Hut 8 Mining Corp. (TSXV:HUT) is currently the world’s largest publicly-traded cryptocurrency miner based on funded and under-construction computing capacity.
SmallCapPower | March 28, 2018: Hut 8 Mining Corp. (TSXV:HUT), backed by billionaire investor Mike Novogratz and partner BitFury Group, is the world’s largest publicly-traded cryptocurrency miner. The Company operates ~100,000 machines, representing 18.7 MW of capacity and targets ramping up to ~320,000 machines, representing 62.7 MW of capacity, within six months.
Hut 8 Mining is well positioned to capture a large share of the global crypto-mining market opportunity, planning an aggressive capacity expansion through its exclusive partnership with Bitfury. Although the share price of Hut 8 Mining is down nearly 10% from its March 6th IPO, it looks attractive long term based on a cryptocurrency investment sector recovery. As Hut 8 Mining generates revenue over the coming quarters as it continues data centre expansion, its shares could appreciate.
Investment thesis
- World’s largest publicly-traded cryptocurrency miner
- Exclusive partnership with Bitfury Global, accelerating deployment of data centers
- Large market opportunity
World’s Largest Publicly-Traded Cryptocurrency Miner
Hut 8 Mining is currently the world’s largest publicly-traded cryptocurrency miner based on funded and under-construction computing capacity. As of March 10, 2018, Hut 8 Mining operates a total of ~100,000 machines, representing 18.7 MW of capacity and 127.5 petahashes per second of computing power. Backed by billionaire investor Mike Novogratz and BitFury Group, Hut 8 Mining is planning an aggressive expansion, targeting ~320,000 machines within the next six months, representing 62.7 MW of capacity and 427.5 PH/s of computing power. This is greater than competitor HIVE Blockchain, which expects to use 40 MW by September 2018. Management’s long-term goal is to mine ~25-30% of the entire cryptocurrency ecosystem.
Exclusive partnership with Bitfury Global accelerating deployment of data centers
Hut 8 Mining has an exclusive partnership with Bitfury Group, the world’s largest cryptocurrency miner outside China, accelerating the deployment of data centers. As per the partnership, Hut 8 Mining has an exclusive option to acquire additional datacenters from Bitfury in North America. Bitfury also manufactures its own proprietary ASIC chips, reducing the reliance on third parties while providing higher performance and lower costs. As Bitfury already owns and services datacenters of 58 MW in Alberta and 114 MW globally, Hut 8 Mining does not incur any facility retrofit costs. Additionally, electricity prices are the industry’s lowest at a historical average of $0.03-$0.035 / kWh.
Large market opportunity and lucrative margins attracting new players to the mining space
According to the Company’s estimates, Bitcoin mining is expected to be a US$26 billion market by 2020, presenting a large opportunity for miners such as Hut 8 Mining. Additionally, the mining of cryptocurrencies is seen as a lucrative business with short payback periods of between three months (DASH) to a year (Bitcoin). Despite the recent fall in cryptocurrency prices, cryptocurrency mining still appears lucrative, as some estimates show that the miners would be cash-flow positive even if the price of Bitcoin dives to as low as US$2,000.
Recently, to cash in on this opportunity, several cryptocurrencies and Blockchain companies have raised capital and have gone public, particularly on the TSX Venture exchange (TSXV), which has become a hub for crypto listings. While the appetite for Blockchain-related stocks have diminished, this trend is expected to continue. Over the next year, at least 50 Blockchain and cryptocurrency firms are expected to list on the TSXV. Some of the recent cryptocurrency miners that have listed on the TSXV include CryptoGlobal Corp. (TSXV:CPTO), HashChain Technology (TSXV:KASH) and HIVE Blockchain (TSXV:HIVE). However, the newest entry Hut 8 Mining stands out with its large capacity and low-cost operations with chips allocated through Bitfury. Any additional weakness in cryptocurrency prices could force some of the smaller miners out of business, potentially increasing the market share of larger players such as Hut 8 Mining.
Outlook and valuation
Hut 8 Mining is well positioned to capture a large share of the global crypto-mining market opportunity, planning an aggressive capacity expansion through its exclusive partnership with Bitfury. Although the share price of Hut 8 Mining is down nearly 10% from its March 6th IPO, it looks attractive long term based on a cryptocurrency investment sector recovery. As Hut 8 Mining generates revenue over the coming quarters as it continues data centre expansion, its shares could appreciate.
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
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