2021 Strategy Series - Company 8 that starts with H
Vested with an initial share price of US$7.25 and an average share price at US$6.81 (including premiums over 10 options)
Read till the end to know the name of Company 8.
After my last blog post, there seem to be more people asking
about <Company 8> rather than <Company 6>. Maybe because 8 means 发 (Fa/Huat/Prosperity) in Chinese?
Thus, for this post I will be revealing Company 8 first and it will be called “8” in this post.
Part 1 – What the Company Does?
As per Seekingalpha, “8 operates as a cryptocurrency mining
company in North America. The company engages in industrial scale bitcoin
mining operations. It also owns and operates 38 BlockBoxes in Drumheller,
Alberta; and 56 BlockBoxes in Medicine Hat, Alberta. The company is headquartered
in Toronto, Canada.”
Yes – it is a crypto-mining firm and an industry I had specifically chosen.
This is because there was still no ETF on cryptocurrency and I cannot buy Grayscale BTC on Tiger. Furthermore, I am
too lazy to go through the process of buying and holding bitcoin.
But I really want to get involved in the cryptocurrency industry, especially bitcoin. With the digitalization being sped up by the pandemic, I do think that cryptocurrency, especially bitcoin and many others (obviously those with usage), do have a future.
Part 2: The Segment of Fundamental Scorecard That Caught My
Fundamental Scorecard is a visualization tool that simplify
all quantitative information into graphs while calculating the intrinsic value
using timeless theories, and providing conclusions about the company for the
reader to have an easier time to make decision. (If you are interested, do
click on this link).
The company has just been uplifted to the Nasdaq not long ago. Thus, it does not have 10 years of financials. However, what caught my eyes is definitely the increasing revenue as well as the increase in net profit, along with a strong balance sheet.
Part 3: 8 Reasons and 1 Risk of Choosing 8
1. 8 is a bitcoin mining firm that HODL its self-mined bitcoin. It is also the top company that hold on to the most self-mined bitcoin and is probably in 2nd place for holding onto the most bitcoins among the bitcoin mining companies. As of Sep.30, total bitcoin balance held in reserve stood at 4,724. This definitely appeal significantly to me since I want to hold bitcoin but lazy to get the set up the process.
2. 8 uses gas, wind and green energy to mine their bitcoin. No
coal is used. Green energy is an important factor for bitcoin mining firm
3. On expansion, 8 also has a partnership with Validus Power
Corp for a supply of an additional 100mw. This agreement is unique as it looks
at capturing waste gas or flare gas. As stated in the press release, “…The
agreement includes significant optionality…if the Company decides to scale
beyond the first 100MW. The anticipated commercial operation launch date of an
initial 35MW is early Q4, 2021… A portion of the energy production for the
project will be generated from captured waste gas and converted to electricity
by leveraging cutting-edge mobile power plant solutions to be provided by
Validus Power Corp…”
4. 8 also expects their hashrate to be 3.0EH by year end 2021
and 6.0EH by mid 2022.
5. Their structures which are deem to be “BlockBoxes”, which as explained can be removed and placed anywhere with energy to spare (This also explains why they can use captured waste gas as a source of energy). This is unique within the bitcoin mining industry where many have to focus on purchasing a building or build one where its close to the source of power.
6. In my opinion, 8 is also very innovative in terms of their business model. It works with Genesis Mining and Galaxy Digital to earn yield
on their Bitcoin reserve. This kept them afloat during the pandemic. 8 also works with Luxor Mining to mine ethereum and get
paid in bitcoin. This will significantly reduces their cost of mining.
7. Bitcoin mining is very competitive and bitcoin is a finite commodity. With rewards halving every 4 years, I believe bitcoin mining might become less profitable moving forward (probably in after 2024) and having different sources of revenue is important. Therefore, other than earning yield on its bitcoins, the company also has a White label hosting business.
8. Finally, my opinion is that 8’s Management seems to be very PR friendly and transparent - just look at their Twitter and all the interviews in Youtube. This provided significant information for the investors on their business model and future outlook/developments.
9. The main risk that I foresee is that HODL on Bitcoin and not
selling them meant that cash will eventually run out. Investors will have to be
realistic and expect 8 to have share offering when their liquidity runs low.
With that I will reveal that Company 8 is actually Hut 8 Mining! It is really coincidental that its in the 8th position in my portfolio!
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Stay tune for my next post!