Hive Blockchain Set To Deanchor From Historical Best-In-Class Operating Efficiency (HIVE)

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We’ve covered HIVE Blockchain’s (NASDAQ:HIVE) pivot after Ethereum’s (ETH-USD) transition to Proof-of-Stake (‘PoS’) and showed that the impact of PoS ETH is only expected to decrease HIVE’s top line by 13% under several assumptions. One of the assumptions has been violated while HIVE’s September production update helped fill in the knowledge gap for more accurate expectations.

Prior to the transition, we had only good things to say about HIVE, which include:

  • Lower ESG compliance risk (powered by 100% renewable energy)
  • Growing Bitcoin (BTC-USD) reserves.
  • Acceptable margin of safety in terms of price too hard assets excess of total liabilities ratio
  • Significantly lower all-in business cost per BTC by sector standards.

We noted that there was a catch to these findings, which is the late release of HIVE’s CY2022Q1 report. It turns out, we were right to exercise caution. Therefore, this article aims to realign HIVE’s future performance expectations by consolidating CYQ1/Q2 performances in conjunction with our initial analysis and Hut 8’s (HUT) latest guidance.

De-anchoring from historical averages

Prior to 2022Q1, HIVE’s all-in business cost per Bitcoin was anchored near the $20,000 level while operating cost (excluding depreciation) was anchored at around $5,000. This gave us high confidence that there is no material risk of HIVE halting operations and no indications of decreasing retention of mined Bitcoin and Ethereum.

However, HIVE reported nearly 3x higher all-in business costs per BTC in CY2022Q1. Contributors to the increase in costs include a 4x increase in operating & maintenance costs, over 2x increase in depreciation, and a 50% increase in general & administrative costs. More importantly, these cost increases are expected to be sticky.

Table 1. HIVE’s Historical Expenses


Total Business Cost

Operating and Maintenance ($mil)

Depreciation ($mil)

General and Admin ($mil)

Share-based comps ($mil)

Financials ($mil)




































Indications of higher renewable energy cost

HIVE explained that the 4x increase in operating cost was mainly due to seasonally high electricity costs in some jurisdictions. Seasonal implies this won’t be a one-off expense and will occur again. More importantly, this also confirms the downside of only limiting power sources to only renewable energy, more so if it’s only curtailed energy just like Soluna (SLNH). Another instance is HUT, which is also operating solely on renewable energy.

HUT reported a 50% operating cost increase in 2022Q2 also mainly contributed by higher energy costs. However, according to the Canadian Energy Price Index, energy prices remained stable in Q1 and Q2 while there was even a 12% decline in Q2. Hence, it doesn’t make sense for HUT, which operates solely in Canada, to suffer an increase in electricity costs.

Our hypothesis is there is a difference in price between the general electricity cost and renewable energy cost. The cost of Renewable energy is a function of demand and curtailment. The less curtailment, the more expensive the energy becomes (Fig 1). This is supported by HIVE’s own statements:

HIVE has encountered some seasonal high electricity prices in some of its operating jurisdictions (including electrical curtailment at the request of utility providers for load-balancing).

Fig 1. Curtailment vs Spot Price

Fig 1. Curtailment vs Spot Price (CAISO)

Although there is a 37% QoQ decrease in CY2022Q2 operating cost, it is still 3x higher than CY2021Q4, CY2021Q3, and CY2021Q2 figures.

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

Based on this hypothesis, HIVE’s Q3 operating cost is expected to remain elevated and this will de-anchor HIVE’s best-in-class operating efficiency historical averages.

Depreciation outpaces capacity growth

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

It is only logical for depreciation to increase as HIVE grows in capacity. More machines = more capacity = more depreciation.

In HIVE’s case, depreciation expenses increased 4x between CY2022Q1 and CY2021Q4 and 3x between CY2022Q2 and CY2021Q4. However, equipment value only increased by 65% and 60% during the periods respectively.

Some might wonder whether the velocity of depreciation is due to equipment obsolescence. To a certain extent, yes, but not accurate.

This depreciation coincides with the rapid decline in GPU prices. GPU prices have fallen as much as 90% of their MSRP because of newer GPUs and demand slowdown caused by recession risk and Ethereum’s transition to PoS.

Since our latest valuation model evaluates a crypto mining company’s market cap net of liquid assets, PP&E and liability, HIVE’s current depreciation rate will adversely affect its intrinsic value.

Impact of PoS ETH on Cost Efficiency

Cost efficiency is defined as the dollar amount of cryptocurrencies mined (production) over the dollar amount in cost. Therefore, the decline in production will also decrease cost efficiency.

We previously estimated a 30% decline in altcoin GPU mining revenue or a 13% decline in all-in revenue if HIVE pivots to Ethereum Classic (ETC-USD) assuming running at full capacity and no increase in mining difficulty. This expectation is now obsolete because one of the assumptions was violated. ETC’s mining difficulty increased >3x since our previous coverage in August.

Based on ETC’s latest mining difficulty at 130 TH/s, HIVE’s altcoin GPU mining revenue should decrease by 80% instead. This estimation aligns with HIVE’s guidance. HIVE stated that GPU mining after “The Merge” generated $20k to $30k revenue per day, down from $120k to $150k per day, implying a ~80% decline. Therefore, although HIVE did not specify which altcoins HIVE is now mining, we are going to assume it’s ETC since the reported revenue decline aligns.

