Hut 8 Stock Forecast & Analysis

Written by Sean GraytokUpdated: 8th May 2022
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This Hut 8 Stock Forecast will analyze one of the top mining stocks on the market. Let’s get started. 

Hut 8 Stock Forecast: Background

Hut 8 Mining is one of North America’s largest digital asset miners. It has two data mining centers located in Alberta, Canada, that provide 109 MW of existing power capacity.

This power capacity has enabled Hut 8 to become the number one holder of self-mined bitcoin in North America.

The company was founded in 2011, went public in 2016, and now has a market cap of $1.42 billion. It trades on the Nasdaq Stock Exchange under the ticker symbol “HUT.”

Hut 8 Stock Forecast: Investment Potential

Before analyzing Hut 8’s investment potential, it’s important to understand its role in the Bitcoin ecosystem.

Bitcoin is a decentralized network of computers that enables peer-to-peer transactions, among other things. The network is secured by cryptography, which requires these computers, known as miners, to solve complex mathematical problems to verify the legitimacy of Bitcoin’s ledger of transactions.

In exchange for essentially auditing the Bitcoin Blockchain, which requires expensive hardware, large amounts of computing power, and electricity, miners receive “block rewards” in the form of BTC. Block rewards are the only way that new BTC enters the supply.

Miners with the capacity to solve more computational puzzles have a higher probability of earning a block reward. This capacity is measured in hash rate, specifically “exahash” or E/H. Miners can increase their hash rate by bringing more miners online.

Earning bitcoin via block rewards is Hut 8’s core business objective. Every decision the company makes, from acquiring new equipment, negotiating power costs, and deciding what to do with the earned bitcoin, revolves around earning more block rewards.

Ok, now that we understand Hut 8’s business model, let’s analyze its investment potential.

#1. HODL Strategy

From Hut 8’s most recent quarterly report: “Hut 8 continues to strategically emphasize its “hodl” strategy, taking active steps to generate Canadian and US dollars to help fund operating expenses, to avoid selling Bitcoin.”

A publicly-traded company just confirmed its strategy to hodl bitcoin. This is how Hut 8 has become the company with the largest amount of self-mined BTC on its balance sheet.

Instead of selling the bitcoin, Hut 8 puts it up as collateral for loans that help out during bear markets. It also generates monthly interest income on its BTC by putting some of it in a yield account with Genesis Global Capital.

Ok, so why does the hodl strategy make us bullish? First, this is only bullish if you think bitcoin will significantly appreciate from current levels. Hut 8, or any other mining stock, probably isn’t for you if you’re bearish on bitcoin.

If bitcoin appreciates like we think it will, holding as much of it as possible on its balance sheet will significantly increase the market value of Hut 8 Mining.

Hut 8 is hodling because it has a “Balance-Sheet-First approach to business management.” That’s right, HUT is a value stock disguised as a high-growth crypto stock.

#2. A New Era of Mining: North American Miners

In June, China banned bitcoin mining and forced all China-based miners to go offline, causing the network’s hash rate to drop more than 50% in the subsequent month.

This could not have happened at a better time for North American miners, like Hut 8. Just as hash power plummeted following the ban, NA miners were scaling operations and deploying hundreds of thousands of new miners to fill the gap in hash rate.

Satoshi engineered mining difficulty to adjust based on the network’s total hash rate, so difficulty also fell with the China ban. This made it easier for miners to mine blocks and receive block rewards.

NA miners are largely responsible for hashrate’s recovery since China’s ban. The higher the hash rate, the more secure the Bitcoin network becomes.

This represents a new era in Bitcoin mining — one that is likely to benefit the most capable miners in North America, like Hut 8.

#3. Strong Relationship with Suppliers

Hut 8 has strong relationships with equipment suppliers and power companies.

Consisting of new mining machines is no easy task; miners with access to equipment suppliers have a serious advantage over miners who do not.

Hut 8 recently announced two “opportunistic” purchases “directly” from MicroBT of 11,953 M30S, M30S+, and M31S miners.

Focusing on the words “opportunistic” and “directly” emphasize Hut 8’s unique relationship with MicroBT and its ability to procure new machines in the future.

In a conversation with Preston Pysh, Mike Alfred explained a key challenge that miners face: getting Bitmain (and other suppliers) to return your phone calls and respond to emails.

Here’s Mike Alfred: “You could get a billion dollars right now — it doesn’t mean you can get the machine orders done, and it doesn’t mean those machines will actually show up.”

Hut 8’s access to suppliers will differentiate it from other miners in the long term, especially those miners who are not at scale and do not have the leverage to negotiate.

#4. Bitcoin Platform Play

Hut 8’s current operational model as a base-layer miner positions it to expand into other bitcoin and blockchain-related markets in the future.

Today, buying shares of HUT provides exposure to three businesses in one trade: profitable self-mining, white-label hosting for other miners, plus yield and revenue on bitcoin reserves.

In the previously mentioned conversation, Mike Alfred explained how some of the mining business will get commoditized over the long term and that new value opportunities will come from building business lines on top of bitcoin mining.

Alfred believes the “big secret” in the mining industry is that base-layer Bitcoin mining is just “step one of building a platform play in this space.”

Hut 8 accumulates 20 to 25 bitcoin per day and maintains 1% of the network’s total hashrate.

This will give it significant leverage in a world where bitcoin is increasingly hard to acquire.

