source: company website
HIVE Blockchain Technologies Ltd. (OTCQX:HVBTF) has been on a tear over the last month, soaring during that time after a period of consolidation from October 12 to November 16.
To give you an idea of how strong the move has been, at the end of 2019 the company was trading as low as $0.05 per share.
Interestingly, while it primarily mines Ethereum, it has move closer in conjunction with the price movement of Bitcoin. Ethereum has traded on a more steady and consistent upward trajectory than Bitcoin over the year, while HIVE Blockchain traded flat during some of the times Ethereum kept moving up in price.
In this article we’ll look at some of HIVE’s numbers, what it’s doing to improve its efficiencies, and a couple of ways to trade the stock while removing some of the risk from the volatile security.
Some of the numbers
The company generated $12.99 million in revenue from digital currency mining in the quarter, up 8 percent year-over-year. GAAP EPS finished the reporting period at $9.2 million, $0.03 per share, a strong improvement over the loss of $11.5 million, or $0.04 per share year-over-year.
Gross mining margin was at 71 percent. HIVE had an adjusted EBITDA of $10.6 million, against the loss of $4.6 million last year in the same quarter. Management stated that was primarily the result of lower operational costs.
As of September 30, 2020, the company had a net cash position of $1.7 million minus loans payables. Assets associated with digital currencies was at $10.7 million. Working capital stood at $20.9 million as of September 30, 2020
An interesting outcome in 2020 for HIVE has been that it has more closely followed the price of Bitcoin than Ethereum. That’s important to take into consideration if you’re trading the stock in a shorter time frame, where the stock price could surprise you if you’re relying solely on the price movement of Ethereum.
In the quarter the company mined 88,300 Ethereum Classic, 32,800 Ethereum, and 89 Bitcoin.
Interim Executive Chairman of HIVE Frank Holmes, said this:
We’ve been able to drive down costs, which has led to the highest cash flow in any one quarter since HIVE went public three years ago. This, coupled with higher Ethereum and crypto prices, means that the Company is doing better now than ever before.
Concerning energy costs, Holmes added that the company “recently locked in 50% of our energy costs for calendar 2021 at 1.6 cents per kilowatt hour in Sweden. This data point is one of the lowest in the blockchain mining ecosystem…”
Ethereum price pattern vs. Bitcoin
As I mentioned above, the share price of HIVE Blockchain Technologies moved closer in alignment with the price of Bitcoin than it did with the price of Ethereum.
Ethereum’s price movement was cleaner than Bitcoin’s, in that its upward trajectory was more consistent than Bitcoin. From May 8, 2020 till the end of October, the share price of HIVE consolidated, trading, for the most part flat. In early November it started making a modest upward move, and on November 17 it started to soar, jumping from about $0.40 per share to $1.4183 per share at the close of December 15.
On May 8, 2020, Ethereum was trading between $211 and $212, and by November 17 had climbed to $483. It was trading at $584 as I write on December 15.
As for Bitcoin, it was trading at about $9829, and by November 17 was at around $17,687. On December 15 it traded higher than $19,500. The point of these numbers is to confirm that the company’s share price was trading more in align with Bitcoin than Ethereum, especially during the period from May to the end of October. Again, that’s important to be aware of for those trading in and out of the stock because Bitcoin had a prolonged period of consolidation where it traded relatively flat while Ethereum was more steady in its price gains.
This isn’t as important for those that are holding HIVE long, but for day traders and swing traders it’s definitely a factor.
Two ways to play HIVE
As you’ve probably gathered from my comments above, I think trading HIVE in the short term is a better play at this time, as the price of Bitcoin and Ethereum has soared, and it’s highly probable there’ll be a correction in the not-too-distant future.
For those holding long I’m not suggesting to sell, but for those trading the stock, it would be easy to get left holding the bag if you aren’t being careful. Another reminder I’ve made in the past concerning cryptocurrency miners, is that the market never sleeps with them, so holding over night is a huge risk you should be aware of. Let’s face it. Trading during normal hours is work enough, or at times in pre-market or after hours. To be watching the price of cryptocurrencies 24/7 doesn’t make for a desirable way to live. It’s also why we shouldn’t take too large of a position in them.
Another reason to trade these stocks for a short period of time is their volatility, Just about every day they’ll make a nice dip, which makes for a decent entry point. That pattern is very predictable, but you do have to be aware that many times they’ll drop farther than you think, and the return can be fairly small if you get in too early.
Those are things to consider when looking for a day trade.
For the swing trader, the way to play it and sleep at night is to wait for a big correction in the price. I’ve done that a number of times, and even if I get in in the middle of a big drop and it drops a lot further, I have confidence it’ll rebound…and in my experience they do.
The downside there is it ties up capital that could be allocated somewhere else. Even so, the potential reward is high as well, which usually makes the risk worth it. I know it’s tempting to take a big position in a stock like HIVE because of the potential upside, but I wouldn’t do that myself. If you believe Bitcoin and Ethereum are going a lot higher, it doesn’t require a huge percentage of your available capital to make some money.
Once thing I’ve done is trade some of these stocks in the short term to build up my capital position, and from there I have increased my position based upon the money I made from them; that way I’m playing with more of the house’s money, and at worst would lose a small amount of my original investment capital.
Conclusion
HIVE Blockchain Technologies has been getting more efficient by lowering energy costs, while at the same time riding the wave of rising Ethereum prices, and to a much lesser degree, Bitcoin prices.
Over the last year the share price of HIVE has traded closer to Bitcoin than Ethereum, so investors or traders need to watch both prices when considering taking a position in the company.
While I obviously don’t know for sure, looking at the price movement of Bitcoin and Ethereum, and seeing some of the price points they’ve struggled to break through, the longer it can’t break above $20,000 in the case of Bitcoin, the more apt we are to get a significant pullback in the price, which would have a direct impact on the share price of Ethereum and HIVE.
I’ve been moving out of HIVE and other companies operating in the space for that reason. As a consequence I’ve missed some fairly nice upward moves, but I am taking positions in HIVE and others in order to make money. In order to do that we must trade with some fear, ready to get out of the trade quickly if it goes against us.
For now I’ve been making smaller percentages of gains on HIVE lately, while waiting for what I think will be an inevitable pullback. What happens if Bitcoin in particular does blow past $20,000? My outlook hasn’t changed. It will eventually correct, even if it’s from a higher position.
The key is to be patient, take small gains, build up your trading account, and wait for the big corrections where you can make the really good money. Those are the times I feel more comfortable holding for longer because over time, I believe Ethereum and Bitcoin will continue to increase in price, and HIVE will rise with them, although it will do so with a lot of volatility.
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in HVBTF over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.