Mining Bitcoin in 2022? An Inside Look at HUT8’s Continued Success

Why HUT8?

HUT8 Mining’s success as the largest holder of self-mined bitcoin of any publicly traded company in the world is widely publicized but the company does more than mine bitcoin. Their team is innovating internally as data infrastructure, and DeFi technologists aware of their ideal position as bitcoin “OG HODLers”. They are taking a balance sheet first approach as core bitcoin miners looking to diversify their exposure moving forward.

From HUT8’s leadership, we learned about the unique nature of mining cryptocurrency at scale in Canada, and gained insight as to where they could go from here.

Introducing Sue Ennis

I caught up with Sue Ennis after her return from a string of conferences and investor relations abroad.

Ennis was in the traditional financial services and asset management space for 10 years. In 2016, she realized her discontent within traditional finance (TradFi), and by then had observed dysfunctions in the backend processes of legacy systems.

Ennis asked, “what tech is going to solve this?”, and promptly came upon crypto. She entered the crypto space shortly thereafter, about four years ago.

HUT8 Mining’s Story

HUT8 Mining got started in late 2017, making it one of the oldest bitcoin miners in North America. Back then, HUT8 was partnered with BitTheory Group, who were one of the leading manufacturers at the time of mining equipment in Alberta. HUT8 has since severed ties with BitTheory in the crypto winter of 2018. This move was a decision to optimize shareholder value by retaining the option to purchase from other buyers.

Ennis mentioned how key it was to have survived so many crypto bear markets. She went on to state how they take a “balance sheet first approach to all the business decisions that we make”, because of what they learned during the bear markets. HUT8 was one of the only companies who survived the 2020 winter – it had 200 bitcoin, and took loans against it to stay afloat. HUT8 now holds 5000 bitcoin on its balance sheet today.

Why Alberta?

One of HUT8’s key strategic decisions has been to operate in Alberta, Canada. As it turns out, there are a combination of reasons for choosing Alberta. Ennis described Alberta as the “Kuwait of North America” – highlighting Alberta’s history as an incredibly resource rich province in both legacy and renewable energy with experience in traditional mining. According to Ennis, the Alberta government is “incredibly accommodative” toward innovation in bitcoin mining – it made sense for them to set up shop there.

HUT8’s facilities are connected to Alberta’s energy grid in both Drumheller and Medicine Hat. These regions are often dry, and have hot summers, cold winters, and perpetual wind. The grid’s energy is supplied 25-30% by solar and wind, and the rest is a mix of natural gas and other non-renewables. Alberta’s long and cold winters are especially ideal to mitigate against bitcoin mining’s excessive heat production.

A Recent Windfall

Over the last few months HUT8 secured a deal it considers to be incredibly lucky to have acquired.

It was a “behind the fence” agreement with Validus Power – a rate buydown. HUT8 gained 100MW of power from the deal, and “locked in CAD 2.7 cents per kWh with a variability of +- 10% for next five years”.

On top of this, HUT8 also has two five year extensions built into the contract and the option to grow their wattage beyond 100MW.

HUT8 Diversifies By Mining Bitcoin and Ether

HUT8 is known for mining both bitcoin and ether, but attracted more attention as bitcoin HODLers. What do they do with their ether? Ennis clued me in by sharing that. A few months ago, they invested in “cutting edge” GPU miners. These GPUs give HUT8 the ability to mine ETH, but the strategy is to get paid out in BTC “on the pool level”. This investment means HUT8 is mining an extra 2-3 BTC per day at less than CAD $3000 per coin!

Ennis described the timing of the GPU investment decision as a “confluence of events”. They had recently hired Jason Zaluski to be HUT8’s Head of Technology. He was described as a “staking, DeFi, and yield farming master”. Zaluski was looking into how they can diversify to reduce the concentration of their risk exposure to bitcoin down the road. HUT8’s CEO, Jamie Leverton brings expertise in data infrastructure and transformation, and loves to innovate on the hardware side of things. In the environment of the global chip shortage, Jamie’s knowledge of hardware, and Jason’s DeFi skills lead to investing in these GPUs.

What is HUT8’s Outlook for the Near Future?

Ennis repeated that HUT8 will always be a core BTC miner, but is aware that it doesn’t want to be too tied to BTC.

HUT8 did a funding raise in September and therefore have cash ready to deploy. Succinctly, they will continue to be core bitcoin mining leaders, and seek to do the same in the traditional high performance computing space (HPC). Ennis states that there is a correlation between traditional and nascent iterations of HPC, and apparently “those margins are also crazy”.

Will HUT8 Tailor Their HPC to Bitcoin Mining?

In short, no. Machine learning, protein folding, AI, and digital movie rendering all come to mind. Traditionally, computing for R&D in these sectors is done using cloud servers, but Jamie sees how bitcoin mining (an iteration of HPC) can compete. The GPU miners mentioned above can even be repurposed for non-crypto HPC. HUT8 isn’t planning on that approach now, but they have that option should there be a turn in the crypto market.

HUT8’s BTC stockpile gives them “a ton of flexibility”. They can start an ETF, build bitcoin network products, go into DeFi, start a trading platform, and more. However, despite the possibilities, it is clear that HUT8’s core profitability right now is in mining bitcoin, and they won’t be pivoting quite yet.

Mining crypto is obviously quite challenging and when asked to give advice for first-time digital asset entrepreneurs, Ennis didn’t beat around the bush:

“Give yourself a long runway to become operational. It’s an extensive process. Give yourself an extra six months on top of what you’re thinking”

High-Performance Computing Will Power HUT8 into the Future

What does it mean to be the company that owns the most self-mined bitcoin in the world? Stated differently, what does it mean for HUT8 to HODL so much of the digital reserve asset of our increasingly digital economy? From speaking with Ennis, I can affirm that it’s a good position to be in. It looks like HUT8 is preparing itself in an ideal way for the future.

For more on HUT8, check out Ennis’s appearance on the Go Full Crypto podcast.