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Hut 8: the best alternative to buying Bitcoin?

Despite Bitcoin becoming more well known to the general public, most investors still don’t own any. A big reason for this is that they do not understand Bitcoin or that they find the asset class too risky or volatile. That’s not surprising, because Bitcoin is not something that you can understand by just reading a few online articles. You need to invest time to read books like “The Bitcoin Standard” or to do a Khan Academy course to really understand why Bitcoin is so important and why it will never go to zero. I have never felt more bullish about Bitcoin than right now, it is as if we are heading for a perfect storm that will benefit Bitcoin in ways most people can’t even imagine.

Next to not understanding Bitcoin, another reason why investors don’t hold Bitcoin is because it is hard to buy and keep safe. It is a new asset class that you can’t hold in your traditional brokerage account yet. And even if you manage to buy it, it is scary to keep it safe yourself. Sure, you can put Bitcoin on an exchange, but most exchanges are a lot less safe than banks. So you need to find other ways to do it, and for most people that is just too technical.

Exactly for that reason Sean and I started the FBC Bitcoin Investment Trust about 2 years ago (we recently sold this trust to 3iQ). It was a great product for investors to get access to Bitcoin without having to buy or hold it themselves. The only downside is that it is a product for accredited investors, so most investors are not eligible to buy units in the trust. Only once an ETF gets launched every investor can get access to this asset class without having to physically hold the coins.

Another product you could buy is the Grayscale Bitcoin Trust that is listed in the US. It is a great product and it’s easy to invest in it for everyone. However, the downside is that the units are traded at a price far above the Net Asset Value of the units. Currently the implied Bitcoin price for these units is about 30-40% above the real price of Bitcoin. That is fine as long as nothing changes in the market structure, but once an ETF gets approved this premium will likely evaporate very quickly.

There are several listed companies that give you access to the digital asset class, but most are either blockchain companies with no direct Bitcoin exposure or companies that focus on altcoins or a combination of Bitcoin and altcoins. If you want exposure to just Bitcoin there is not a lot of choice on the equity markets, and I believe that there is only one credible stock out there: Hut 8 Mining (stock ticker: TSX:HUT.V). Full disclosure, I co-founded Hut 8 Mining and am still a fairly large shareholder, so keep that in mind when you read this. However, I am not an insider anymore (which means I only know as much as the company publicly communicates) and I mainly write this because many investors are not aware of Hut 8 yet.

We started Hut 8 in late 2017 because we saw an opportunity to raise money in public markets for a Bitcoin-only mining play. This turned out to be correct, because we managed to raise quite a lot of money in a matter of weeks and listed the company in early March 2018 on the Venture board of the Toronto Stock Exchange. We were lucky of course that we did this at the end of the bull market of Bitcoin, when everybody wanted to get exposure to crypto assets. In comparison to some of its competitors, Hut 8 has performed quite well during the bear market, and now that a new bull market has started I believe it could outperform almost all other public equities.

Hut 8 provides investors with direct exposure to bitcoin without the complexity of buying bitcoin. Investors avoid the need to create an online wallet, wire money offshore and understand how to safely store their bitcoin. And, you can own Hut 8 in your securities portfolio along with other stocks.

Hut 8 mines Bitcoin and no other cryptocurrencies. It stays away from mining Bitcoin Cash, Bitcoin SV, or other Bitcoin forks. It has an exclusive contract with Bitfury to use their blockboxes (shipping containers filled with bitcoin mining chips) in North America, which gives the company access to the best equipment at the lowest prices.

Hut 8 is the largest Bitcoin mining operation in North America with over 95 MW dedicated. The company mines much more efficient than most other miners, and currently mines at a price of around US$3000-3500 per Bitcoin while prices are more than double that. Per day Hut 8 mines about 25-30 Bitcoin, so after all costs it nets about US$120,000 per day. Because Hut 8 keeps most of the coins it mines the value of Hut 8 goes up (and down) with the Bitcoin price. Therefore, if you are bullish and believe Bitcoin might go back to an all-time high again this year (around US$ 20,000), the value of the coins that Hut 8 now mines every day is not $120,000 but about $500,000 per day. Once Hut 8’s war chest becomes big enough it may actually consider to be the first cryptocurrency company that will pay a dividend to its shareholders.

If you look at Hut 8’s price chart, you will see that the correlation to Bitcoin is pretty high (about 90%). After we took Hut 8 public, Sean and I developed the theory that because there is not a lot of outstanding stock, Hut 8 might go down more than Bitcoin in a bear market, but also go up more than Bitcoin in a bull market. I guess we were proven correct, because Hut 8 went down to $0.80 at the end of the bull market (at the end of March when Bitcoin hovered in the low $5000s), but went up 300% since then while Bitcoin ‘only’ went up about 80%. My belief is that Hut 8 might keep outperforming Bitcoin over the next year, simply because there is not a lot of supply of stock.

This piece is not meant as investment advice, but mainly to help people better understand what alternatives there are to buying Bitcoin outright. I personally believe Hut 8 is the best alternative, but as I mentioned I helped start the company so I may appear to be biased. As always, do your homework before investing and never invest more than you could lose!

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  1. may have written bitcoin instead of hut 8 in next to last paragraph