Is this Bitcoin Miner a potential 50x in the making?

Let's start with a shameless plug. Every week I write a free newsletter where I publish the signals generated from my Quant model; which has successfully signaled the top in Crypto in Nov 2021. Captured 100x moves in Sol & Matic. Exited Luna before its demise. Captured multiple 20x moves in a lot of alts such as doge, and metaverse coins in the last crypto bull cycle. There's no Voodoo magic going on, it's a model based on price action, trend, Momentum & relative strength. I understand if you have a hard time believing. I wouldn't trust an Anon either but FWIW, I went public this May and since then I have consistently posted model positions every week and the performance is for everyone to see. Check out the performance page for past performances.

None of what you read here is financial advice but it's safe to assume my personal investments are in line with what I publish.

The stock I am talking about is HUT8 Mining (NASDAQ: HUT, TSX: HUT).

Now before you, degens go open leverage longs and rekt yourselves remember

  1. This is a multi-year thesis and NOT a signal from my quant model (yet).
  2. HUT8 can very well go to ZERO. No, this is not a rhetorical warning to cover my base. Voyager Digital has proven that if management doesn't manage risk well then going to 0 is a very real possibility.
  3. You should be able to handle gut-churning volatility. HUT8 was down 92% since the bull market ended in Nov and can drop another 30-50%.
  4. Don't expect any wall street type complex stock analysis involving DCF, quarterly revenue statements, etc. I am an ExplainLikeIam5, napkin math investor who believes in a big-picture thesis. I will liberally use some assumptions which you might not agree with.

Firstly, Why invest in a crypto stock at all? Isn't it better to invest directly in Bitcoin which has no management risk? Here are my top 4 reasons.

  1. Custody Even after over 10 years of crypto's existence, we still live in a world of "Not Your Keys, Not Your Coins." which essentially implies that the user experience/trust is not where we would like it to be, especially if you are investing bigger amounts; And not everyone is evolved enough to HODL coins in a hardware device or cold storage. For an average Joe, it's just easier to invest in Stocks without worrying about security or being your own bank.
  2. Convenience Easily available in all retirement/tax-efficient accounts.
  3. Succession If you leave this world and your next of kin don't have the necessary means to access your account then it's unlikely they would be able to enjoy the benefits of the digital asset whereas with Stocks it's much easier.
  4. Leveraged play on Bitcoin If you notice the below chart, HUT8 (and other miners too) both overshoots Bitcoins' performance during good times and vice versa. So if you can time it reasonably well (which my quant model aspires to do) you can extract much more alpha out of it.

** Big part of my own portfolio is invested in Cryptos directly. Here I am just making a case for diversification.

Orange Line: BTC Black Line: HUT8

But why only HUT8, there are other miners too, what about them?

Nothing wrong with others, anyone who survives this bear will do well in the next bull run too but it's hard to say who will and who won't. I'll be relying on my Quant model for other miners and will mostly get in only after seeing a buy signal. I will update you folks too.

Here are some top reasons why I have a conviction in HUT8.

