Hive Blockchain Technologies (HIVE.V) refuses to panic, and makes most of bad situation (Crosspost)

March 30, 2020
panic

The advent of the COVID-19 pandemic brought on and continues to bring on some serious questions for every segment of the market, and that includes cryptocurrency. Within two days, Bitcoin was slashed in half as investors pulled their money out in droves and it seemed that almost overnight the question of whether or not Bitcoin was a safe-haven currency had been resolved. But neither was gold. The sharp truth was that panic had set in and nothing and no one was safe from this new economic reality.

But that’s the nature of panic. If you go to any shopping mall in north America right now you’ll find the evidence in empty toilet paper and paper-towel shelves. But the silver lining here is that panic is temporary, and eventually cooler heads prevail. Now Bitcoin is hovering around the CAD$9,000 mark, which while still short of its roughly $1,1000 resistance point from last month, still represents a $3,000 recovery from its $6,000 low. Now companies like Hive Blockchain Technologies (HIVE.V) and Hut 8 Technologies (HUT.T) can stop fretting about the particulars of their electrical cost to block reward ratio, and get back to work.

Hive had spent the past few months diversifying their cryptocurrency portfolio in Sweden, expanding their holdings in GPU-based mining, including Ethereum, but now with the halving swiftly approaching, Hive has renewed its interest in mining bitcoin through its acquisition of a 30 megawatt, low-cost green power at a leased facility located in Lachute, Quebec.

“This is an important strategic acquisition for HIVE that diversifies our business significantly, and we are making it at an opportune time at an attractive valuation for our shareholders. The Acquisition provides us with an advanced, operating Bitcoin mining facility ready to transition to next generation mining hardware with access to some of the lowest cost electricity on the planet. The cost of US$95,000 per MW is less than half the industry standard build cost per MW,” said Frank Holmes, Interim Executive Chairman of HIVE.

The acquisition will more than double Hive’s total global power capacity to 50 MW, putting it among the largest of any publicly-listed cryptocurrency miner, and give them significant diversification to the company’s business both geographically and by blockchain network. The cryptocurrency markets are strange in that they run contrary to the prevailing market logic of specializing in one good or service, and focusing entirely on becoming the best. If there’s anything to be learned from the panic induced by COVID-19, it’s that a diversified portfolio of mined assets is absolutely required to provide a hedge to the unpredictability and volatility of these markets.

We’ve written elsewhere about the price-shock many miners are going to endure after the halving and how important having a supplementary product will be to maintain production and stay profitable. There’s something to be said for a continuous exploration into suitable altcoins, which can be mined en mass for much less electrical cost until Bitcoin rebounds.

They’re buying this facility from Cryptologic (CRY.C), for a mixed cash and shares deal of approximately CAD$4 million. Hive will pay 15 million shares at $0.20 and $1 million in cash. The facility is fully operational and features US$0.04/kWh electricity costs. Its primary assets include 30 MW of HVAC and electrical infrastructure that is unique to cryptocurrency mining, triple redundancy systems for power and internet connectivity, operational staff, and approximately 14,000 Bitmain S9 miners that are currently installed, which provide about 173 Petahashes of SHA 256 Bitcoin mining computing power and utilize a portion of the Facility’s power capacity.

The S9’s have serious potential to be a liability. If the price drops down to $6,000 during a recurrence of the virus, the hashrate to electrical ratio could spell obsolescence for these devices. But Hive is well ahead of that. They intend to invest in next generationa miners and potentially act as host for third-party miners to maximize the use of the facility’s power capacity.

“Additionally, the Acquisition provides us with direct control of our destiny, including significant capacity for expansion and flexibility for our future operations. Along with our recent assumption of full control of our Swedish operations and planned expansion there, and the recent suspension of our cloud mining operations, it is consistent with our focus over the past 18 months to strengthen our operational control of HIVE including improving transparency, accountability and financial controls, and improving our operational efficiency including optimizing our cost structure to set the foundations for profitable growth,” Holmes said.

Now that’s how you make the most of a terrible situation.

—Joseph Morton

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