As the co-founder and chairman of publicly listed bitcoin miner HIVE Digital Technologies (TSX-V:HIVE, NASDAQ:HIVE), Frank Holmes could be considered something of a ‘bitcoin maximalist’.
At the very least, his passion for the “great digital transformation” at the heart of bitcoin’s decentralised, non-corporate-owned, non-government-dictated global network of 17,000 nodes (to paraphrase Holmes) seeps into every conversation.
Bitcoin’s algorithm is like Mozart’s Jupiter Symphony, Holmes declares, an undilutable, permissionless, cheap currency not “not backed by anything” as the critics suggest, but backed by the very energy powering this global disruptive network.
That’s to say Holmes is as passionate about the market he works in as you would expect for the head of a major company.
This passion could face a stress test in the coming months as bitcoin nears one of the biggest shake-ups since 2019.
Doing things by halves
Holmes is about to steer HIVE through the next ‘bitcoin halving’, an automated process that happens every four years to regulate the distribution of the only 21 million bitcoins that will ever exist.
Following this halving, not only will HIVE – and every other miner out there – see its bitcoin reward slashed in half – but the difficulty in mining those bitcoins will increase.
Ergo, so will the cost of electricity required to mine those bitcoins.
50% less revenues from a core business operation and escalating operational costs would send many a founder running for the hills, but Holmes sniffs opportunity, and it’s not just in the world of bitcoin.
He explains: “For us, it's essential to have access to affordable, renewable electricity, and the most efficient cryptocurrency mining machines. These three factors are crucial for successfully navigating through the current challenges.
“Additionally, HIVE has excelled in adapting to the changing landscape. Previously, we were the largest Ethereum miner, which was significantly more profitable.
“However, we are now expanding our High-Performance Computing (HPC) capabilities in the AI space, having invested in $70 million worth of Nvidia chips two years ago.
“Initially focused on Ethereum mining, we then shifted to mining alternative cryptocurrencies.
“Currently, we are transitioning towards leasing out our machines, a move that has proven to be much more lucrative, especially with the burgeoning boom in AI.”
Bitcoin? AI? Data centres? Holmes is hitting all the zeitgeisty terms, but they’re backed up with some eye-catching forecasts, particularly in the “very high margin” AI segment.
HODL onto your hats
This time last year, HIVE was bringing in around $250,000 in HPC revenues per quarter.
“Now we're up to a quarter million dollars a month, and by April, we expect to be up to a quarter million dollars a week. that's our pro-forma model and we're excited about it.”
HIVE is also hedging its electricity in Sweden and Iceland, where the company has a significant data center footprint, allowing the company to give back to the grid when needed and vice versa.
HIVE is also a self-professed ‘HODLer’, crypto parlance for a bag holder, someone (in this case, a company) that Holds bitcoin Onto Dear Life.
There are around 2,000 bitcoins on HIVE’s balance sheet right now. That’s more than $100 million worth of the cryptocurrency at current spot prices.
3,000 BTC on the books is the goal in a year from now.
But bitcoin mining is not for the faint hearted.
Bitcoin is notoriously volatile and hard to predict, while the upcoming halving will put an inevitable short-term squeeze on margins.
Holmes is cognizant of this - he reckons bitcoin needs to breach $60,000 post-halving to be profitable.
Bitcoin has easily surpassed this level before, having exceeded $65,000 in the epic 2021 bull run, and history shows that halvings are invariably a tailwind for the cryptocurrency.
There’s another fair question to ask. Quoted bitcoin miners like HIVE have historically been a go-to play for stock market investors betting on bitcoin.
But with the advent of spot-bitcoin exchange-traded funds on offer from the likes of BlackRock, Fidelity and VanEck, which track the price of bitcoin almost to the tee, is it becoming harder to attract investors?
To answer this, Holmes put his gold bug hat on.
He explained how, prior to gold ETFs, gold stocks nearly always ran at a premium, only to be revalued once gold ETFs became mainstream.
After that, “only the best gold stocks performed exceptionally well”.
“Wheaton Precious Metals is a gold royalty company that’s far outperformed Berkshire Hathaway, because it has those value metrics of revenue growth, cash flow growth, dividend growth etc.
“I think a year from now, there'll be a separation between those crypto mining companies that really have a good discipline with cash flow return on invested capital and those that do not, and money will go into those and a lot of the others will fall to the wayside”.
Will HIVE survive the shake out? Holmes naturally thinks so.
He points to AI-based data center revenues, stringent hedging policies, green, renewable energy credentials, a low headcount and large bitcoin reserves as evidence.
You can throw a dollop of passion into the mix too.