Hut 8 Stock Forecast: Economic Moat

The following describes Hut 8’s economic moat that protects its market share and profitability from other competitors:

Industrialized Hodler + Access to Suppliers

Mining is the only way that new BTC enters the circulation. The vital role that miners play in the broader bitcoin ecosystem cannot be discounted.

Among those miners, we believe Hut 8’s commitment to be an industrialized hodler differentiates its growth strategy from the rest. Here’s the Hut 8 growth flywheel:

Hut 8 Mining Stock

In addition to management’s objectives, the company’s access to suppliers suggests its ability to scale will not be constrained due to lack of equipment.

Combining Hut 8’s growth strategy with its access results in a differentiated mining operation — barring Marathon.

HUT 8 Stock Analysis

Hut 8 published monthly operations updates to keep its investors informed. Here are some of the highlights from the latest month:

  • All-time high of 6,115 self-mined Bitcoin in reserve following 289 generated last month 
  • Produced approximately 10.3 bitcoin per day in the month 
  • Ethereum mining (for which the company received payment in BTC) generated 14% of total production
  • 100% of self-mined coins were  deposited into custody 
  • Installed operating capacity currently sits at 2.5 EH/s

The team also installed an additional 2,715 MicroBT M30S and M31S+ miners. 

The company began construction at what will be its third mining site in North Bay. This site will add an extra 100MW capacity in addition to 109MW currently in production in the Alberta locations. 

Hut 8 Stock Forecast: Top Competitors

Let’s do some competitor analysis and see who Hut 8 is competing against to find those golden nonces. Here are Hut 8’s top competitors:

  • Marathon Digital (MARA)
  • Riot Blockchain (RIOT)
  • HIVE Blockchain Technologies (HIVE)
  • Bitfarms (BITF)
  • Argo Blockchain (ARBK)
  • Core Scientific (CORZ)

Hut 8 shared a graph that compares the top miner’s market caps to their BTC reserves.

Hut 8 Mining

There’s an arbitrage opportunity here. Behind Marathon, Hut 8 has the largest reserve of BTC by a significant margin while having a similar or smaller market cap than the field.

Also, this group of miners makes up the CHARM stocks acronym for the industry — an acronym that absolutely no one uses but it useful for remembering Core Scientific, Hut 8, Argo, Riot Blockchain, and Marathon. 

Hut 8 Stock Forecast: The Risks

#1. Bitcoin Price

Hut 8 does not control the price of bitcoin, which ultimately determines its quarterly revenue via block rewards.

Hut 8 can have the industry’s best leadership and growth strategy, but the stock can still fall if bitcoin goes in the wrong direction.

#2. Network Hashrate

Network hashrate is another variable outside of Hut 8’s control. As more miners come online, the company’s probability of earning a block subsidy decreases unless it is able to sustain or grow its own hashrate.

China-based miners are still shifting their operations to geographies where mining is allowed.

It’s not yet clear how this influx of hashrate will affect Hut 8 in the short and long term.

HUT Stock Allocation in Your Portfolio

Here are some questions to help you decide how much Hut 8 stock to buy if any:

  • Is it better to invest in Hut 8 or buy bitcoin?
  • What are the benefits of holding Hut 8 and bitcoin?
  • Is Hut 8 a better buy than Marathon? Are there downsides to holding both?
  • Why do you want to own Hut 8 stock?
  • Are there better bitcoin infrastructure plays?
  • Is Microstrategy (MSTR) a better bitcoin proxy in the public markets?
  • Will Hut 8 continue to hodl bitcoin?
  • Can Hut 8 achieve its growth initiatives and grow its hashrate beyond 1% of the network? Does it have to for the stock to be a long-term winner?
  • Will Hut 8 reach 6.0 E/H by mid-2022?
  • How will Hut 8 trade when block rewards are halved?
  • Can Hut 8 effectively transform into a Bitcoin platform play once mining is commoditized?

Some of these are yes-or-no questions, but the rational answers exist somewhere in the middle. Regardless, thought exercises like this may help you determine an appropriate allocation to Hut 8 stock.

HUT Stock Forecast: FAQs

Is Hut 8 a good investment?

Hut 8 stock is a good investment if you’re willing to hold it for ten years and believe that bitcoin will significantly appreciate. The stock isn’t for you if you’re not willing to hold on a 50% correction.

Will Hut 8 stock go up?

Hut 8 stock will go up if bitcoin ultimately goes where we expect it to go. The company’s hashrate, electricity costs, and expenses don’t matter if bitcoin goes to zero.

Does Hut 8 pay a dividend?

Hut 8 does not pay a dividend. It reinvests profits back into site expansions and other methods to increase its hash rate.

Does Hut 8 mine ethereum?

Hut 8 mines for the Ethereum network too, but receives payout in bitcoin. In our estimation, this suggests that Hut 8 recognizes the technological potential of Ethereum but understands the sound money differences between ETH and BTC.

Bottom Line: Hut 8 Stock Forecast

Hut 8 currently trades around 10x the value of bitcoin on its balance sheet, and the company has no plans to part ways with its BTC.

Hut 8 might outperform bitcoin from these levels if the digital asset goes where we expect it to.

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This article is for informational purposes only, and it is not intended to be investment advice. Read our editorial guidelines and public equities research methodology to learn more about how we researched Hut 8 stock.

Sean Graytok
Sean Graytok

Sean Graytok is our Co-Founder and leading expert in investing and financial management. His work has been cited in leading industry publications, such as InvestorPlace and Business Insider. Sean is interested in the people and technologies that are improving the world.