Now that crypto is pumping again (and it’s been pumping for the last 10 years) many are looking to get involved. Since the crypto space is so volatile, I’m always looking for ways to stay diversified as much as possible. Investing in Hut 8 mining corp is more than investing in just a crypto- it’s an entire business with its own people and dynamics. Hut 8 also strives to operate as sustainably as possible, something investors are caring about more.
Hut 8 Mining Corp
Hut 8 Mining Corp (NASDAQ: HUT) is an Alberta-based Bitcoin and Ethereum mining operation. Mining is the process of earning new coins of proof-of-work cryptocurrencies. Doing this on a mass scale requires access to cheap power, a lot of hardware, and a staff to monitor the network and repair equipment and troubleshoot. While profitability of a mining operation certainly depends on these things going well, it more so depends on the prices of the coins being mined.
Hut 8 employs a strategy of HODLing the coins it mines, while its competitors tend to sell the coins that they mine. This is a great business strategy, as long as the price of Bitcoin continues to climb over a reasonably long time frame. Most everyone believes that it will.
The mining process
Think of the mining process as an olympic games in which thousands of computers across the world compete to show that they’re the most deserving of the prize. The teams of computers with the biggest size and fastest hash rates most often win. While this consumes a ton of energy, it also makes the crypto networks incredibly secure and resistant to attack. Even if all the nations in the world decided to get together and eradicate Bitcoin, they’d have a tough time doing so. It isn’t going anywhere anytime soon.
Since both Bitcoin and Ethereum are proof-of-work cryptocurrencies, they both rely on heavy computing power to securely write the next blocks on the chain. These are the two cryptos that Hut 8 focuses on mining. Hut 8 recently made a $30 million investment in Ethereum-specific mining GPUs, a bold move given that Ethereum is expected to migrate to proof-of-stake in just a few months. Ethereum upgrades have been plagued with delays in the past, and this time might not prove different. A delay would be great for Hut 8. Hut 8 did this to diversify their revenue streams, and this is a leg up on Marathon and Riot since they only mine Bitcoin.
Invest in the picks and shovels
A long time ago during gold rushes in North America, prospectors would experience gluts of supply and then extreme shortages of precious metals. This would cause violent boom and bust cycles where miners would get wrecked. However, savvy businessmen noticed that if they sold mining paraphernalia like picks & shovels, they were likely to experience more steady, sustainable profits. Decades later John D. Rockefeller discovered something similar- he noticed that if he sold refined petroleum products like kerosene his margins would be greater and profits more steady. Needless to say, he did really well.
While the metaphor in the previous paragraph about mining doesn’t hold here, mining is one step removed from the actual price of cryptocurrency and a bit less volatile. This isn’t to say big swings in crypto prices won’t affect the price of crypto miner stocks. But there is a buffer. This is especially true with Hut 8 Mining Corp because the firm is innovation-focused with emphasis on environmental, social, and governance concerns. Firms with ESG focus have traded a higher multiples and outperformed their peers because investors are becoming more conscience of this.
ESG with Hut 8 Mining Corp
Hut 8 has a mandate to use ‘stranded’ and ‘underutilized’ power sources. Stranded energy refers to energy that has become a liability via storage costs, or would otherwise be too expensive to pay transportation costs to get the energy to market. Think about a pile of coal or natural gas reservoir sitting in the middle of nowhere- say Fort McMurray, Alberta?
Underutilized power is similar in that there is excess power available during low-demand periods. This is because the bottleneck in the energy supply chain is often storage of power rather than actual raw power production.
Does Hut 8 pass the ESG sniff test?
Since ESG investments have kicked so much ass and attracted so much capital, every firm under the sun has been branding themselves as ESG-focused organizations. Needless to say, a lot of this is bullshit. Hut 8 is the real deal, however. Ronnie Yu is the firm’s chief sustainability officer and has been transparent about its sustainability practices. He recently did an AMA on YouTube.
Other opportunities to invest in cryptocurrency ‘picks & shovels’
NVIDIA makes GPU cards originially purposed for computer gamers that have been repurposed into mining nodes to mine cryptos. NVIDIA also has other product lines whose revenues are not related to swings in the crypto market, so this would be a good alternative to add if you’re looking for safer ways to invest in cryptocurrency. Other mining companies that have stocks available to investors are Riot Blockchain (RIOT) and Marathon Digital Holdings (MARA). Both of these have actually outperformed Hut 8 stock of the past year.
Another thing to looking into is mining coins on your own. A popular coin for mining is Monero, and another favorite of mine is Ergo. Unless you’re sitting on a stack of millions of dollars, thousands of ASICs, or can illegally siphon off power from a Nigerian coal plant, Bitcoin mining won’t be profitable for you.
There’s a website that has profitability calculators for mining. You’re able to input the local electricity cost where you live, which is obtainable by a quick Google search. A solid GPU may set you back $1,500-$3,000 and it may take 1-3 years for you to become profitable. This could change quickly with either the price of power or the price of whatever crypto you’re mining.
Many folks are looking to get in on the incredible cryptocurrency price action as soon as possible. The wonderful thing about a Bitcoin ETF or Grayscale Crypto Funds or stocks like Hut 8 is that you can use tax-advantaged vehicles like a 401k or Roth IRA to invest in crypto assets. Charles Schwab offers some quick ways to get crypto exposure. Investments like Hut 8 might prove to be extremely popular since much of the public does not understand or doesn’t have the hardware to hold their own cryptos in custody. Simple facts like these could mean big spikes in prices of stocks like Hut 8 because they are hassle-free ways to get crypto exposure.