Hut 8: A Strongly Positioned Bitcoin Miner

Sep. 07, 2022 12:16 PM ETHut 8 Mining Corp. (HUT), HUT:CA7 Comments
Gary Bourgeault profile picture
Gary Bourgeault


  • If HUT can execute on its strategy of generating revenue from its high-performance computing business to fund mining operations, it'll be a key differentiator from most of its peers.
  • By the end of 2022, the company projects mining capacity to grow to about 3.55 exahash.
  • In a challenging Bitcoin price environment, HUT was able to boost revenue by 31 percent year-over-year in the last reporting period.
  • At the end of the latest reporting period, the company had $60.1 million in cash on its balance sheet while continuing to HODL its Bitcoin.

Cryptocurrencies Gain Popularity In Hong Kong

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Hut 8 Mining (NASDAQ:HUT) is among my top picks in the Bitcoin (BTC-USD) mining industry, as it continues to boost revenue under difficult market conditions while maintaining a strong balance sheet.

I like management's decision to continue to HODL its Bitcoin, saying it "doesn't make sense to sell Bitcoin at low prices only to fund additional Bitcoin mining, and we are cognizant that the halving is not too far away."

With its first full quarter of generating fee-based monthly recurring revenue via its 5 data centers, increase in the number of Bitcoin mined, and growing its exahash to 2.78, the company was able to generate solid revenue under challenging market conditions.

In this article, we'll look at these various elements of the company, along with its latest earnings report as HUT positions itself for strong growth once the price of Bitcoin sustainably rebounds.

Latest earnings numbers

For Q2 2022, the company generated $43.8 million in revenue, up 31 percent year-over-year from the $33.5 million in revenue generated in Q2 2021. The bulk of that was driven by Bitcoin mining, with its high-performance computing business adding $4.7 million to the total, in its first full quarter under the company's control.

As for the amount of Bitcoin mined in the quarter, it came in at a solid 946, significantly up from the 553 Bitcoin mined in the same period a year ago. Management attributed the increase to a boost in hash rate and improved efficiencies from upgrading and expanding the size of its ASIC fleet.

The cost of revenue in the quarter jumped to $47.7 million, against the $16.6 million in costs in the previous year. Most of that came from an increase in operating costs and depreciation.

The jump in depreciation came from adding about $178 million in new mining equipment and infrastructure over the last year. It also included costs associated with $25 million in fixed assets from its newly acquired data center.

Margins from mining operations shrunk from 62 percent last year in the same reporting period to 38 percent this year in Q2. Most of that was the result of lower Bitcoin prices and an increase in the cost of electricity.

In its high-performance computing business, margins are expected to be in the range of 35 percent to 40 percent. As a result of some lower margin products and services in its HPC business, the company did withdraw revenue growth guidance given Q1 2022. Even so, management says it expects "profitable revenue growth in 2023."

Adjusted EBITDA in the quarter was $6.8 million, down from the $14.4 million in Q1 2021. I consider those good numbers when considering the economic environment the company is operating in.

The balance sheet of the company remains solid, with a cash balance of $60.1 million at the end of the quarter. In February, it entered into a $65 million at-the-market offering and has raised $61 million over the first half of 2022. In August, the company said it had established an ATM program where it could sell up to $200 million in common shares on the Nasdaq.

As of June 30, 2022, the company held 7,406 Bitcoin in reserve, valued at $188.8 million. Taking into consideration its balance sheet management, the company stated it has been able to HODL for the long term and has not sold any Bitcoin from the early part of 2021. If the price of Bitcoin doesn't plummet and stays low for a prolonged period of time, I think HUT will be able to continue to HODL. If the price does significantly fall and stays depressed, it will probably have to sell some Bitcoin to raise capital. That said, it does have options with its ATM program, so it has a good chance to keep most if not all of its Bitcoin if the price reverses direction near the latter part of 2022 or early 2023.

The reason I mention that timeframe is because it will be much clearer what the Fed actions will be through 2023.

I'm not suggesting there won't be a rebound before then, only that the most likely and sustainable upward move in Bitcoin prices will come close to either side of the new year.