HIVE has 6.49 TH/s of GPU mining capacity for altcoins. Using the calculator from, a mining capacity of 6.49 Th/s can mine about 0.333mil ETCs or $8mil at $23.77 per ETC annually which is similar to HIVE’s guidance of $10mil annually ($20,000 to $30,000 per day = $7.3mil to 11mil annually).

HIVE’s ETH mining revenue over the past 4 trailing quarters is 30,372 ETHs or about $40mil annually at $1,300 per ETH. This represents an 80% decline in altcoins GPU mining revenue. Therefore, the 80% decline in GPU mining revenue is justifiable. Since about 40% (Table 2) of HiVE’s revenue was derived from ETH in Q2, HIVE’s net revenue would decline by 32%.

This decline in altcoin GPU mining revenue is simply a return to normalcy:

From the start of Ethereum the idea of an eventual switch (the “Merge”) to proof-of-stake (“Proof-of-Stake”) from proof-of-work (“Proof-of-Work”) has been present within the Ethereum Foundation. Due to unique technical challenges, this transition has faced many delays. The uncertainty as to the timing of the Merge is one of the elements which likely contributed to making HIVE’s investment into GPU based Ethereum mining so successful and profitable over the years.

HIVE’s total business costs for Q1 and Q2 are $68.72mil and $48.3mil respectively. HIVE’s mining yield for Q1 and Q2 are 1,291 and 1,338 BTC-equivalent respectively. Therefore, HIVE’s all-in 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% decline in altcoin mining revenue and using Q2 as a benchmark, HIVE’s latest all-in Business cost would be $65,000 per BTC (= ($68.72mil + $48.3mil) / (1,291 BTC + 1,338 BTC)*0.68).

This figure is rather reasonable because HIVE reported that altcoin GPU mining has become less profitable to mine than Bitcoin. Daily profit per 25MW:

  • ETH GPU mining revenue = $120k to $150k
  • BTC ASIC mining revenue = $41k
  • Non-ETH altcoins GPU mining revenue = $30k

Table 2: ETH Production %

QR (CY) BTC Mined ETH Mined ETH Mined in BTC-Equivalent ETH% Production
2022Q2 821 7675 517 39%
2022Q1 790 6,883 501 39%
2021Q4 697 7,126 523 43%
2021Q3 656 8,688 577 47%


We had to re-establish our thesis on HIVE because our assumptions were violated. Firstly, there is sufficient evidence to convince us that HIVE’s cost basis has been de-anchored from historical averages. Secondly, HIVE’s mining cost efficiency is made worse by the 80% decline in altcoin GPU mining revenue. Thirdly, non-ETH altcoin mining poses additional risks to the already risky and volatile sector.

In addition to the above, we couldn’t find a sufficient investment value proposition in HIVE for the following reasons:

  • HIVE ($275.35mil market cap) is trading above its adjusted book value ($227 6mil = 3,359 BTC * $20,000 Bitcoin reserves + $4mil cash, $172mil PP&E + $43.6mil prepaid – $59.2mil total liabilities) when much larger mining companies are trading below adjusted book value.
    • For instance, RIOT’s market cap ($982mil) to adjusted book value ($1.05bn = $270mil cash + $411mil PP&E + $20,000 x 6,775 BTC Bitcoin reserve + $376mil prepaid – $147mil total liability) ratio is 0.935
  • The all-in Business cost of $65,000 per BTC is simply too uncompetitive in the industry (Table 3, Table 4).

These findings suggest that investing in Bitcoin directly would be the better decision.

Table 3. Cost of Revenue (Excl. Depreciation) Comps

Miners Cost of Revenue (CoR, Excl. Depreciation)
HIVE 2022Q2/Q1 Average + 80% Decline in Altcoin GPU Mining Revenue: $24,700 = ($26.91mil + $17.2mil) / ( (1,291 + 1,338 BTC)*0.68 )
MARA 2022Q2: Invalid due to Montana One-Off Disruption2022Q1: $6,240 = $7.86mil CoR / 1,259 BTC mined2021Q4: $6,500 = $7.1mil CoR / 1,098 BTC mined
BITF $12,000
HUT Q2: $20,200 = $19.1mil CoR / 946 BTC minedQ1: $13,800 = $13mil CoR / 942 BTC mined
RIOT Q2: $12,900 = $18mil CoR / 1,395 BTC mined Q1: $13,500 = $19mil CoR / 1,405 BTC mined
CLSK Q2: $9,600 = $10.3mil CoR / 964 BTC mined

Table 4. All-in Business Cost per BTC Comps

Miners All-in Business Costs per BTC
HIVE 2022Q2/Q1 Average + 80% Decline in Altcoin GPU Mining Revenue: $65,500 = ($48.3mil + $68.72mil) / ( (1,291 + 1,338 BTC)*0.68)
MARA 2022Q2: Not valid2022Q1: $31,700 = $40mil all-in costs / 1,259 BTC mined2021Q4: $32,240 = $28.57mil all-in costs / 1,098 BTC mined
BITF 2022Q2: $36,700 = $34.3mil (excl. Financial Gains) / 1,257 2022Q1: $34,340 = $33mil / 961 BTC mined
HUT 2022Q2: $49,500 = $46.8mil all-in costs / 946 BTC mined 2022Q1: $40,750 = $38.4mil all-in costs / 942 BTC mined2021Q4: $40,200 = $31.7mil all-in costs / 789 BTC mined
RIOT 2022Q2: $35,300 = $49.3mil all-in costs / 1,395 BTC mined2022Q1: $30,800 = $43.25mil all-in costs / 1,405 BTC mined
CLSK 2022Q2: $37,800 = $36.4mil all-in costs / 964 BTC mined

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