Block reward miner Hut 8 reports less than stellar Q2 2020 earnings

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BTC’s failure to “moon” as some had fervently predicted is causing a bit of heartburn over at Canada-based block reward miner Hut 8 Mining Corp (TSX: HUT) (OTCQX: HUTMF).  

One day after reporting that it received 2,000 ASIC miners from MicroBT, the Toronto Stock Exchange-listed company reported that second quarter revenue fell over 67% to US$6.9 million from US$21.2 million a year ago. The company’s mining profit margin shrunk to a low of 6% alongside its dwindling income, finishing with a negative adjusted EBITDA of $86,000.

One has to wonder if participants in the Hut 8 mid-June share offering now have buyer’s remorse. 

Management at the company was quick to blame the recent Bitcoin halving for the dismal performance. In their earnings release, Hut 8 said, “The network difficulty decreased subsequent to the halving by 15%, but quickly returned to levels prior to the halving.” The release went on to say that “This posed a difficult challenge to many bitcoin miners as they saw the bitcoin block reward drop by 50% with similar network difficulty rates meaning that revenue dropped by nearly 50% for all bitcoin miners, including Hut 8.”

It doesn’t take an expert to understand what’s happening within the block reward mining sector. Hut 8 offers a glimmer of hope to its shareholders by pointing out management reduced operation costs during the lead up to the halving. To what effect does it imply that the only sustainable path forward for block reward miners is operating a skeleton structure on autopilot?

The whole idea of the “BTC Mining” became unsustainable the moment the protocols reduced the block subsidy reward in half. The smart ones, anyway, the ones who understand what Bitcoin is e.g., TAAL, knew that the subsidiary reward was never the primary long-term financial incentive mechanism for supporting the blockchain. 

Some companies in the space still have not emerged from their delusional cloud of greed induced euphoria that BTC one day rockets up into the stratosphere. The Bitcoin halving roadmap is over 10 years old, and yet these companies are still blaming something they have known was going to happen for over a decade for them not making money. They double down on a losing business strategy, hoping a groundswell of FOMO will swoop into the market, saving them like some superhero—when in fact, they should look to changing to a new business model like TAAL has done for future revenues.

Suppose publicly traded companies like Hut 8 and Marathon Patent Group wants to put their growing hardware fleets to good use and return sustainable long-term value to shareholders. In that case, they need to return to the fundamentals of why Bitcoin was created. They are clinging to the idea of block reward mining as a drowning man clings to a piece of floating wood.

It’s only a matter of time before the block reward mining industry collapses, so they better pivot before it’s too late. Shareholders will soon wake up and start asking those uncomfortable and tough questions as to why the golden days of sky-high profits are gone.