2021-10-21 08:00:00

Diagonal chain made of zeros and ones. Cryptocurrency and mining.
Image source: Getty Images

As Bitcoin has soared to record highs, cryptocurrency mining stocks have also gained significant momentum in recent trading sessions. Shares of HIVE Blockchain Technologies (TSXV:HIVE)(NASDAQ:HVBT) and Hut 8 Mining (TSX:HUT)(NASDAQ:HUT) are up 38% and 33%, respectively, in the last month. In the last year, HIVE has gained over 1,000%, while Hut 8 stock has risen by 1,390%.

If you are bullish on the cryptocurrency space, it makes sense to look closely at the companies that mine these digital assets. Let’s see which between HIVE Blockchain and Hut 8 Mining is a good bet right now.

The bull case for HIVE Blockchain Technologies

Valued at a market cap of $1.88 billion, HIVE Blockchain Technologies operates as a cryptocurrency mining company. It mines digital currencies, including Bitcoin and Ethereum. The rising prices of cryptocurrencies have allowed HIVE to increase revenue from $16.35 million in fiscal 2019 to over $100 million in fiscal 2021 (ending in March).

In the first quarter of fiscal 2022, gross sales from currency mining rose by 466% year over year to $37.2 million while net income was up more than 10 times to $18.6 million. HIVE is one of the few companies that mines both Bitcoin and Ethereum, providing investors with diversification.

In Q1 of fiscal 2022, the company mined 225 Bitcoin and 97,000 Ethereum. It ended the quarter with digital currency assets of $82.2 million. HIVE Blockchain’s gross margin in Q1 rose to $31 million, or 83% of sales, compared to $2.5 million, or 39% of sales, in the year-ago period.

The improvement in gross mining margin was attributed to HIVE’s assumption of control over its operations in Sweden in fiscal 2020, which resulted in lower costs as well as the switch to independent mining at its Bitcoin facility in Quebec.

The gross margin depends on a variety of factors that include mining difficulty, the amount of currency rewards, and the market price of the underlying asset.

The bull case for Hut 8 Mining

Hut 8 Mining disclosed it mines between 12 and 18 Bitcoins each day worth between $780,000 and $1.18 million at current prices. In the second quarter of 2021, the company’s sales more than tripled to $33.55 million while operating income rose by 230% to $8.12 million.

It ended Q2 with 4,450 Bitcoin valued at $294 million, at the time of writing. However, unlike other miners, Hut 8 does not sell these digital assets as soon as it mines them. It also lends out Bitcoins at an interest rate of 6.2% per year, which results in recurring fixed income as well as capital gains.

Over the next 12 months, Hut 8 Mining plans to expand its operations by increasing power capacity to 209 megawatts, up from its current capacity of 144 megawatts. This will allow it to operate additional mining rigs and will be accretive to both revenue and earnings.

The Foolish takeaway

Both Hut 8 Mining and HIVE Blockchain Technologies are expected to deliver similar gains, as their stock prices are tied to the performance of cryptocurrencies they mine. Both companies will have to invest heavily to expand mining operations in the future, allowing them to increase the top line and profit margins at an enviable pace. But any massive decline in prices of these digital assets will also lead to a deterioration in the companies’ financial metrics, making these stocks extremely volatile for risk-averse investors.

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