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Hive Blockchain assigned to Deanchor of Best-in-class Historic Operating Efficiency (HIVE)

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an introduction

We have HIVE Blockchain covered (Nasdaq: HIVE) pivot after moving Ethereum (ETH-USD) to Proof-of-Stake (‘PoS’) and showed that the effect of PoS ETH is only expected to reduce HIVE’s top line by 13% under several assumptions. One of the assumptions I was violated during HIV September production update Help bridge the knowledge gap for more accurate forecasts.

Before moving on, we had nothing but good things to say about HIV, which include:

  • Low risk ESG compliance (100% backed by renewable energy)
  • Bitcoin (BTC-USD) reserves are growing.
  • An acceptable margin of safety in terms of price that increases the difficulty of the assets over the total liabilities ratio
  • Significantly lower overall business cost per BTC by industry standards.

We noted that there were enough of these findings, which is the late release of HIVE’s CY2022Q1 report. It turns out we were right to be careful. Therefore, this article aims to realign HIVE’s future performance expectations by standardizing CYQ1/Q2 performance along with our preliminary analysis and recent Hut 8 (HUT) guidelines.

Disengaging from historical averages

Prior to the first quarter of 2022, HIVE’s full business cost per bitcoin was held near the $20,000 level while its operating cost (excluding depreciation) was held at around $5,000. This gave us high confidence that there is no physical risk of stopping HIVE operations and no indications of reduced retention of mined mines Bitcoin and Ethereum.

However, HIV reported a 3-fold increase in overall business costs per BTC at CY2022Q1. Contributors to the cost increase include a 4-fold increase in operating and maintenance costs, a 2-fold increase in depreciation, and a 50% increase in general and administrative costs. More importantly, these cost increases are expected to be constant.



total business cost

Operation and maintenance (millions of dollars)

Depreciation (millions of dollars)

General and Administrative (in millions of dollars)

Equity-Based Companies (Million Dollars)

Financial data (in millions of dollars)




































Indicators of the rising cost of renewable energy

Beehive explained The fourfold increase in operating cost is mainly due to higher seasonal electricity costs in some jurisdictions. Seasonal indicates that this will not be a one-time account and will happen again. Importantly, this also underscores the downside of limiting energy sources to renewable energy only, and even more so if the energy is just as reduced as Soluna (SLNH). Another example is HUT, which also runs on renewable energy only.

HUT reported an operating cost increase of 50% in the second quarter of 2022 which also contributed mainly to higher energy costs. However, according to the Canadian Energy Price Index, energy prices remained stable in the first and second quarters while there was a 12% decline in the second quarter. Thus, it makes no sense that HUT, which only operates in Canada, should suffer from increased electricity costs.

Our hypothesis is that there is a price difference between the cost of public electricity and the cost of renewable energy. The cost of renewable energy is a function of demand and downsizing. The lower the shrinkage, the higher the energy cost (Fig. 1). This is backed by HIVE’s own data:

Face HIVE Some seasonal high electricity prices in some of its operating areas (including electricity cuts based on the request of service providers for load balancing).

Figure 1. Reduction vs. spot price

Figure 1. Reduction vs. spot price (Kaesu)

Although there was a 37% quarter-on-quarter decrease in CY2022Q2 operating cost, it was still three times higher than the CY2021Q4, CY2021Q3 and CY2021Q2 numbers.

It is inevitable that HIVE will demand more energy as it aims to triple its mining capacity from ~2 EH/s to ~6 EH/s. Therefore, the less renewable energy goes, the higher the cost.

Based on this premise, the operating cost of HIVE in the third quarter of the year is expected to remain high, and this will solidify historical averages of best-in-class operating efficiencies from HIVE.

Consumption outstrips capacity growth

According to Table 1, depreciation accounts for more than half of HIVE’s business costs. But most importantly, HIVE’s depreciation expense has outpaced the growth of its mining capacity.

It only makes sense that consumption will increase as HIVE’s capacity grows. More machines = more capacity = more consumption.