  1. Survivor - Mining in general is a very hard business. There's really no moat or competitive advantage. Anyone across the planet with access to deep capital and cheap electricity can be your competitor. So naturally, only companies with really good execution skills can survive this and HUT8 has managed to survive not just the 2022 bear market but the 2018 bear market too. While most others have yet to prove that. As I mentioned before, you don't need the most efficient minor or some really fancy tech blah blah blah, etc to make money in mining stocks. All you need to do is pick survivors at cyclical low prices and ride them till the next bull run.
  2. Consistent - There's a famous saying "Everyone has a plan till they get punched in the face". During 2021 bull market, most miners came up with the HODL strategy, some even bought Bitcoin from the open market by raising money but as soon as the bear market hit many of them couldn't sustain and conveniently dropped it. That tells you that they cannot be fully trusted to execute, whereas HUT8 has stuck to its guns and has had the HODL strategy from the very beginning, and it's not flavor of the month for them, and they have continued the same to date. Later in the Napkin Math section, I will explain why HODL strategy of HUT is central to my investment thesis.
  3. Conservative - During the 2021 bull market mania lot of the miners came up with very lofty projections on acquiring hash rates but fell short of execution. HUT8 is really conservative in its marketing, doesn't hype things too much, and also is very conservative in its balance sheet management. I'm impressed with its management team, Jaime Leverton and Sue Ennis, and their understanding of the Bitcoin & data center space. It's very easy to get carried away when all your competitors are announcing mega expansions (many of them now have retracted some of the orders placed in 2021) in a bull market and there's pressure from your stakeholders to do the same. They have done well so far in balancing the refresh rate of their mining kit as well as managing risks. Also, HUT8 is conservative in lending their Bitcoin to generate yield which is a good thing considering what happened to Voyager Digital. The risks are very real in that area.
  4. Alignment - The best part about being through 2 bear markets with a consistent HODL strategy is that the entire management team, board, employees, shareholders, and all stakeholders are fully aligned which leads to less friction and decision making. All management bandwidth can just focus on execution whereas for most competitors it's not the same. When the volatility hits which is the norm in crypto, most boards critically question your decisions which can lead to flip flops. (As someone who has been in those corporate board meetings/risk committees, I can tell you those discussions aren't pleasant)
  5. Alternate revenue streams - Apart from Bitcoin mining, HUT8 has another focus area namely their High-Performance Computing Unit. While it's relatively new and small in comparison, it does have the potential to generate enough revenue to inexpensively fund its mining operation without having to raise capital externally. This should allow them to continually HODL Bitcoins they mine. It also smoothens the revenue volatility of the mining operations by providing consistent income.
  6. Strong Balance Sheet - It's easier for HUT to raise capital as and when they require it by leveraging their balance sheet.

Napkin Math

Even before we get into the HUT8 numbers it's important to establish Bitcoins projections coz after all it's a 100% Bitcoin business.

Firstly, I am going to presume you are a believer in the crypto / web3 space and have the conviction that this is going to be a dominant asset class by the 2030s. If you aren't then you are unlikely to believe anything I say let alone the projections.

Next, I am going to go ahead and presume that you are probably more bullish about Crypto / Web3 than I am and have really lofty targets for BTC and the rest. (Why else would you be reading an unknown anons blog post in the middle of a brutal bear market ;)

FWIW I am not a maxi of any kind, I believe in pragmatism and risk management. If the data changes, I change my opinions with it.

Here's the market cap of other asset classes (approx figures picked from the internet, don't get too fixated with it, the idea is to be directionally right rather than precisely wrong)

Real Estate - $300 trillion
Bonds - $120 trillion
Stocks - $100 trillion
Gold - $13 trillion
Crypto - Under $1 trillion

There are a lot of studies and reports out there which has tons of data points (which I am not going to get into here) around how the crypto space is growing exponentially and at twice the speed of the internet itself grew. If crypto were to deliver on its promise and be the dominant class then it could have a market cap between 100-200 trillion dollars and align with others.

Let's presume that the crypto market cap ends up being 100 trillion dollars by 2030. Current Bitcoin market share or dominance as natives call it is around 40%. Let's presume over time as it matures the dominance drops to 10% (there's no hard science behind this, just my guesstimate). That should give Bitcoin a market cap of 10 trillion dollars. Which is also close to Gold's market cap. Considering it's got a digital gold/store of value narrative, 10 trillion sorta makes sense too. BTW there's a very detailed 50-100 page report by ARK research on Bitcoin which gives you a very sophisticated version of what I just told you.

10 trillion market cap gives you a price of 500,000 USD per Bitcoin by 2030.

That's too far away, and in bitcoin terms, 2 halving cycles away. The world can change a lot by then, and frankly, when I build my investment thesis, I like to only think 3-4 years max and then reevaluate later coz there's a big opportunity cost involved if the thesis doesn't play out in that time frame.

But for this exercise, let's presume Bitcoin manages to deliver on 40% of its promise and reaches 200K USD in the next 4 years.

So we will try to make projections only for the next 4 years for HUT. Who knows, maybe after 4 years I would look back and ask myself, what was I even thinking ;)

Lets begin. (All figures will be rounded for simplicity)

HUT currently has about 8100 Bitcoin. and they HODL 100% of the BTC they mine.

