Despite bitcoin (BTC-USD) and altcoins being in a bear market, there are attractive investment opportunities in the space, as blockchain adoption is increasing. In the last bull market, bitcoin miners surged, with these companies planning big ramp-ups in hashing capacity. The subsequent correction has been equally sharp. Among the upcoming players, I’m bullish on Hive Blockchain (HIVE). The current price tag on HIVE looks attractive, considering the company’s growth prospects.
The Worst Seems to be Over for Bitcoin
It’s important to note that bitcoin is still in a phase of price discovery. This period will be associated with high volatility. At the same time, contractionary monetary policies caused lower speculative activity across asset classes. The cryptocurrency space, therefore, witnessed a deep correction.
Bitcoin has, however, recovered from lows and currently trades above $21,000. It seems likely that the cryptocurrency will gradually trend higher.
The probability of a recession in the United States has increased with aggressive rate hikes. In a recession scenario, inflation is likely to cool off, and this is good news for asset classes.
Specific to cryptocurrencies, Blockware Intelligence estimates that global bitcoin adoption will touch 10% by 2030. With the crypto having limited supply, the price is likely to remain in a long-term uptrend.
Another important point to note is that institutional investors have been mopping-up bitcoin at lower levels. This is an indicator of another potential rally in the coming quarters.
Overall, the best time to buy an asset is when there is blood on the streets. The same holds true for bitcoin and crypto stocks.
Hive Blockchain: Delivering Strong Financial Performances
While the markets focus on near-term headwinds, Hive Blockchain has been delivering strong numbers. In its most recent fiscal year, the company reported year-over-year revenue growth of 212% to $211.2 million.
This growth was driven by strong upside in its bitcoin mining capacity. In Fiscal Q4 2022, the company mined 789 bitcoin compared to 189 in Q4 2021. Furthermore, in Q1 2023, Hive mined 1,338 bitcoin equivalent. The growth momentum has therefore sustained even with the sharp correction in cryptocurrencies.
In Q1 2023, the company reported $71.4 million in digital assets. It’s important to note that this includes bitcoin and Ethereum assets. With the Ethereum merge around the corner, the outlook is bullish. This is good news for Hive.
Further, if bitcoin and Ethereum eventually trend higher, the value of digital assets on the balance sheet will swell. Just to put things into perspective, the value of digital assets as of Q4 2022 was $171 million.
Another important point to note is that Hive reported a total hashing capacity of 3.3EH/s in March 2022. Mining capacity is expected to increase to 4.6EH/s by December 2022. Therefore, the number of bitcoin and Ethereum mined should continue to increase on a quarter-over-quarter basis.
A factor that differentiates Hive from its peers is diversification. Marathon Digital (MARA) and Riot Blockchain (RIOT) are pure-play bitcoin miners, while Hive also mines Ethereum.
Additionally, in April 2021, the company acquired a 5% stake in DeFi Technologies (DEFTF). With decentralized finance still at an early growth stage, the strategic investment is likely to yield long-term value. Similarly, in October 2021, the company announced a strategic investment in Network Entertainment (TSXV: NTE). This gives Hive exposure to the emerging non-fungible token (NFT) business.
What are Hive Blockchain’s Risks?
Hive Blockchain is still at an early growth stage. In March 2022, the company announced a $100 million at-the-market offering. Further equity dilution for accelerating growth is a potential risk for existing investors. However, if top-line growth remains robust, the dilution factor will be offset.
Still, uncertainties exist on the global macroeconomic front. If investors remain underweight on risky asset classes, cryptocurrencies will take longer than expected to trend higher. Even if the number of bitcoin mined increases, Hive will be impacted due to margin compression.
Bitcoin’s halving is also due in May 2024. This will imply a halving of bitcoin rewards. Even with higher hashing capacity, the number of bitcoin mined will decline. However, halving will also cut the supply and is likely to have a positive impact on the price.
What is the Forecast for HIVE Stock?
Turning to Wall Street, Hive Blockchain has a Moderate Buy consensus rating based on two Buy ratings assigned in the past three months. The average Hive stock price forecast of $6.25 implies 26.8% upside potential.
Conclusion: HIVE Stock May be Worth the Risks
Even with the risk factors, Hive stock looks attractive at current levels. Risk-taking investors can consider some exposure to the stock. The company’s mining capacity expansion has been robust, and I don’t see any financial constraints. If bitcoin trends higher, as it has in the past, the value of digital assets on its balance sheet will increase.
This seems entirely likely as the global economy will likely be supported in the long term through expansionary monetary policies. Assets with a limited supply should increase in value relative to fiat money.
Also, considering the company’s strategic investments, it’s likely that Hive Blockchain will be more diversified in the next few years. Overall, Hive stock seems positioned to create long-term value.