In the case of HIV, consumption expenditures increased 4-fold between CY2022Q1 and CY2021Q4 and 3x between CY2022Q2 and CY2021Q4. However, the value of the equipment only increased by 65% ​​and 60% during the periods, respectively.

Some may wonder if the speed of depreciation is due to the obsolescence of equipment. To some extent, yes, but not accurate.

This consumption coincides with the rapid decline in GPU prices. GPU prices have fallen by up to 90% from their MSRP due to Latest GPUs Demand slows down due to Recession risks And the transition of Ethereum to PoS.

As our latest valuation model assesses the market value of a crypto miner net of liquid assets, personal property, equipment and liabilities, HIVE’s current depreciation rate will adversely affect its intrinsic value.

Impact of PoS ETH on Cost Efficiency

Cost effectiveness is defined as the dollar amount of cryptocurrency mined (produced) in excess of the dollar amount in cost. Therefore, the reduction in production will also reduce the cost efficiency.

We previously estimated a 30% drop in altcoin mining revenue for GPUs or a 13% drop in total revenue. if HIVE pivots to Ethereum Classic (ETC-USD) assuming it is running at full capacity and there is no increase in mining difficulty. This prediction is now obsolete due to the violation of an assumption. The difficulty of mining ETC has increased more than 3 times since our previous coverage in August.

Based on ETC’s recent mining difficulty of 130 TH/s, HIVE’s GPU mining revenue should drop 80% instead. This grade complies with HIVE guidelines. HIVE stated that GPU mining after “merge“Make profits from $20,000 to $30,000 per day, down from $120,000 to $150,000 per day, which means a drop of about 80%. So, even though HIV hasn’t identified which cryptocurrency is HIV is mining it now, we’ll assume it’s ETC since it corresponds to the reported revenue decline.

He has HIV 6.49 s / s of GPU mining ability for altcoins. Use the calculator from coinwarz.comMining Capacity of 6.49 s/s Can mine about 0.333 milliliters of ETC or $8 million at $23.77 per ETC per year which is similar to HIVE’s guidance of $10 million per year ($20,000 to $30,000 per day = $7.3 million to $11 million per year) ).

HIVE’s ETH mining revenue over the past four quarters is 30,372 ETH or about $40 million annually at $1,300 per ETH. This represents an 80% drop in GPU mining revenue. Therefore, the 80% drop in GPU mining revenue is justified. Since approximately 40% (Table 2) of HiVE’s revenue is derived from ETH in the second quarter, HIVE’s net revenue will decline by 32%.

This drop in GPU altcoin mining revenue is simply Back to normal life:

From the start of Ethereum the idea of ​​the final switch (“to merge“) to prove stake (“)proof of stake“) from the proof of work (“proof of work”) within the Ethereum Foundation. Because of unique technical challenges, this transition has encountered many delays. Uncertainty about the timing of the merger is one of the elements that has likely contributed to making HIVE’s investment in GPU-based Ethereum mining successful and profitable over the years.

HIVE’s total business costs for the first quarter and second quarter are $68.72 million and $48.3 million, respectively. HIVE’s mining returns for Q1 and Q2 are 1,291 and 1,338 BTC, respectively. Therefore, HIVE’s overall business costs per BTC for Q1 and Q2 are $53,230 and $36,100, respectively, or $44,500 (= ($68.72mil + $48.3mil) / (1,291 BTC +) 1,338 BTC)) on average. Considering the 80% drop in altcoin mining revenue and using the second quarter as a benchmark, HIVE’s latest comprehensive business cost will be $65,000 per BTC (= ($68.72M + $48.3M) / (1,291 BTC + 1,338 BTC) ) * 0.68).

