Introducing Hut 8 Mining – Hut 8 Mining Corp (OTCMKTS:HUTMF)

Hut 8 Mining – Quick facts

Hut 8 Mining (OTCQX:HUTMF) is one of the largest Bitcoin (BTC-USD)(OTCQX:GBTC)(COIN) mining companies in North America. They operate two mining facilities in Canada, and have their headquarters in Toronto.

Hut 8 Mining has an exclusive partnership with Bitfury that covers all of North America. Bitfury owns a controlling stake in Hut 8 Mining.

As at March 31, 2018, Bitfury Holding BV (“Bitfury”) owned 44% of the Company’s common shares and is a controlling shareholder of Hut 8.

– Hut 8 Mining Financials, Q1 2018

Their Chairman of the board is Bill Tai, who is also the chairman of Bitfury. Also present on their board is Mike Novogratz, the billionaire and well known Bitcoin bull.

Important notes

Hut 8 Mining is a Canadian company. The prices you see will be in Canadian Dollars unless otherwise specified.

Hut 8 Mining is listed as “HUT” on the TSX Venture Exchange (“TSX-V”) in Canada, and as “HUTMF” on the OTCQX in the United States. This dual listing means they do not file with the SEC as they comply with Rule 12g3-2(NYSE:B). Investors should be aware that Hut 8 Mining does file with SEDAR and are regulated by IIROC (Canadian “SEC”).


Bitfury produces their own Bitcoin mining rigs using a proprietary ASIC they developed. Bitfury distinguishes itself from competitor Bitmain by also providing an infrastructure solution called the BlockBox AC. This enables mining companies like Hut 8 Mining to build infrastructure once, and then simply replace the hash boards (or the ASIC chips) as necessary, greatly reducing costs to upgrade hardware.

BlockBox AC?

These industrial scale mining stations are basically 500 square foot data centers packed into a shipping container, delivered on site and installed for the low, low price of $2 – 2.5 million dollars each. Each BlockBox AC contains 176 hash boards, each producing 5 TH/s of Bitcoin hashing power, to reach the 8.8 PH/s figure in their literature below.

Image Source: Bitfury

Operating Facilities

Hut 8 Mining has two mining sites in Alberta, one in Medicine Hat, and the other in Drumheller. In total they have 57 BlockBoxes in operation, but the deployment was completed in July, and therefore; the most recent financial statements for Q2 do not reflect this additional infrastructure.

See below:

hut 8 deployment block box campusesImage Source: Hut 8 Mining

Business Operations

Hut 8 Mining is a Bitcoin mining company. This means that mining Bitcoin is their primary source of revenue and the expense of mining said coins is their primary expense. They do not mine other coins, such as Ethereum (ETH-USD) or Litecoin (LTC-USD). However, it should be noted that since Hut 8 Mining holds some of the Bitcoin they mine, rather than selling it immediately, their balance sheet will reflect changes in current assets that vary with the price of Bitcoin.

Balance Sheet – Q1 Highlights

As of March 31, 2018, Hut 8 Mining had:

Digital Assets: $8,004,399

Total Assets: $164,401,032

Liabilities: $12,743,697

Shareholder’s Equity: $151,657,335

The company had 82,808,400 shares outstanding.

Balance Sheet – Q2 Highlights

As of June 30th, 2018, Hut 8 Mining had:

Digital Assets: $14,027,297

Total Assets: $165,724,566

Liabilities: $16,792,637

Shareholder’s Equity: $148,931,929

The company had 82,380,000 shares outstanding.

Income Statement – Q1 Highlights

Revenue: $10,988,949

Net Income (loss): $(3,815,784)

Adjusted EBITDA: $7,690,365

Cost to Produce 1 BTC: $3,580

Income Statement – Q2 Highlights

Revenue: $7,800,370

Net Income (loss): $(3,171,621)

Adjusted EBITDA: $3,860,052

Cost to produce 1 BTC: $3,618

Notes from the investor conference call

On August 16th, 2018, the management hosted a conference call to discuss Q2. An interesting development was a concession made by Bitfury over the hosting cost of the BlockBoxes. Previously, the cost was estimated at $40,000 to $45,000 per box for hosting and maintenance. This price included power.

Under a new agreement, a flat rate of $2,500 would be used plus expenses at no markup. Previously there was an additional 10% markup being added but the flat rate did not apply. If I heard correctly, management estimated could save them about 10% on operational costs.

Based on the combined operational expense of $42,500 per BlockBox, and running 57 BlockBoxes, the cost of power and hosting would be $2,422,500 before the discount. After a 10% discount the total cost of running the entire mining operation could be as low as $2,180,250. If this is the case, then we can arrive at a price per KwH around $0.047 CAD, or $0.036 US. This is indeed a low cost.

What makes Hut 8 Mining Interesting?

Bitcoin has had many barriers to entry in the past. Specifically, if you want to own some bitcoin, then you needed to understand how to compile and run the software. Times have changed, and now it’s possible to purchase Bitcoin easily from an exchange, like Coinbase (COINB). However, if you’re an investor that isn’t comfortable wandering off the beaten path for an alternative investment, and you’d like to do everything through your brokerage account, then it gets more complicated.

What are your options in the USA?

