By: Adam Sharp
Editor, The HIVE Newsletter
Nasdaq: HIVE | TSX: HIVE
For most of our history, HIVE was primarily an Ethereum mining company. That choice has served the company well, as we’ve seen ETH’s price appreciate even faster than Bitcoin’s. We continue to increase ETH mining capacity, and think there’s still significant time left before Ethereum switches to a Proof Of Stake system (assuming it eventually happens).
But a little over 12 months ago, HIVE decided to go big on mining Bitcoin. We announced an agreement to acquire GPU One, a large Canadian miner, on November 23, 2020. This 6 acre site is now part of HIVE Atlantic. With this purchase, HIVE integrated a campus of data centres dedicated to mining Bitcoin, and an experienced technical team. We’ve since updated equipment, adding over 7,500 new top-tier Bitcoin miners.
And as we explained in the first newsletter, we’re expanding the campus by building new data centres, which should be completed by November 22, 2021. We have more than 16,000 new top-tier BTC miners on order that are arriving in tranches. These orders were placed going back to 2020, up to the 6,500 miner order we announced on 10/21/2021.
Here’s why we’re doing all of this…
Bitcoin: An Emerging Alternative Financial Network
Many economists and professional investors still dismiss Bitcoin as a purely speculative asset. Warren Buffett called it “rat poison squared”. And Jamie Dimon called it a “terrible store of value” in January of 2014.
These are brilliant people, but they may be missing the bigger picture here. Bitcoin is a scarce financial asset in a world awash in money printing. A totally new form of money. An electronically transferable form of value that can be fractionalized nearly infinitely. It’s highly liquid and can be traded for cash worldwide.
Bitcoin has the potential to turn into the internet’s “native currency”, as Twitter’s Jack Dorsey says (and Twitter just added the ability to tip BTC to other users).
By mining Bitcoin, HIVE helps secure the network and process transactions. We are rewarded for our efforts with BTC. Since we started mining BTC for ourselves in April of 2020, we’ve quickly surpassed 1,300 coins in storage. In September we mined 221 BTC, worth about $13.2M at $60k per BTC. And we are ramping up production and capacity.
Institutional BTC Buyers
Bill Miller is a billionaire and legendary value investor. Miller was an early Bitcoin adopter who first got in around $200, and recently added at $30,000.
Mr. Miller recently made a profound statement about Bitcoin. Here’s what he said:
“Bitcoin is a lot less risky at $43,000 than it was at $300. It’s now established, huge amounts of venture-capital money have gone into it, and all the big banks are getting involved…”
How is it less risky at a higher price? Because like Bill said, it’s more proven. And now that Bitcoin is over a $1 trillion market cap, it’s finally big enough that major institutions can actually buy $1 billion worth without disrupting the price too much. This is an underappreciated fact about BTC. It’s just now getting large enough that big firms can purchase without spiking the price.
For years, Bitcoin was simply too tiny for the big firms to even consider an investment. They would have 10x’d the price instantly. Now they can finally allocate capital in both the currency itself, and the companies building the infrastructure, such as Coinbase, and HIVE.
To see how far BTC liquidity has come, check out this interaction on Twitter between Michael Saylor and Elon Musk. Saylor is the CEO of MicroStrategy, the first public company to go big into Bitcoin. Here he is in December 2020 pitching Elon Musk on adding BTC to Tesla’s balance sheet:
Elon responds “Are such large transactions even possible?” The answer was clearly yes, as Tesla announced the purchase of $1.5 billion in BTC in February 2021. And since then, liquidity has gotten even better.
Firms that got into crypto early are already seeing serious gains on their investments. It’s possible this will drive more professional investors to FOMO (fear of missing out) in. And if inflation remains problematic, investors will likely continue to invest more in alternative assets like BTC.
Big Firm FOMO
Institutional investors are finally capitulating into BTC. Their clients have been asking for it for years, and they missed a huge opportunity. Here’s a sampling of some recent firms who announced they’re buying BTC, or offering it to their clients:
- Morgan Stanley
- Wells Fargo
- US Bank
- Stan Druckenmiller
- Dan Loeb
These are some of the largest institutional investors in the world. If crypto continues to do well, it could fuel a cycle of institutional FOMO. This could potentially push prices far higher than they are today.
And if these institutions largely hold their investments long-term, eventually it could reduce BTC’s high volatility. However, that’s likely a way off, if it happens. For now, we expect volatility to remain elevated.
Lightning Network Shows Power of BTC Ecosystem
One of Bitcoin’s strongest attributes is its community of a hundred million+ around the world. Hundreds of incredibly talented engineers, mathematicians, and cryptographers are constantly working to improve the network. Improvements are cautiously rolled out, and long-term thinking is paramount.
The Lightning Network is a great example of how powerful the Bitcoin community can be. Lightning allows Bitcoin transactions to be sent nearly instantaneously, for a few cents.
