Value Builds in Select Crypto Mining Stocks (HIVE, BLQC, RIOT, MARA, MSTR, SQ, HUT, BITO)

Wells Fargo is now forecasting a recession in the US – the first US-based major bank to come out with that analysis as its base case (1).

Our expectation at present is that others will likely follow.

This news comes on the heels of big drops in Walmart, Target, and Amazon.com after the pinch of inflationary pressure on margins has become too obvious to ignore any further (2). One assumes job cuts will be next (3).

Oddly, that’s the strategic plan for the Federal Reserve as they work to restore price stability in the US economy. However, for investors, this could be an interesting moment with respect to key growth themes.

Growth stocks have been destroyed over the past 6-12 months. Risk plays like Bitcoin and other cryptocurrency plays have followed suit. The key to this historic downfall is the rise in interest rates, which places a premium on stocks that deliver strong cash flows now to the detriment of those who have their pots of gold 5 to 10 years out into the future due to the opportunity cost on current returns as the risk-free rate of return rises (4).

But, lo and behold, as recession call pick up, investors my benefit from watching for risk allocation to heal in a discount to a potential drop in long-end US interest rates, which often accompanies a shift to recession. Given how oversold the long-duration risk asset spectrum has become over the past 6 months, we could see the pressure lift off cryptocurrencies and speculative technology growth plays as the dark clouds move over to large-cap cyclicals like Walmart, Target, and Apple.

The area that could be most ripe for some relief bounce action is blockchain, cryptocurrency, and web3, where we see continued monster long-term growth estimates from Wall Street in the face of enormous bear market discounts (5).

With that in mind, we take a look at some of the most interesting names in the cryptocurrency space below.

 

Riot Blockchain Inc. (Nasdaq:RIOT) focuses on mining Bitcoin, and through Whinstone, its subsidiary, hosting Bitcoin mining equipment for institutional clients.

RIOT is expanding and upgrading its mining operations through industrial-scale infrastructure development and latest-generation miner procurement. Through Riot’s subsidiary ESS Metron, the Company engineers and manufacturers electrical equipment solutions for Bitcoin mining and other industries.

Riot Blockchain Inc. (Nasdaq:RIOT) recently reported financial results for the three-month period ended March 31, 2022, including news that the company increased total revenue by 244% year over year to a record $79.8 million and increased mining revenue by 150% year over year to a record $57.9 million. (6)

“We are extremely proud of the progress that Riot continues to make, having achieved record levels of net income, revenue, hash rate and Bitcoin mined in the first quarter,” said Jason Les, CEO of Riot. “Our vertically integrated business strategy of owning, operating and manufacturing has accelerated our growth while helping insulate us from continuing global supply chain issues. Over the remainder of 2022 and beyond, Riot plans to build upon the solid foundation set to date. We look forward to demonstrating continued operational excellence, execution in increasing our hash rate, and leading our industry in increasing the Company’s developed capacity.”

It will be interesting to see if the stock can break out of its recent sideways action. Over the past week, the stock is net flat, and looking for something new to spark things.

Riot Blockchain Inc. (Nasdaq:RIOT) managed to rope in revenues totaling $90.9M in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of 1617.8%, as compared to year-ago data in comparable terms. In addition, the company has a strong balance sheet, with cash levels exceeding current liabilities ($482.7M against $109.9M).

 

BlockQuarry Corp. (OTC US:BLQC) is an OTC stock, but the company has been talking up the potential for an uplist on the horizon given its rapid growth in revenues and total assets.

We cover it here due to that growth curve as well as the stock’s relative cheap price, but also because it has an interesting hybrid model that makes it less vulnerable to drops in the price of cryptocurrencies given its contractual exposure to other major mining partners and its hosting agreements. BLQC is also a growing self-mining firm. But the company has partnered with some of the top players in the space and has been expanding its hosting model rapidly over recent months, suggesting that topline growth may not be impacted all that much by the nosedive in crypto prices, unlike most of the other names mentioned here.

BlockQuarry Corp. (OTC US:BLQC) recently updated shareholders with the company’s financial and operational performance highlights for the twelve months ended December 31, 2021, as well as the full launch of the Company’s Phase One 20MW hosting infrastructure at its Southeast U.S. cryptocurrency mining site, which will drive approximately $9.5 million in annual revenues going forward. (7)

“2021 was a breakthrough year for the Company, and the investments we made during that period are already starting to pay big dividends as we begin to collect on the implementation of our Phase One hosting infrastructure,” noted Alonzo Pierce, President and Chair of BlockQuarry. “The topline exploded higher last year, and the bottom line is set to swing in our favor sharply as we get past our major fixed costs.”