Last, at the end of Q2 2022, they had boosted exahash to 2.78, and by the end of the year, expects to be at 3.55 exahash.

August update

In August, HUT generated another 375 Bitcoin, averaging 12.1 Bitcoin per day. The company said its HODL strategy for the newly mined Bitcoin remains in place, as the company will deposit 100 percent of the Bitcoin into custody.

The overall Bitcoin balance as of the end of August stood at 8,111.

Its hash rate improved from 2.78 at the end of June to 2.98 at the end of August. At the pace its hash rate is growing, it looks like it's going to come very close to expectations of 3.55 exahash at the end of 2022.

The company added an additional 180 NVIDIA GPUs to its data center in Kelowna, B.C., which is mining Ethereum (ETH-USD) at this time. Being "multi-workload machines, the company will be able to use the same machines to provide "Artificial Intelligence, Machine Learning, or VFX rendering services to customers."

High-performance computing unit

While the relatively new high-performance computing of the company is interesting and providing needed revenue, in reality, this is a very long-term project for HUT that will take time to reach its potential in light of the purpose the company has for the unit.

After the unit was integrated into the company, it had to sift through the offerings in order to remove or cleanup low-margin and/or poor-performing products or services. Management said it has completed the process and is ready to expand the HPC infrastructure in order to attract the type of clients that will command wider margins.

For the long haul, the long-term purpose of developing its HPC business and "working the stack" is to generate enough revenue to fund its mining business without having to access capital markets.

The reason that's important is because of the volatile nature of the price of Bitcoin itself. For example, with the plunge in the price of Bitcoin, it has been hard to find debt financing for many miners. By eliminating or reducing reliance on capital markets to raise needed capital, it could inexpensively fund its mining business without the need to scramble for capital.

I'm usually leery of companies going outside their core businesses, but in the case of HUT, Bitcoin mining is very straightforward and unambiguous, and it doesn't take a lot of extra effort to run this simple business model. For that reason, I don't see there being much distraction or interference for building an HPC business that, if successful, could be a great source of revenue and capital to grow the company for many years into the future.

Major risks

While the company has done as well as can be expected in an economic environment that is very challenging, while at the same time being able to access capital without having to sell Bitcoin in 2022, it still faces the risk of further degradation of the price of Bitcoin.

If Bitcoin falls closer to the $12,000 market or lower for a sustainable period of time, its business model will come under pressure, as will those of its peers.

I think under that scenario the company will be forced to sell off some of its Bitcoin, and possibly a significant amount, depending on the length of an extremely low-price Bitcoin environment.

The other uncertainty is whether or not the company will be able to execute its plans for the HPC business. If not, it'll have to find other ways to finance the company over the long term. This isn't an immediate problem, but it could be if the price of Bitcoin comes under pressure for a prolonged period of time.

I don't think either of these scenarios is likely, but they definitely are a possibility. Investors should keep that in mind when considering taking a position in HUT.

That said, HUT is positioned as well as any Bitcoin miner to endure hardships for a fairly lengthy period of time. It's impossible to quantify the length of time because it would depend on the price Bitcoin would drop to.


I do like the balance sheet first strategy of HUT, and I believe any Bitcoin mining company that doesn't take a similar stance, could experience some strong growth challenges going forward.

As management has stated, its long-term vision is built upon three foundations: mining Bitcoin; maximizing its Bitcoin reserves; and focusing on growing and expanding its HPC business.

With available cash on hand, Bitcoin reserves, and access to capital via its ATM programs, the company has more than enough resources to invest in and grow its business over the next year or so. And that doesn't include the increase in Bitcoin as a result of further mining.

If it's able to continue to mine Bitcoin at its recent pace, HUT has a good defensive position it can work from to expand its business at a time many of its competitors are forced to sell Bitcoin to raise capital.

Overall, HUT is in my four mining companies I have positions in. It's definitely worth a much closer look from those looking to invest in a speculative play that has extraordinary upside, especially now that it's trading under $2.00 per share as I write.

This article was written by

Gary Bourgeault profile picture
I am a former investment advisor and owner of several businesses. These days I invest only for myself while continuing to write on a variety of financial and economic topics.

Disclosure: I/we have a beneficial long position in the shares of HUT either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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