How Crypto Firms Should Respond to SEC Interrogatories --Compliance Insights from Bitdeer

Recently, the cryptocurrency industry has been rich with regulatory developments.On June 28, the U.S. Securities and Exchange Commission (SEC) filed a lawsuit against Consensys for allegedly failing to register as a broker-dealer through the MetaMask swap service, only two weeks after the SEC notified Consensys of the end of its investigation into Ether 2.0.SEC Chairman Gary Gensler ( Gary Gensler) has also emphasized in a speech at Columbia Law School that certain participants in the cryptocurrency securities market are trying to circumvent the SEC's established disclosure regime. Since establishing its Crypto Assets and Networks Division, the SEC has stepped up its regulation of the cryptocurrency market with a series of enforcement actions targeting unregistered securities offerings, fraud, and market manipulation. 2023 saw an escalation of enforcement efforts, with the SEC taking a record 46 actions, a 53% increase from 2022, including a sensational sanctioning of head trading platform Binance and its CEO, Changpeng Zhao, who was the first to be sanctioned by the SEC. The penalties against head trading platform Binance and its CEO, Changpeng Zhao, were a sensation both inside and outside of the ring.With the SEC insisting on prosecuting non-compliant entities, the regulatory environment for the cryptocurrency industry seems to be at all times subject to significant change, and against this backdrop, it is of particular importance to ensure that investors are well-informed and well-protected.

In this article, we will explore key matters in SEC regulation by analyzing the 2023 question-and-answer case between the SEC and Bitdeer Technologies, and draw insights for industry compliance.

1. Audit Disclosures in Prospectuses

In its unaudited consolidated financial information, Bitdeer disclosed the merger of Bitdeer and BSGA (a wholly owned subsidiary of Bitdeer), which was accounted for as a “reverse recapitalization”. The prospectus states that management has made reasonable assumptions and estimates in preparing these unaudited consolidated financial statements based on available information, and that adjustments to this unaudited financial information may be revised as additional information is obtained and further analysis is performed, and that, as a result, actual adjustments may ultimately differ materially from the initial estimates. Nonetheless, management believes that the use of this basis of presentation is reasonable at the point of preparation and discloses the Company's financial information and the various factors affecting it based on this basis.

The financial information has been prepared in accordance with Item 11 of Regulation S-X, as amended by Release No. 33-10786, “Amendments to Financial Disclosures about Acquisitions and Dispositions of Businesses.” Release No. 33-10786 replaces the original adjustment standard with simplified requirements to describe “transaction accounting adjustments” and other effects of transactions that have occurred or are reasonably expected to occur (“management adjustments”, etc.). In connection with the merger, Bitdeer has elected not to present management adjustments, but only transaction accounting adjustments in the consolidated financial statements.

The transaction accounting adjustments included the redemption of 1,502,640 shares of BSGA Class A common stock at a redemption value of $10.89 per share; the reclassification of cash available for general purposes in the trust account following the Business Combination; the elimination of the value of BSGA's historical common stock and the cumulative deficit; and the settlement of approximately $10.2 million in transaction costs incurred by Bitdeer in connection with the Business Combination; Bitdeer's equity recapitalization as consideration for a reverse recapitalization; the estimated expense recognized for the excess of the fair value of outstanding BSGA common stock over the fair value of BSGA's identifiable net assets as of the date of the Business Combination, a reduction in the cumulative deficit of $36.8 million based on actual redemptions; and the cancellation of the promissory note between Bitdeer and BSGA, among others.

The prospectus states that in assessing the Company's business, non-International Financial Reporting Standards (non-IFRS) metrics, Adjusted EBITDA and Adjusted Profit/Loss were used as additional metrics in reviewing and evaluating operating performance, with Adjusted EBITDA being defined as Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) further adjusted to exclude share-based payment expense in accordance with IFRS 2, and the Adjusted profit/loss is defined as profit/loss adjusted to exclude share-based payment expenses.

The Prospectus lists the sources of profit as being derived primarily from: mining; sale of hash rate through Cloud Hash Rate; cloud hosting; regular hosting; member hosting; sale of mining machines; and other, which primarily includes the provision of technical and human resource services, hosted mining machine maintenance services, investment property leasing and sale of mining machine peripherals. Key factors affecting performance include bitcoin price and volatility; proprietary arithmetic; cost of purchasing mining machines; electricity; and the regulatory environment.

2.SEC Interrogation Concerns

2.1 Disclosure of Information

Firstly, the SEC emphasized the disclosure of risk information in the questioning.

