HIVE Blockchain: Why the Road Ahead Is Promising (NASDAQ: HIVE)

There has been much concern among some investors regarding the effect “The Merge” will have on the performance of the HIVE Blockchain (NASDAQ:HIVE), as it had significant exposure to Ethereum (ETH-USD).

The company has stated that it will pass their former Ethereum miners to other altcoins to generate revenue to help replace revenue from Ethereum. An important question that needs to be answered is how quickly and to what extent that strategy will increase revenues.

That said, I have noted for some time that the price movement of Bitcoin (BTC-USD) has been the main driver of HIVE’s share price and will remain so in the future.

In this article, we’ll look at the timeframe I believe HIVE faces before the price of Bitcoin enters a sustainable recovery that will significantly boost the company’s share price, as well as how it is positioned to weather the current economic weakness that continues to weigh on the company’s performance .

A quick look at “The Merge”

There has been some commentary about the impact “The Merge” will have on HIVE as Ethereum transitioned from Proof of Work to Proof of Stake, resulting in a void for the miners it used to produce Ethereum.

To give you an idea of ​​the impact, in August the company produced 16.7 Bitcoin equivalents per day, with Bitcoin accounting for 9.4 of that, meaning Ethereum accounted for the remaining 7.3 BTC equivalents per day. When you include the drop in the price of Bitcoin and the loss of Ethereum production, it is not an insignificant amount of revenue that the company has lost.

One thing the company is doing to compensate for some of this is to increase the Exahash rate from 2.23 in August to 3.5 Exahash by Q1 2023. That will result in more Bitcoin production, and if the price has started to get sustainable by then, which I think is good, the company will be in a much stronger position than it is today. If that’s how it plays out, momentum in terms of earnings growth will return.

By then, we should also get our first look at the company’s strategy for mining altcoins, and how it will affect the top and bottom lines going forward. I don’t see it having any meaningful impact in the short term, but combined with the rise in the price of Bitcoin, it could be a solid catalyst in the future.

Balance

At the end of June 2022, HIVE had $4.0 million in cash on hand, with digital currencies valued at $71.4 million. Debt at that time was $29.2 million.

At the end of August 2022, HIVE had a HODL balance of 3,258 Bitcoin, up from the 3,091 it held at the end of July 2022.

In early September 2022, HIVE announced that it had entered into a $100 million offer agreement with HC Wainwright. According to the terms of the agreement, HC Wainwright “may from time to time sell shares of the Company up to $100 million.”

The main purpose of the revenue will be to use it to expand blockchain mining.

It should also provide a financial cushion if the company needs it, in case the price of Bitcoin remains subdued longer than expected.

Macroeconomic environment

As with all its mining companies, the short-term performance of HIVE will directly correlate with macroeconomic conditions that have triggered the Federal Reserve to raise interest rates to lower inflation.

For that reason, the next couple of CPI readings will provide a lot of clarity on how this will play out for HIVE. If inflation starts to recede, there is no doubt that it will improve market sentiment, which in turn will attract more capital to high-growth stocks like HIVE.

And if inflation retreats for two or more readings in a row, that will accelerate the process, bringing money back into Bitcoin, and again driving the price up, pushing HIVE’s share price up as well. At that time, capital inflows into higher-risk assets will increase, rewarding high-growth stocks.

I believe that this will likely happen by the end of calendar 2022, and at the latest in early 2023. If that is how it plays out, HIVE will return to its previous growth trajectory and the share price should rise in a big way.

I’m not suggesting here that this is going to happen quickly, in the sense of returning to previous levels quickly, just that investors are going to look more to growth stocks that have been hit by inflation and the Fed’s response to it.

Conclusion

While “The Merge” made some investors negative on HIVE, it is my opinion that the sentiment is exaggerated based on the fact that the company’s share price has moved in line with the price of Bitcoin and will continue to do so in the future.

That doesn’t mean that revenues won’t be affected by Ethereum moving to PoS, but it does mean that the market will continue to bid for the company based on the price movement of Bitcoin, as the chart below confirms.

Since HIVE is one of the most efficient miners, increasing the hash rate will result in an increase in the number of Bitcoins mined, which will offset some of the loss in revenue associated with Ethereum. If HIVE is able to generate legitimate and sustainable revenue from other altcoins it is trying to mine, it will improve sentiment as the market waits for the return of the rise in Bitcoin prices.

HIVE has a decent balance sheet with enough funding to see it through this period of economic weakness. Unless some unpredictable Black Swan emerges, I’m sure HIVE will do very well in the months and years to come.

Those who enter the low entry point reflected in HIVE’s share price at this time should do very well.