Well, you could buy the Grayscale Bitcoin Investment Trust (OTCQX:GBTC), but then you will usually end up paying a hefty premium on the price of Bitcoin. ETFs have been denied or delayed. With the current bear market for Bitcoin, the price of a single bitcoin has fallen from the $19k range earlier this year, to the $6k range as I write this. If you were looking for a more desirable entry point, your money is going to go a lot further today than it would have at the peak.

Hut 8 Mining provides a way to play the Bitcoin market without having to take possession of Bitcoin, or having to pay a custodian. Their success will be correlated to the success of the Bitcoin experiment; so investors who are bearish on Bitcoin would be advised to avoid this play.

However, if you are looking for a way to get into Bitcoin from your traditional brokerage account, this is one way you can pull it off. Hut 8 Mining gives exposure to Bitcoin in much the same way that buying gold miner stocks gives you exposure to gold without taking possession of the yellow metal.

Price Action

ChartHUTMF data by YCharts

As you can see, the price movement of Hut 8 Mining already mirrors the movement of Bitcoin to a certain extent. But, since Hut 8 Mining is new on the stage, there could be some volatility to contend with in the short term as awareness of this new vehicle increases. Bear in mind, Hut 8 Mining only started trading in March of this year.

Bitcoin price floor?

Some have speculated that Bitcoin has a price floor based off the cost of production. However, the reality is much more complex than this. There are many miners competing for the Bitcoin rewards issued per block for example. Hut 8 Mining may be the largest Bitcoin mining company in North America, but we don’t know for sure because many of their competitors are private companies that keep a low profile.

Even so, Hut 8 Mining is only responsible for 1% of the Bitcoin hashing power as I write this (take their hashing power, 448 PH/s and divide it by the total 43,669 PH/s to derive this yourself). This means that the cost structure of the other 99% of the miners is unknown, but not unknowable.

Each mining company has a different strategy, and a different cost structure. Genesis Mining for example, operates in Iceland, the UK and I believe China. Their business model is quite different, as they sell hash power to others, and make their money from hosting and selling cloud mining contracts. I suspect they also do quite a bit of mining for themselves, but we have no way to quantify their mix of work.

GigaWatt (WTT-USD), out of Wenatchee, WA has a different business model. Their game plan is just to provide hosting. Their clients own their own hardware, and pay for hosting in cryptocurrencies, but they also have their own token (the Watt Token) that is used to lower hosting fees and can even be rented out to other miners.

The point is, each of these companies has a different strategy and cost structure. The break even price for mining Bitcoin is highly dependent on the cost of power and hosting. That price today is $0.11 (in US Dollars) per KwH. If you’re paying more than that, you’re losing money already.

So, some miners are already at that price floor. They are losing money right now, and must decide if they want to eat into their reserves or pull the plug. If they pull the plug, their equipment will be sold off and likely purchased by a miner with a lower cost structure.

New entrants will evaluate the field, and decide if they think they can make money based on the current business climate. Right now, I think it’s a hard sell, unless you’re very bullish on Bitcoin in the long term.

The Bitcoin network responds automatically to changes in the network hash rate, adjusting the difficulty of the work up or down based on the speed of new block generation. See below:

bitcoin difficultyImage Source: Bitcoinwisdom

Cost structure is the most important thing

Companies cannot survive with EBITDA alone, not in the long term. Depreciation does represent a real expense at some point. Equipment does wear out and net profits will need to be realized.

That being said, with a cost structure of under $0.04 USD for power and hosting; Hut 8 Mining will be able to survive even in the worst of conditions. The equipment will depreciate, but the lifespan of an ASIC chip has been at least two years recently. So, unless the Bitcoin bear market continues well into 2019, or an extremely low price persists for an extended period of time; Hut 8 Mining is positioned to survive.

A wise man once said:

You learn more from managing through a recession – A wise man somewhere

I think it’s true. I was fortunate enough to be one of those managers in 2008 and it changed my life, opened my eyes.

If Bitcoin is to recover and return to growth mode (which I personally think it will), then Hut 8 Mining will be in position to capitalize on this growth. Margins that are negative now will about-face as we witness another bullwhip effect on cryptocurrency supply chains. With their ties to Bitfury, I think this will play to their favor as well, since they will have priority when it comes time to place an order.


Right now the cryptocurrency market is in bear mode. The hype, a flood of new investors, and the introduction of ICOs caused one of the biggest bubbles in Bitcoin and other cryptocurrencies that we’ve seen so far.

However, unless the market for Bitcoin evaporates entirely; Hut 8 Mining could be a long term play at this price level. If the bear market persists, then the price could go lower in the short term; so buyers should be aware of this.

Hut 8 Mining is not exposed to other cryptocurrencies, but if something was to affect the market for them (let’s say Ethereum died or Tether finally got shut down), it will affect the Bitcoin price, and hit Hut 8 Mining’s balance sheet.

But wait, there’s more!

I haven’t shilled for my new marketplace yet, Crypto Blue Chips! Starting on September 1st, you can join me as I launch my new private investing company that focuses exclusively on cryptocurrencies and blockchain technology. Plus, if you like my Bitcoin Value Indicator, you’ll love the BVIPE, which takes it to the next level. Stop by and check it out.



Disclosure: I am/we are long BTC-USD, ETH-USD.

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.

Additional disclosure: I may take a position in Hut 8 Mining in the future, but I have no position right now.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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