Bitdeer's response: The Company has amended the disclosure of risk information on page 80 of the Registration Statement.Risk Factors,page42

[if !supportLists]1. [endif]Please provide risk factor disclosure clarifying that, based on the relevant facts as they exist today, Zcash may be a security under the federal securities laws

In response to the Staff's comment, the Company has revised the disclosure on page 80 of the Registration Statement.

SEC Requests Updates to Relevant Disclosures Regarding Expert Statements.

Bitdeer Response: the Company has revised the disclosure on page 275 of Amendment No. 1.

Experts,page 272

[if !supportLists]5. [endif]We note that you have also included audited financial statements of Blue Safari Group Acquisition Corp. As of December 31,2022.Revise to update the disclose regarding the statement of experts.Refer to Item 10.G of Form 20-F.

In response to the Staff’s comment,the Company hase revised the disclosure on page 275 of the Amendment No.1.

SEC Requests Updated Royson Valuation Report with Revised Valuation Attached

Bitdeer responded by filing a valuation report dated March 7, 2023, together with the original valuation report dated November 17, 2021 (Attachment D-1) and the updated valuation report dated December 14, 2021 (Attachment D-2), and Attachment D-3 as a registration statement.

6.Please include Royson’s updated Valuation Report supporting the revised valuation of Bitdeer.

The Company respectfully submits to the Staff that the 2023 Valuation Report,dated March 7,2023,supporting the revised valuation of Bitdeer was included as Annex D-3 of the Registration Statement,together with the Updated Valuation Report dated December 14,2023 included as Annex D-2 and the Original Valuation Report dated November 17,2021 included as Annex D-1.

The SEC is requesting that the disclosures in Bitdeer's Selected Unaudited Financial and Other Information be amended to eliminate any implication that investors should not rely on the information provided, and that if preliminary results are disclosed, it should be possible to assert that actual results are not expected to differ materially from those reflected in the preliminary results.

Bitdeer Response: the Company has revised its disclosures on pages 23, 48 and 143 of Amendment 2.

The Business Combination Proposal

Selected Unaudited Financial and Other Information of Bitdeer,page 144

[if !supportLists]1. [endif]Please revise the disclosure in this section to remove any implication that investors should not rely on the information presented.If you choose to disclose preliminary results,you should be able to assert that the actual results are not expected to differ materially from that reflected in the preliminary results.

In response to the Staff’s comment,the Company has revised the disclosure on page 23,48 and 143 of the Amendment No.2.

2.2 Unconventional accounting treatment

With respect to the disclosure and accounting treatment of the “Fair Value of Cryptocurrency Receivables”, the SEC requested that it be amended to reflect the “Fair Value of Cryptocurrency Lending Assets”.

Bitdeer responded that the Company amended its disclosures on pages 238, F-22, F-29, F-33, F-39, F-46, F-53, F-61, F-62, F-77, F-81, F-84, F-91, and F-99 of the Registration Statement.

Verbal comment of the Staff communicated on March 6,2023

[if !supportLists]1. [endif]For the disclose and accounting when the Company discuss the “fair value of the cryptocurrency receivable”,the staff will not object to the accounting if it is revised to reflect the “fair value of the crypto currency lent asset”.

In response to the Staff’s comment,the Company has revised the disclosure on page 238,F-22,F-29,F-33,F-39,F-46,F-53,F-61,F-62,F-77,F-81,F-84,F-91,and F-99 of the Registration Statement.

The SEC requested an amendment to explain how the estimation uncertainty affects the calculation of net loss per share.

Bitdeer Response:The Company has revised the disclosure on page 197 of Amendment No. 1 to reflect that the BSGA does not believe that significant estimation uncertainty exists, and therefore the BSGA does not anticipate a potential impact on earnings per share.

Critical Accounting Policies

Net Income per Common Share,page 194

3.Please revise to explain how the estimation uncertainties impact your computation of net loss per share.

In response to the Staff's comment,the Company has revised the disclosure on page 197 of the Amendment No. 1 to reflect that BSGA does not believe there is significant estimation uncertainty and therefore BSGA does not expect potential impact on earning per share.

2.3 Timeliness issues

Noting that the registration statement provided by Bitdeer was prepared in December 2021 and is for a two-year period ending December 31, 2022, and that various aspects of the projections are subject to change as well as volatility in crypto-asset markets, insolvency, and financial distress, the SEC is concerned that these projections in the registration statement continue to reflect management's view of future performance, and has raised questions as to their timeliness. timeliness question.