The next Bitcoin Halving is approx May 2024 ( this date can change). So that gives you around 21 months.

They mine approx 375 BTC per month. Let's presume there's NO growth in the number of BTC they mine. (thus far they have always managed to grow but we do NOT want to go easy on them)

So that gives you 375X21 = 7875 BTC

Even after the Halving, if they still manage to just maintain their market share and assume NO growth they would be mining approx 185 BTC per month.

So that gives you 185 x 27 months (remaining in our 4-year thesis) = 5000 BTC

So in total at the end of 4 years from now, they should have approx 21000 BTC in custody.

21000 BTC x 200K per BTC = 4 Billion USD

The current Market cap of HUT is around 400million USD. At current BTC prices which is around 19k-20K USD and considering they have 8100 BTC they are sitting on approx 150 Million USD of asset, which means that even in the depth of the bear market, HUT is getting a valuation of approx 3 times the BTC they HODL. For other miners, the valuations are even higher.

I am not considering any other asset they hold such as the data centers, land, buildings, and mining hardware (which are alone millions of $$$ worth).

While during the bear, miners are getting rough treatment, during the bull they become the darlings and get crazy valuations. In the 2021 bull market miners were trading at 10-15 times the BTC they were hodling and very likely it will be the same in the next bull run too.

If HUT gets valued at 10 times then it should trade at a market cap of 40Billion USD. From the current market cap of 400m that's 100x.

There are a lot of unknown unknowns which can hit the investment thesis and an investor should always factor them in as best as they can.

Maybe I have baked in too much hopium? I don't know but regardless, I am going to give all my assumptions a haircut of 50%.

That should give HUT a market cap of 20 billion USD if my thesis plays out. A cool 50x in 4 years.

And in the thesis, I haven't included any of the other positives that can happen such as conservative BTC lending to generate moderate yield to pay for mining operations or their HPC division really kicking off and creating a positive flywheel scenario to name a few.

But wait, there's more.

Am I buying current prices? NOT aggressively. If you are reading my weekly newsletter, you know that the model is sitting on 100% cash, macro isn't looking the best and there's a chance we could get one last capitulation. If that were to happen and BTC goes to 14-17k ish even temporarily then very likely you would get HUT at 200-300million Market cap which is 30%-50% lower from current levels. At those prices, I wouldn't be thinking twice and would just buy for the long term. If that scenario does NOT play out and BTC just runs up from current levels then I would wait for my quant model to signal a Long entry and get in. Here's the model's signal on HUT from 2020 to date.


Lastly, No investment thesis should be complete without highlighting the Risks else you are just another Moonboi Maxi.

Stating the obvious but If there's evidence of any of the below risks playing out materially then I would cut positions without any notice. So DYOR.

  1. Bitcoin failing or not reaching price targets.
  2. Execution - Management thus far has been really good. They have struck a good balance between pragmatic aggression towards growth and conservatism where necessary and I hope they continue to execute. But people can behave funny in bull markets, and management is people after all.
  3. Adverse Regulations for US/Canada-based crypto companies - Hard to predict but this can be a very big risk if it plays out.
  4. Excessive Stock Dilution - Since HUT8 HODL all the BTC they mine, they need to fund their mining operations through debt or equity dilution. Existing investors pay the price of dilution. Management needs to be tactful and careful around this. The only mitigation is if their HPC unit does well then it would be an ideal scenario. Management seems to be working hard on this.
  5. HODL stack gets Hacked - Again very unlikely to happen as they have proper controls in place but one can never be too careful in crypto.
  6. Mining Technology obsolescence - Most miners not just HUT are usually on top of this and refresh their hardware in a timely fashion but something to keep in mind.
  7. Unable to maintain market share due to increased competition -Now that ETH has successfully transitioned to POS there's a chance that big Ethereum miners would want to get into the BTC mining space. Need to keep an eye on how the competitive landscape shapes up.


All HUT8 needs to do is continue to do what they have been doing all along.
Survive and HODL.
Markets would take care of the rest.

** Web3Quant is not registered with any financial regulatory agencies. Web3Quant is purely a research publishing firm and does not provide any personalized financial advice. Do your own research and consult your financial advisor.**

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