HIVE Digital Technologies Ltd. (TSX.V: HIVE) (NASDAQ: HIVE) (FSE: YO0.F) expanded its regional footprint by purchasing a data centre in the city of Boden, Sweden from visual effects firm, Turis AB.
The company said on Monday that it intends to develop this facility further and use it to integrate its incoming Application-Specific Integrated Circuit (ASIC) servers, thereby boosting its bitcoin production in preparation for next year’s Bitcoin halving.
The Bitcoin halving is an event that happens approximately every four years where the the reward miners receive for adding new blocks to the blockchain is reduced by 50 per cent.
“The property is strategically located and provides Hive with the opportunity to expand its operation, contributing to the company’s overall growth strategy,” said Johanna Thornblad, the president of Hive Sweden.
“The new data centre will enable Hive to grow its regional footprint while further demonstrating its commitment to its [environmental, social and governance] focus, sustainable practices, environmental responsibility, and energy efficiency with its newest green-energy-powered data centre.”
The acquisition will come in a mix of cash and shares with cash including up to USD$750,000, and shares reaching a maximum of USD$1.5 million.
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Hive diversified product offerings to survive the bear market
The crypto-winter has not been particularly kind to Hive. It generated a revenue of USD$22.8 million with a gross operating margin of USD$4.6 million, but endured a net loss of USD$24.5-million for the three-month period, due to the accelerated depreciation of ASIC equipment and share-based compensation.
It doesn’t help that the cost of mining Bitcoin has climbed to dangerous heights. While smaller firms have died or turned towards easier sources of income, the competition in the space has trended towards developing for scale.
As a result, Hive’s rebrand from Hive Blockchain to Hive Digital Technologies in July wasn’t just a name change but an actual pivot towards taking advantage of the boom in artificial intelligence.
“Management has been cautious by not borrowing from predator lenders or creating massive dilution like many other miners as we strive to upgrade our suite of ASIC chips and run the business by selling our bitcoin production and 200 of our hodl (bitcoin) position,” said Frank Holmes, Hive’s executive chairman in a press release.
“Further, we have been spending capital to build out our HPC strategy for the boom in [artificial intelligence]. This revenue stream by repurposing our suite of Nvida chips for AI is gathering momentum. This business channel has much higher margins than mining bitcoin.”
The cost of production per bitcoin by the end of September was USD$22,639, which includes cost of goods sold, but not selling, and general and administrative costs. That amounted to a 21.15 per cent increase in cost from the previous quarter ending in June.
The company observes that, with bitcoin mining hash rates and difficulty reaching all-time highs, the industry is expected to experience even more increases in the cost of production for bitcoin.
This is because fewer bitcoins are being rewarded per terahash at these difficulty levels. Hive is maintaining its focus on acquiring new ASIC machines opportunistically using its cash flow and managing its balance sheet.
The company is actively preparing for Bitcoin’s halving, just as it did in 2020.
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What is the Bitcoin halving?
Satoshi Nakamoto built artificial scarcity into the infrastructure of Bitcoin to make it a naturally deflationary currency.
That’s why every four years the reward given to Bitcoin miners for verifying transactions and adding them to the blockchain is cut in half. This reward reduction slows down the creation of new bitcoins and ensures that there will only ever be a maximum of 21 million bitcoins in existence. This mechanism controls inflation and makes Bitcoin more valuable over time, and it can have a big impact on how profitable Bitcoin mining is.
The slower rate of Bitcoin productioncauses massive fluctuations in Bitcoin’s price as demand outstrips supply over time. In previous halvings where the block reward was measured in thousands of dollars, the meagre reward would cause weak-kneed bitcoin miners to bow entirely out of the race, leaving the strongest and richest to survive. Now with the 2024 halving, with each block reward halved to 3.125 BTC per block and a single bitcoin costing CAD$51,183.11 before the halving, the trend is for companies to scale up—not down.
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