Bitdeer Response: In light of the outdated nature of the previously used projections and the recent volatility in the crypto-asset markets, the BSGA and Bitdeer have agreed to use the following information as part of the basis for updating the valuation, rather than basing the valuation analysis on financial projections: key selected financial information based on Bitdeer's unaudited management accounts for the year ended December 31, 2022 and other internally prepared financial information, as well as certain key financial information as of January 31, 2023 and hash rates. In response to the interrogatories, the Company amended the disclosures on pages 41, 47 and 133 through 145 of the Registration Statement.

Comment of the Staff contained in the letter dated December 23,2022

Certain Projected Information of Bitdeer,page 136

[if !supportLists]13. [endif]We note the projections provided by Bitdeer to BSGA included in your registration statement were prepared in December 2021 for the two-year period ending December 31, 2022. Given the age of the projections and the recent volatility, bankruptcies, and financial distress in the crypto asset market, please confirm whether or not the projections still reflect management's views on future performance. Describe what consideration your board gave to obtaining updated projections or a lack of reliance upon the projections. In doing so, address whether key assumptions underlying the projections have reflected actual performance (including, but not limited to, the price of Bitcoin and Bitdeer's proprietary and total network hash rate and the number and efficiency of its mining machines).

The Company respectfully submits to the Staff that given the age of the projections previously used and the recent volatility in the crypto asset market, BSGA and Bitdeer have agreed to use key selected financial information of Bitdeer based on the unaudited management accounts of Bitdeer for the year ended December 31, 2022 and other internally prepared financials and certain key financial information of Bitdeer as of January 31, and hash rate as of January 31, 2023 as part of the basis for the updated valuation analysis and not to rely on financial projections for updating the valuation. Accordingly, and in response to the Staff's comment, the Company has revised the disclosure on pages 41, 47, and 133 through 145 of the Registration Statement.

The SEC also focused on the content of the registration statement. The registration statement relates to a proposed U.S. initial public offering of the Company's common stock, which will be represented by American Depositary Shares in connection with the business combination. However, pursuant to the Third Amendment, the parties agreed to eliminate the American Depositary Share structure previously contemplated in the Second Amended Merger Agreement and replace it with the issuance of BTG common stock as payment consideration, but information regarding the Depositary Share structure is still referenced in the statement.

Bitdeer Response: The Company has signed an updated declaration letter that removes the reference to the ADS structure and has refiled the declaration letter as shown on Exhibit 99.10 to Amendment No. 1.

Exhibit 99.10,page Ⅱ-2

7.The representation included as Exhibit 99.10 indicates that the registration statement on Form F-4 relates to the proposed initial public,offering in the United States of the Company's ordinary shares to be represented by American depository shares in connection with the business combination. However, we note that, pursuant to the Third Amendment, the parties agreed to remove the American Depository Share structure previously contemplated under the Second Amended Merger Agreement and instead issue ordinary shares of BTG as considerations to be paid. Please revise the description of the registration statement in your representation, accordingly.

In response to the Staff’s comment,the Company has executed an updated representation letter removing the American Depository Share structure and is refiling such letter as Exhibit 99.10 to the Amendment No.1.

2.4 Financial statements

The SEC noted that, following a valuation revision of Bitdeer, the revised valuation was significantly lower than the original valuation (from $4.5 billion to $1.18 billion), and the SEC questioned whether the merger in question did not have a “sufficient basis” under the circumstances.

In response, Bitdeer's primary response was that the Company amended its disclosure on page 137 of Amendment No. 1 to make clear that Royson's and IJW's analyses, as well as Bitdeer's historical information, serve as an “alternative source” (as opposed to the previous “sufficient basis”) for the BSGA to make a “sufficient basis” for the merger. “) to inform the BSGA Board's review of Bitdeer's equity value and the consideration associated with the proposed business combination. In addition, the Company expanded the disclosure on page 137 of Amendment No. 1 to describe how the BSGA Board considered the significant decline in Bitdeer's valuation (from $4 billion to $1.18 billion) in approving and recommending the business combination.

[if !supportLists]1. [endif]We note your non-reliance on your outdated projections and your consideration of certain selected financial information to support a revised valuation of Bitdeer. In this regard, explain how the significant drop in the valuation of Bitdeer ($4.5 billion reduced to $1.18 billion) provided the Board an “adequate basis” to support consummation of the merger.

