Some investors have been very concerned about the effect “The Merge” will have on the performance of HIVE Blockchain (NASDAQ: HIVE), as it had a large exposure to Ethereum (ETH-USD).
The company said it would transition its former Ethereum miners to other altcoins to generate revenue to help replace Ethereum revenue. An important question that needs to be answered is how quickly and to what extent this strategy will increase revenue.
That said, I have been saying for some time that the price movement of Bitcoin (BTC-USD) has been the main driver of HIVE stock price and will remain so in the future.
In this article, we’ll look at the time frame I think HIVE faces before the price of Bitcoin enters a sustainable rally that will significantly boost the company’s stock price, as well as how it is. positioned to withstand the current economic weakness which continues to weigh on the company’s performance.
A preview of “The Merge”
There have been quite a few comments regarding the impact “The Merge” will have on HIVE as Ethereum transitions from proof-of-work to proof-of-stake, resulting in a vacuum for miners that it used to produce Ethereum.
To get an idea of the impact, in August the company produced 16.7 Bitcoin equivalents per day, of which 9.4 Bitcoins, meaning Ethereum accounted for the remaining 7.3 BTC equivalents per day. If you include the drop in Bitcoin price and Ethereum’s loss of production, it’s not an insignificant amount of revenue the company has lost.
One thing the company is doing to offset some of this is to increase its Exahash rate from 2.23 in August to 3.5 Exahash by Q1 2023. This will result in increased Bitcoin production and , if the price has started to rebound sustainably by then, which I suspect it does, the company is going to be in a much stronger position than it is today. If so, the revenue growth momentum will return.
Also, at this time, we should get a first look at the company’s altcoin mining strategy and its impact on top and bottom bottom lines going forward. I don’t see this as having a significant impact in the short term, but when combined with the Bitcoin price rebound, it could be a solid catalyst going forward.
At the end of June 2022, HIVE had $4.0 million in cash, with digital currencies valued at $71.4 million. The liability at the time was $29.2 million.
At the end of August 2022, HIVE had a HODL balance of 3,258 Bitcoins, compared to 3,091 at the end of July 2022.
In early September 2022, HIVE announced that it had entered into a $100 million market offering deal with HC Wainwright. Under the terms of the agreement, HC Wainwright “may from time to time sell stock in the company for up to $100 million.”
The main purpose of the product will be to use it to expand its blockchain mining operations.
It should also provide a financial cushion if the business needs it, in case the Bitcoin price remains weak for longer than expected.
As with all of its mining peers, HIVE’s short-term performance will be directly correlated to macroeconomic conditions that have prompted the Federal Reserve to raise interest rates to reduce inflation.
For this reason, the next two CPI readings will provide a lot of clarity on how this will play out for HIVE. If inflation starts to ease, there is no doubt that this will improve market sentiment, which in turn will draw more capital into high-growth stocks like HIVE.
And if inflation pulls back for two or more consecutive readings, that will speed up the process, bringing money back into Bitcoin, in turn driving up the price, also driving up the price of HIVE stock. At that time, the inflow of capital into high-risk assets will increase, rewarding high-growth stocks.
I believe this should happen by the end of calendar year 2022, and at the latest, early 2023. If so, HIVE will return to its past growth trajectory and its share price should rise. considerably.
I’m not saying here that it’s going to happen quickly, in the sense of a quick return to previous levels, only that investors are going to turn more to growth stocks that have been hit by inflation and the response of the Fed to this one. .
While “The Merge” has made some investors negative on HIVE, I think the sentiment is overblown as the company’s stock price has moved in correlation with Bitcoin’s price and will continue to do so going forward. coming.
That’s not to say revenue won’t be affected by Ethereum’s move to PoS, but it does mean that the market will continue to bid on the company based on Bitcoin’s price action, as the chart below confirms. -below.
Since HIVE is one of the most efficient miners, increasing its hash rate will lead to more Bitcoin being mined, which will offset some of the revenue loss associated with Ethereum. If HIVE is able to generate legitimate and sustainable revenue from other altcoins it attempts to mine, this will improve sentiment as the market awaits the return of rising Bitcoin prices.
HIVE has a decent track record with enough funding to weather this period of economic weakness. Unless an unpredictable black swan emerges, I’m confident that HIVE will do very well in the months and years to come.
Those entering at the low entry point reflected in HIVE’s stock price at that time should do very well.