This number is fairly reasonable because HIVE reports that altcoin GPU mining is becoming less profitable for mining than Bitcoin. daily profit Per 25 megawatts:

  • ETH GPU Mining Revenue = $120,000 to $150,000
  • BTC ASIC mining revenue = 41 thousand dollars
  • Non-ETH GPU Mining Revenue = $30,000

Table 2: ETH Production%

QR (CY) BTC mining ETH . mining Mining ETH equivalent to BTC %ETH production
2022Q2 821 7675 517 39%
2022Q1 790 6883 501 39%
2021Q4 697 7,126 523 43%
2021Q3 656 8688 577 47%


We had to re-establish our thesis about HIV because our assumptions were violated. First, there is insufficient evidence to convince us that HIVE’s cost basis has been decoupled from historical averages. Second, HIVE’s mining cost efficiency is made worse by the 80% drop in GPU altcoin mining revenue. Third, mining altcoins other than ETH poses additional risks to the already risky and volatile sector.

In addition to the above, we could not find a sufficient investment value proposition in HIVE for the following reasons:

  • HIVE (market capitalization $275.35 million) is trading above its adjusted book value ($227 and $6 million = 3,359 BTC * $20,000 in Bitcoin Reserves + 4 million dollars Cash, 172 million dollars PP & E + $43.6 million prepaid – $59.2 million total liabilities) when major miners are trading at less than their adjusted book value.
    • For example, RIOT’s market capitalization ($982 million) to adjusted book value ($1.05 billion = $270 million in cash + $411 million from PP&E + $20,000 x 6,775 BTC bitcoin reserves + $376 million prepaid – total commitments $147 million) 0.935
  • The overall business cost of $65,000 per bitcoin is simply uncompetitive in the industry (Table 3, Table 4).

These results indicate that investing in Bitcoin directly would be the best decision.

Table 3. Cost of Revenue (Excluding Depreciation) Comps

Miners Cost of revenue (CoR, excluding depreciation)
Beehive 2022Q2 / Q1 Average + 80% Decrease in Altcoin GPU Mining Revenue: $24,700 = ($26.91M + $17.2M) / ((1,291 + 1,338 BTC) * 0.68)
Mara 2022Q2: Not valid due to the one-time Montana disturbance 2022Q1: $6,240 = $7.86 million Parliament / 1,259 BTC mined 2021Q4: $6,500 = $7.1 million Parliament / 1,098 BTC mining
BITF $12,000
hut Q2: 20,200 dollars = $19.1 million Parliament / 946 BTC mined, Q1: $13,800 = 13 million dollars Parliament / 942 BTC mining
riot Q2: $12,900 = $18 million Parliament / 1,395 BTC mined Q1: $13,500 = 19 million dollars CoR/1,405 BTC . mined
CLSK Q2: $9600 = 10.3 million dollars Parliament / 964 BTC mining

Table 4. Overall Business Cost of All BTC Companies

Miners All-inclusive business costs per BTC
Beehive 2022Q2 / Q1 Average + 80% Decrease in Altcoin GPU Mining Revenue: $65,500 = ($48.3M + $68.72M) / ((1,291 + 1,338 BTC) * 0.68)
Mara 2022Q2: Invalid 2022Q1: $31,700 = 40mil inclusive costs / 1,259 BTC mined in Q4 2021: $32,240 = $28.57 inclusive costs / 1,098 BTC mined
BITF Q2 2022: $36,700 = $34.3 million (excluding financial gains) / 1,257 2022 Q1: $34,340 = $33 million / 961 Bitcoin (BTC) mined
hut Q2 2022: $49,500 = $46.8 in inclusive costs / 946 bitcoins mined in Q1 2022: $40,750 = $38.4 million in inclusive costs / 942 bitcoins mined in Q4 2021: $40,200 = $31.7 million inclusive costs / 789 bitcoins mined
riot Q2 2022: $35,300 = $49.3M in comprehensive costs/1,395 BTC mined in Q1 2022: $30,800 = $43.25M in inclusive costs/1,405 BTC mined
CLSK Q2 2022: $37,800 = $36.4 million in comprehensive costs / 964 BTC

Source: the author

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