctuate due to a variety of factors. Particularly, our Ordinary Shares may be volatile due to (i) fluctuation in the price of digital assets carried on our balance sheet and (ii) fluctuation in revenue, which could be both positively and negatively affected by increased or decreased trading levels on our platform in response to variations in price.
In addition, our Ordinary Shares may fluctuate due to other factors, including:
● the number of our Ordinary Shares publicly owned and available for trading;
● overall performance of the equity markets or publicly-listed digital asset trading platform companies;
● our actual or anticipated operating performance and the operating performance of our competitors;
● changes in the projected operational and financial results we provide to the public or our failure to meet those projections;
● failure of securities analysts to initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow us, or our failure to meet the estimates or the expectations of investors;
● any major change in the board of directors, management, or key personnel;
● rumors and market speculation involving us or other companies in the industry;
● announcements by us or our competitors of significant innovations, new products, services, features, integrations or capabilities, acquisitions, strategic investments, partnerships, joint ventures, or capital commitments;
● changes in or losses of counterparty relationships considered important to support our business operations;
● market perception as to whether of listing is successful;
● the impact of a securities or industry analysts issuing an adverse or unfavorable opinion regarding our business or not publishing research or publishing unfavorable research about our business; and
● other events or factors, including those discussed elsewhere in these risk factors, or those resulting from war, incidents of terrorism, or responses to these events.
If our share price falls, we may not be able to successfully leverage our listed status to grow our business and operations, or attract additional capital investments in the future. This may adversely affect our reputation, financial condition and business and our ability to attract and retain customers.
If securities or industry analysts downgrade our Ordinary Shares or publish inaccurate or unfavorable research about our business, our share price and trading volume could decline.
The trading market for our Ordinary Shares will be influenced by the research and reports that securities or industry analysts publish about Bullish. Securities and industry analysts do not currently, and may never, publish research focused on Bullish. If one or more of the analysts who cover us downgrade our Ordinary Shares or publish inaccurate or unfavorable research about us, our ordinary share price would likely decline. Further, if one or more of these analysts cease coverage of Bullish or fail to publish reports on us regularly, demand for our Ordinary Shares could decrease, which might cause our ordinary share price and trading volume to decline.
Our ability to pay dividends is subject to restrictions in our indebtedness as well as the restrictions on the ability of our subsidiaries to pay dividends or make distributions to us. Our Ordinary Shares have no guaranteed dividends and holders of our Ordinary Shares have no recourse if dividends are not declared.
We are a holding company and have no material assets other than our direct and indirect ownership of shares in our subsidiaries. Additionally, we have never declared or paid any cash dividends on our share capital, and we do not expect to pay dividends or other distributions on our Ordinary Shares in the foreseeable future. Our ability to generate income and pay dividends is dependent on the ability of our subsidiaries to declare and pay dividends or lend funds to us. Future indebtedness of our subsidiaries may prohibit the payment of dividends or the making, or repayment, of loans or advances to the Company. In addition, the ability of any of our direct or indirect subsidiaries to make certain distributions may be limited by the laws of the relevant jurisdiction in which the subsidiaries are organized or located, including financial assistance rules, corporate benefit laws, liquidity requirements, requirements that dividends must be paid out of reserves available for distribution, and other legal restrictions which, if violated, might require the recipient to refund unlawful payments. As a consequence of these limitations and restrictions, we or our direct and indirect subsidiaries may not be able to make, or may have to reduce or eliminate, the payment of dividends. Accordingly, you may have to sell some or all of your Ordinary Shares after price appreciation in order to generate cash flow from your investment. You may not receive a gain on your investment when you sell your Ordinary Shares and you may lose the entire amount of the investment. Additionally, since we are expected to rely primarily on dividends from our direct and indirect subsidiaries to fund our financial and other obligations, restrictions on our ability to receive such funds may adversely impact our ability to fund our financial and other obligations. See section entitled “Dividend Policy
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We are a Cayman Islands company and, because judicial precedent regarding the rights of shareholders is more limited under Cayman Islands law than that under U.S. law, you may have less protection for your shareholder rights than you would under U.S. law.
Our corporate affairs are governed by the Amended and Restated Memorandum and Articles of Association, the Companies Act and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as that from English common law, which has persuasive, but not binding, authority on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less exhaustive body of securities laws than the United States. In addition, some U.S. states, such as Delaware, have more fulsome and judicially interpreted bodies of corporate law than the Cayman Islands.
As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as shareholders of a corporation incorporated in a jurisdiction in the United States.