Revs were up 1,643% on a year-over-year basis, cash increased 540% year over year, total assets increased 5,965% year over year to $10.8 million, and total net income was $3.55M, improving from a loss of ($26M) in 2020 – a rather astounding shift in one year.

According to company materials, the phase one buildout and launch is now fully in place and operational, and its phase two project is about to get underway, which will reportedly see it double its hosting business, driving another nearly $10 million in annualized sales.

As noted in the company’s release, BLQC has put in place several agreements – in partnership with Bit5ive and Bitmain Technologies – with the potential to create enormous shareholder value over a long-term time horizon, including the Company’s hosting agreements, which guarantee significant steady cash flows irrespective of changes in the price of Bitcoin.

BlockQuarry Corp. (OTC US:BLQC) President Pierce added, “2021 was a year of critical investments that are set to start paying this year and over coming years. And, given our hybrid model, we aren’t dependent upon the day to day oscillations in the price of Bitcoin. Phase Two implementation is next up!”

 

Hive Blockchain Technologies Ltd. (Nasdaq:HIVE) went public in 2017 as the first cryptocurrency mining company with a green energy and ESG strategy.

The company defines itself as a growth-oriented technology stock in the emergent blockchain industry. HIVE owns state-of-the-art, green energy-powered data centre facilities in Canada, Sweden, and Iceland, where it claims to source only green energy to mine on the cloud and HODL both Ethereum and Bitcoin. Since the beginning of 2021, HIVE has held in secure storage the majority of its ETH and BTC coin mining rewards.

Hive Blockchain Technologies Ltd. (Nasdaq:HIVE) recently announced that it intends to complete a consolidation of its common shares on the basis of five (5) pre-Consolidation Common Shares for one (1) post-Consolidation Common Shares. (8)

Frank Holmes, Executive Chairman of HIVE stated, “In speaking to shareholders at the numerous conferences I have attended in the past 60 days, it is apparent that some shareholders are finding it challenging to compare HIVE to its industry peers as we have many more shares outstanding. Even though HIVE has a higher market capitalization than many of our peers, and stronger fundamentals as measured by Price/Earnings ratios, revenue per employee and debt to equity ratios, the increased share price creates more institutional visibility because many of their fundamental screens exclude stocks under $5 a share. Hive has very attractive fundamentals when compared to other tech stocks and trading at a higher share price can make it much more appealing.”

Recent action has seen -5% stripped from share values of the company over the past week of action. That said, the situation may be worth watching. HIVE has evidenced sudden upward volatility on many prior occasions. Furthermore, the company has registered increased average transaction volume recently.

Hive Blockchain Technologies Ltd. (Nasdaq:HIVE) has a significant war chest ($326.5M) of cash on the books, which compares with about $19.4M in total current liabilities. One should also note that debt has been growing over recent quarters. HIVE is pulling in trailing 12-month revenues of $240.3M. In addition, the company is seeing major top-line growth, with y/y quarterly revenues growing at 381.2%.

 

Other key cryptocurrency stocks include Marathon Digital Holdings Inc. (Nasdaq:MARA), MicroStrategy Inc. (Nasdaq:MSTR), Block Inc. (NYSE:SQ), Hut 8 Mining Corp. (Nasdaq:HUT), and ProShares Bitcoin Strategy ETF (NYSEArca:BITO).

 

References:

  1. https://www.forexlive.com/news/wells-fargo-says-a-mild-recession-our-base-case–20220518/
  2. https://www.barrons.com/articles/amazon-stock-plunges-in-wake-of-target-walmart-debacles-this-is-why-51652901840
  3. https://www.businessinsider.com/amazon-retail-business-hiring-target-cuts-leaked-email-2022-5
  4. https://www.wsfsbank.com/help-guidance/knowledge-center/long-growth-stocks-equals-increased-interest-rate-risk
  1. https://www.goldmansachs.com/insights/podcasts/episodes/01-11-2022-eric-sheridan.html#:~:text=In%20the%20latest%20episode%20of,a%20more%20decentralized%20Web%203.0.
  2. https://finance.yahoo.com/news/riot-blockchain-reports-record-first-204500584.html
  3. https://www.otcmarkets.com/stock/BLQC/news/BlockQuarry-Completes-Phase-One-20MW-Launch-5600-Miners-Now-Online-Driving-95M-Annualized-Revs-2021-Audited-Financials-F?id=353592
  4. https://finance.yahoo.com/news/hive-blockchain-announces-proposed-5-223500079.html

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