These transactions occur off the Bitcoin blockchain, and are settled on-chain in large batches, so they don’t clog up the network. The Lightning network can essentially scale infinitely with its unique peer-to-peer design
Lightning Labs launched the Lightning Network in February 2018, after more than a year of beta testing, and many years of planning. This second-layer network has grown steadily in the years since, and has recently experienced a “hockey stick” spike in adoption. Here’s a chart showing Lightning capacity in # of Bitcoin, from launch until October 19, 2021 (via BitcoinVisuals.com).
There are now more than 3,000 BTC on the Lightning Network. Adoption is growing in places like El Salvador, where Bitcoin was recently made legal tender (currency). In places like El Salvador, using Bitcoin for international transfers is far cheaper and faster than using Western Union. This is fueling a boom in Bitcoin’s use for remittance (workers who send money home overseas, typically).
Companies like Strike are making it simple to use the Lightning Network to send BTC anywhere in the world, almost instantly, for a few cents. And Lightning is just one example of the amazing infrastructure being built in the ecosystem. There are also huge strides being made in bringing institutional investors in. Fidelity Digital Assets, Bakkt (NYSE), Grayscale, Coinbase, NYDIG, and many others are offering institutional-grade service and security.
Top venture capital firms like Andreessen Horowitz are investing billions of dollars in the next generation of crypto infrastructure companies, and much of that is going to companies that will further adoption of BTC and other digital assets.
And most importantly of all, crypto adoption among people is exploding. According to a recent survey of 2,000 U.S. consumers by Bakkt (NYSE’s Bitcoin division), 48% of respondents had purchased cryptocurrency. The amounts they report owning are small, with around 90% less than $1,000. But the important takeaway here is that crypto is finally going mainstream.
The next 5-10 years should be a very exciting time for the Bitcoin ecosystem.
Bitcoin is increasingly used by investors to protect against inflation. In a world where money printing is ubiquitous, there will only ever be 21 million Bitcoin (fortunately, each can be split into 100 million units).
In places like Venezuela, where annual inflation is around 2,000% annually, Bitcoin can literally be a life saver. I suggest reading “Bitcoin Has Saved My Family” by Venezuelan Carlos Hernandez in the NY Times. The article was published in 2019 when BTC was trading for around $3,810. Here’s an excerpt:
“I keep all of my money in Bitcoin. Keeping it in bolívars would be financial suicide: The last time I checked, the rate of daily inflation was around 3.5 percent. That’s daily inflation; the annual inflation rate for 2018 was almost 1.7 million percent. I don’t have a bank account abroad, and with Venezuela’s currency controls, there’s no easy way for me to use a conventional foreign currency like American dollars.”
Inflation is picking up around the world. It appears to be exacerbated by supply chain problems, but many suspect that quantitative easing (QE) and low interest rates are also contributing. If so, inflation could be stickier than most economists were expecting.
Billionaire investor Paul Tudor Jones says Bitcoin is his preferred inflation hedge. He recently explained his views on CNBC:
“It would be my preferred [inflation hedge] over gold at the moment,” Jones said in a “Squawk Box” interview. “Clearly, there’s a place for crypto. Clearly, it’s winning the race against gold at the moment.”
Even J.P. Morgan analysts recently stated that they “believe the perception of Bitcoin as a better inflation hedge than gold is the main reason for the current upswing”.
When inflation first popped up, we were told it was only “transitory”. Now it appears it may be a bit stickier than expected. If it continues for an extended period, Bitcoin adoption could accelerate.
2M+ BTC Left To Be Mined
Today, approximately 18.85 million BTC have been mined. Eventually there will be 21 million. That means there are 2.15 million Bitcoins left to be mined, worth $129 billion at $60,000 per BTC.
Of course, some of those BTC won’t be mined for 100 years. But the next 7 years will be one of the last chances to mine a significant number of Bitcoins. The current reward is 6.25 BTC every 10 minutes. When the next halving happens in Spring of 2024, the reward will be 3.125. In 2028 the reward will drop again to 1.5625 per block (every 10 min). That’s a huge drop in new supply.
So this next 7 years is a crucial time for mining BTC. We also believe Bitcoin has significant upside potential from here. For example, all the BTC in the world today is worth around $1.1 trillion. All the gold in the world is worth $8 trillion. It’s possible that BTC surpasses gold in the next few years.
It’s a huge opportunity, and we aim to mine as many of those BTC as possible. HIVE has the land, capital, talent, and leadership needed to become a leading BTC miner (read more on why we’re building our own data centres here).
And importantly, we’re doing it all in a sustainable way. Our miners are powered by clean hydro and geothermal power. We’re building our data centres in places with cheap, often excess power, and stable governments. We’ve got an experienced capital markets team guiding our capex strategy.
HIVE plans to continue to HODL its BTC going forward. We’ve already built up a stash of over 1,300 in storage, and we’re on track to increase mining capacity by 200% in the next 6 months.
We know prices will be volatile. But we’re comfortable taking that risk, considering the potential long-term rewards.
Thanks for reading!
Editor, The HIVE Newsletter