Ethereum, the second largest cryptocurrency, has dramatically outperformed Bitcoin thus far in 2021, particularly since the end of the first quarter. More specifically, Ethereum has rocketed 433% since its 2020 close and 105% since March 31, 2021. By comparison, Bitcoin has increased 74% and decreased 14% over same respective periods.
HIVE Blockchain Technologies Ltd. (TSXV: HIVE) has perhaps the greatest exposure to Ethereum of all U.S. and Canadian publicly listed cryptocurrency miners (see below). However, stock market investors have ignored HIVE’s close linkage to the rapidly appreciating Ethereum digital currency over the last few months. HIVE shares have declined around 52% since early to mid-February, the time of the recent peak of cryptocurrency mining stocks, and 29% since just the end of the first quarter of 2021.
HIVE’s Close Linkage to Ethereum
Since year-end 2020, HIVE has retained all the Ethereum and Bitcoin digital assets it has mined. As of March 31, the company held 20,030 Ethereum (ETH) with a current value of about US$69 million, and 320 Bitcoin (BTC) which are now worth about US$17.5 million. In addition, HIVE had US$36 million of cash as of that data, bringing its current mark-to-market crypto and cash holdings as of March 31, 2021 to around US$122 million, or about 9.5% of its current stock market value. (On December 31, 2020, HIVE had about US$15 million of total digital currencies and US$1 million of cash on its balance sheet.)
HIVE mines (and now retains) about 20,000 Ethereum coins per quarter at its data centers in Sweden and Iceland, so its Ethereum holdings could potentially be about US$100 million (~30,000 ETH times current price of US3,400) as of mid-May 2021.
Ethereum’s appreciation could have a significant positive effect on HIVE’s reported earnings for the quarters ending March 31, 2021 and June 30, 2021. In the quarter ended December 31, 2020, HIVE reported net income of US$17.2 million, including US$6.3 million from revaluation (appreciation) of held cryptocurrencies during that period. Given HIVE’s current strategy of holding all mined Ethereum and Bitcoin since January 1, 2021, the revaluation benefit in the March 2021 quarter could be perhaps three times that realized in the December 2020 quarter.
Improving Cash Flow
As Bitcoin and Ethereum prices increased, HIVE’s operating cash flow improved throughout the fiscal year ended March 31, 2021, reaching nearly US$13 million in the quarter ended December 31, 2020. As noted above, the company’s total cash balance, including its cryptocurrency holdings, reached US$96 million on March 31, 2021 (when the digital currencies are priced as of that date), up from US$16 million on December 31, 2020.
|(in thousands of US dollars, except for shares outstanding)||3Q FY21||2Q FY21||1Q FY21||4Q FY20||3Q FY20|
|Operating Cash Flow||$12,877||$5,399||$516||$1,986||($2,404)|
|Cash, Including Digital Currencies||$15,982||$16,550||$7,770||$8,586||$9,578|
|Debt – Period End||$6,867||$6,882||$7,250||$5,057||$3,265|
|Shares Outstanding (Millions)||346.6||345.7||344.4||327.1||327.0|
As with any cryptocurrency miner, HIVE Blockchain’s stock is closely tied to price movements in cryptocurrencies. If Ethereum and/or Bitcoin were to correct significantly, HIVE’s shares would likely do so as well.
HIVE Blockchain’s asset value and future earnings and cash flow are closely aligned with the performance of Ethereum, yet HIVE’s shares have seen little positive impact from Ethereum’s recent startling price movement. If investors begin to appreciate the linkage between HIVE and Ethereum, HIVE’s shares could be poised to recover.
HIVE Blockchain Technologies Ltd. last traded at C$3.51 on the TSX Venture Exchange.
Information for this briefing was found via Sedar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.