Mr. John McMahon reports

PROPHECY DEFI PROVIDES SUBSEQUENT INVESTMENT UPDATE

Prophecy Defi Inc. has provided additional commentary on its investment strategy, further to its update on Dec. 6, 2023.

Prophecy Defi's asset allocation is being rebalanced to a consolidated investment portfolio that includes publicly traded bitcoin mining companies and blue-chip and emerging alternative cryptocurrency assets. Within each allocation, investments are made by leveraging smart beta strategies to generate alpha in the cryptocurrency market. The company would like to provide additional insight into the nature of each of these asset allocations.

Publicly traded bitcoin mining stocks

Bitcoin mining stocks are a cornerstone of the company's investment portfolio. Their high beta provides investment exposure to amplified price movements relative to underlying spot cryptocurrency assets, providing potential for increased returns.

Developed in 2009, bitcoin was the first cryptocurrency created. As a result of this, bitcoin has significant first-mover advantage, establishing itself as a store of value. As a result of the asset having a limited supply of 21 million coins, there is a scarcity factor, which contributes to its value in the marketplace. In recent years, there has been increasing institutional adoption as institutional investors and large corporations have acquired bitcoin, which has further established bitcoin as the largest cryptocurrency in the world. Specifically, Riot Blockchain Inc. and Marathon Digital Holdings Inc. have institutional ownership of 43.11 per cent and 36.18 per cent, respectively. Of which, the largest institutional investors include BlackRock, Vanguard and Morgan Stanley.

Prophecy Defi has identified bitcoin mining companies to exemplify a smart beta opportunity for investment. Investing in bitcoin mining companies provides exposure to bitcoin itself and benefits from the appreciation of bitcoin's price. Moreover, these companies generate revenue through their mining operations, which is positively related to the price of bitcoin. Their ability to both produce and retain bitcoin presents a compelling investment opportunity at certain points in the market cycle.

"Every time bitcoin has corrected over 50 per cent, it has gone on to make a new all-time high within three years," said John McMahon, chief executive officer of Prophecy Defi. "Given the smart beta dynamics that exist with publicly trading bitcoin mining companies and the current market cycle, there is a tremendous investment opportunity that Prophecy Defi is allocating capital to."

Publicly traded mining companies trade at a high beta to bitcoin itself, which provides an opportunity to capture alpha. Year to date, the price of bitcoin has risen 165 per cent, whereas Riot Blockchain, Marathon Digital Holdings and CleanSpark Inc.'s share prices have increased 344 per cent, 365 per cent and 416 per cent, respectively.

Looking ahead to 2024, there are material events on the horizon that could accelerate bitcoin's adoption globally and make the asset's supply even more scarce. This includes the numerous and continuing applications for bitcoin ETFs (exchange-traded funds) in the market, which if approved, would create a new flow of both retail and institutional investors. Furthermore, the halving event for bitcoin will take place in April, 2024, at which time the mining rewards will be cut if half from 6.25 bitcoin to 3.125 bitcoin. Historically, these halving events have led to a surge in bitcoin pricing.

Prophecy Defi is focused on making investments in market-leading bitcoin mining companies and utilizes a sophisticated and comprehensive methodology for analyzing and evaluating investments in both publicly traded bitcoin mining stocks and cryptocurrencies. This methodology focuses on risk-adjusted, high-reward profiles in relation to factors such as market capitalization, cash flows, revenues and assets. Furthermore, with in-depth analyses of financial results, bitcoin production, balance sheet strength and share structure of publicly traded bitcoin mining companies, Prophecy has identified CleanSpark, Hive Digital Technologies Inc., Hut 8 Mining Corp., Marathon Digital Holdings and Riot Blockchain as market leaders with the highest bitcoin production relative to market capitalization. These companies also benefit from tremendous market liquidity and demonstrated an ability to operate and execute at a high level.

Prophecy Defi's investment process is predicated on blending fundamental assessments with a technical model, which is aimed to identify sector leaders and optimize entry levels for investment.

Index of top 25 cryptocurrency tokens

Prophecy Defi has developed an index comprising the top 25 crypto assets by market capitalization and trade volume. From this index, the company carefully analyzes and invests in the most promising ones that exhibit smart beta characteristics, superior risk-return ratios and possess sufficient liquidity for trade execution.

The second-largest cryptocurrency by market capitalization is ethereum and a core investment focus of Prophecy Defi. Ethereum introduced the concept of smart contracts, self-executing contracts with the terms of the agreement directly written into code. This feature opened up a wide range of possibilities, enabling decentralized applications (DApps) and decentralized autonomous organizations (DAOs). As adoption and use of the network increased exponentially, transaction fees increased during periods of overwhelming network demand. In response to this, Layer 2 solutions were developed on top of ethereum to alleviate these issues by building a more scalable technology. These Layer 2 solutions are low cost and scalable, which allow ethereum's technology to have wider adoption, utility and application.

These Layer 2 networks are directly related to ethereum in many ways. The success and adoption of Layer 2 solutions are directly related to ethereum's existing user base and development community. As Layer 2 networks gain traction, they contribute to the overall strength of the ethereum ecosystem. Given the network benefits that these Layer 2 solutions provide, they have a positive impact on the activity and valuation of ethereum itself.

As a result of the utility that ethereum and its Layer 2 solutions provide, they can provide smart beta investment opportunities within the asset class and are an important component of Prophecy's overall portfolio. The company utilizes on-chain metrics and tokenization analysis, alongside its macro forecast, to determine its investments in this market segment.

Allocation for emerging markets

Prophecy Defi's consolidated investment portfolio will maintain an allocation for emerging markets, which represent a component of the overall investment strategy that has the potential for asymmetrical returns. This allocation captures alpha while managing overall risk exposure.

At certain points in the market cycle, development and use of emerging networks increase.

In a growth cycle of the market, more development and volume occur within the cryptocurrency space, which adds value to networks. As the major networks become more active and valuable, this activity also flows to smaller ecosystems. In the current cryptocurrency market surge, which is reminiscent of 2020, bitcoin is spearheading a new bull market, surpassing market expectations and reaching significant valuation levels. There is the potential for other tailwinds in the sector related to ETF approvals and the bitcoin halving event, which could redefine the demand landscape. Management believes these factors should have a positive impact on emerging market tokens and a small allocation of capital is reserved to take advantage of these opportunities.

"Prophecy Defi is committed to exploring dynamic sectors of the cryptocurrency market, ensuring diversified and strategic growth in our investment portfolio," said Leo-Michael Dinolfo, adviser, Prophecy Defi.

Mr. McMahon added, "Our team's dedication to meticulously executing our investment strategy aims to create value for our shareholders, aligning with our long-term vision for growth and innovation in the digital asset space."

About Prophecy Defi Inc.

Prophecy Defi is a publicly traded investment company whose primary objective is to invest its funds for the purpose of generating returns from capital appreciation and income. It plans to accomplish these goals by bringing together technology start-ups in the blockchain and decentralized finance sectors to finance innovation, elevate industry research and create new business opportunities in a coherent ecosystem.

We seek Safe Harbor.