In response to the Staff's comment, the Company has revised disclosure on page 137 of the Amendment No. 1 to clarify that the analysis of Royson and IJW along with Bitdeer’s historical information served as “alternative sources”(as compared to previously used phrase, "adequate basis") for the BSGA Board to review the equity value of Bitdeer and consideration to be paid in connection with the proposed Business Combination. In addition, the Company has expanded the disclosure on page 137 of Amendment No. 1 to disclose how the BSGA Board considered the significant drop in the valuation of Bitdeer ($4.0 billion reduced to $1.18 billion) in approving and declaring advisable the Business Combination. The Company respectfully submits to the Staff that the discussion under the heading “BSGA Board’s Review of Valuation” is not a complete explanation for the reasons underlying BSGA Board’s approval; rather, it serves as an overview of the more detailed disclosure further set forth under “Reports of Valuation Advisor to BSGA”,“Fairness Opinion of BSGA’s Financial Advisor,” and “Reasons for BSGA Board’s Approval of the Business Combination.”

With respect to Bitdeer's unaudited financial information for the year ending December 31, 2022, the SEC inquired about how Bitdeer considered the preliminary results when discussing and analyzing them, and asked for an explanation as to whether the results were trending in a consistent manner with past results and why only preliminary financial information had been released. In addition, the SEC recommended that Bitdeer disclose such information in the front portion of the filing.

Bitdeer responded as follows:Bitdeer has not yet completed its audit of its financial statements for fiscal year 2022.Bitdeer initially provided the Selected Bitdeer Unaudited Financial Information to the BSGA for the BSGA's evaluation of potential business combinations; however, in light of the SEC's comments, and given that Bitdeer's unaudited financial information is relevant to Bitdeer's most recent results of operations, the Company has revised the disclosure on pages 23 and 24 of the preceding section of Amendment No. 1 to cover Bitdeer's unaudited financial information. The Company has also included a discussion and analysis of these preliminary results in the revised disclosure and confirms that these operating results reflect trends in Bitdeer's performance during the first six months ended June 30, 2022.The Company has also included a discussion and analysis of these preliminary results in the revised disclosure.

Bitdeer's Management's Discussion and Analysis of Financial Condition and Results of Operation, page 220

[if !supportLists]4. [endif]We note the selected unaudited financial information for the year ended December 31, 2022 disclosed on page 142. Tell us what consideration you gave to discussing and analyzing your preliminary results, with disclosure addressing whether such results reflect trends consistent with your historical results, and why only preliminary financial information is available. Also consider disclosing such information in the forepart of the filing.

The Company respectfully submits that Bitdeer is still in the process of completing the audit of its financial statements for the year ended December 31, 2022. Bitdeer initially provided the Selected Unaudited Financial Information of Bitdeer to BSGA for it to evaluate the potential Business Combination. However, in light of the Staff's comment, and taking into consideration that the Selected Unaudited Financial Information of Bitdeer is relevant to understand Bitdeer's most recent results of operation, the Company has revised the disclosure on pages 23 and 24 in the forepart of the Amendment No. 1 to include the Selected Unaudited Financial Information of Bitdeer. In response to the Staff's comment, the Company has also included in the revised disclosure the discussion and analysis of these preliminary results, and a confirmation that such results of operations reflect trends consistent with Bitdeer's performance for the first six months ended June 30, 2022.

3. Implications for Industry Compliance

In the limited SEC interrogatory letters, the SEC mainly focuses on Bitdeer's disclosure of information, special accounting treatment, timeliness of information, and financial statement information.

For industry compliance, SEC emphasized the necessity of risk information disclosure, cryptocurrency companies should reasonably disclose information about risk information, financial information, etc., while paying attention to the objectivity and fairness of the information, eliminating innuendo, and guaranteeing the timeliness of the disclosure of the information, and paying attention to trade-offs and adjustments in treating invalid information.

As for accounting treatment, it should be as perfect as possible, because there is no accounting standard specifically for crypto digital currencies, and it needs to be handled in accordance with the existing accounting standards (Article 11 of Regulation S-X, etc.). Companies in the crypto industry need to ensure transparency in the preparation of their financial information and explain how this information reflects the actual operating trends of the company. Reasonable assumptions and estimates are critical due to the lack of targeted guidelines, while these predictive elements should be updated as more information becomes available. At the same time, the cryptocurrency market is volatile and its financial projections and valuations should be updated regularly, taking into account the reasonableness of its valuations and trends in line with historical results to ensure that investors have access to the most up-to-date information, and any metrics used will also require the Company to provide clear explanations and rationale for the use of these metrics, explaining the usability of the financial information.

In response to SEC inquiries, companies are also required to respond promptly and proactively, adjusting to the content of the inquiries, identifying issues, and correcting and responding in a timely manner as recommended to meet compliance requirements. The regulatory environment of the cryptocurrency industry may change at any time, and timely adaptation to new legal and regulatory requirements is required to avoid potential legal risks.