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7/19/18

HIVE Blockchain Technologies (HIVE.v): Why ROI matters

I received just one mail on this about HIVE.v today, but in this case one is enough and I'd like to explain just a little more about ROI and why I mentioned it in yesterday's post. We're talking about "Return On Investment" of course and in this case, we need to consider three things:
  • How much has been invested
  • What return there has been so far
  • What return we can expect in the future
As noted last night, we know the answers to the first two. As at March 31st 2018 HIVE had raised $152m in cash and had around $14m left, so investments are $138m (as long as you agree that over $0.6m in travel expenses for HIVE executives in just six months is an "investment"). We also know the return, about $9.5m in coins. 

The future is the thing, there. Yesterday I also added a word on my guesstimate on the third element until the end of this year (when HIVE's money is likely to run out unless they get their sales tax cheques returned pronto). So it was interesting to tune into the HIVE.v conference call this morning, because at least one of my initial guesstimates was confirmed as pretty darned close. During the call, we were told that as at today HIVE.v holds U$17.7m worth of coins, a big jump from the year end number we were given yesterday. Even though they didn't give us exact coin numbers held (strangely coy, I wonder why) that's solid info and from that we can extrapolate a bit. Here's a table, notes below:


  • The first thing to say is that by the nature of the beast, it's going to be rough and ballpark. I'm using a value of $500 for Ethereum coins and $18 for Ethereum Classic in order to be generous in the rounding, as explained and used yesterday. 
  • I'm adjusting a little for the period ended June 30th based on what I heard today (mid-July). Also, I'm most interested in the ETH coins, as Ethereum Classic is a minor part of revenue.
  • We can expect hash rates to go up in the current quarter to end September, that's why we can expect lower production compared to the June quarter.
  • Finally, I'm taking another guess on the December quarter raising as that's when the Bitcoin (BTC) mining is supposed to begin at HIVE.v. So consider that larger number a "ETH Equivalent" that includes ETH and some BTC.
  • Yesterday my guesstimate (using those prices for the coins) was U$42m by the end of the year. Today I've adjusted it upwards a touch, to U$43m. That's a minor thing and I'm aware I could be out by a lot more on either side, this is ballparking folks and a lot will depend on price changes in the future, for one thing.

So, for $152m invested (because by the end of 2018 its cash is all gone) HIVE.v would have produced around $43m in goods. That, ladies and gentlemen is not a good ROI. Putting it mildly. Very mildly. Even if we assume they manage to produce the same amount in 2019 and 2020 without any extra investment (which won't happen hash rates are going up and up all the time), they still won't get back the original investment unless ETH prices move up considerably.

Or if you like, consider it another way: Back when this started and HIVE raised U$152m, ETH coins were trading at between $250 and $300 apiece. Even if we take the top end of that range, it means HIVE.v could have turned its back on all that mining and mucking around, bought over 500,000 Ethereum coins on the open market and become a passive investment vehicle with a FAR better business model. Instead, it's blown the cash on machinery, professional fees ($1.306m), marketing fees ($1.309m), travel expenses ($0.606m), share based payments ($4.817m....WTF???), operating and maintenance costs ($2.916m) and quietly paid cash bonuses to management ($0.545m) which you have to read in the small print details of the Reg Fs in order to know about. Those are just a sample of the costs involved with this company too, there are a whole bunch of other ones and while they like to tell you about the approx $2m/qtr running costs of the equipment and the cheap electricity, what they don't mention is the approx $7m/qtr cash burn the whole corporate entity swallows.

All that for a projected production of around 84,000 ETH Eq coins to the end of 2018. Instead of holding 500,000 or so and having a company with something to show for its U$200m+ market cap.

So confound us all with the new tech and crypto and all that malarkey, the boffins can throw all the sequins into my eyes that they want. This is a company, it lives or dies on its financial well-being and the financials at HIVE.v are plain awful. One of the basic rules of successful capitalism is that when you invest $150m into something, you get more than $150m out of it afterwards. The only people making money in HIVE are those on the inside, carving themselves fat salary cheques, bonuses for no reason whatsoever, juicy expense benefits etc. The investors have negative ROI and even if its kit remains valid for years (which it won't, and don't get me started on how they have the brass neck to depreciate $113m of fixed assets by just $3.2m in the last quarter, that's borderline criminal) there is no ROI. And that matters. End of rant.