Why Has Hut 8 Outperformed HIVE Stock So Significantly This Year?

Hut 8 and Hive Blockchain are two of the most popular crypto mining stocks, but why have their performances in 2021 been so different?

| More on:

With the significant rally in cryptocurrencies lately, mining stocks such as Hut 8 Mining (TSX:HUT)(NASDAQ:HUT) and HIVE Blockchain Technologies (TSXV:HIVE)(NASDAQ:HVBT) are some of the highest-potential stocks you can own.

In general, in any industry, buying a mining stock rather than the actual underlying commodity or cryptocurrency that they mine will be a more volatile investment. This is due to the leverage the miners have.

Consider a Bitcoin mining stock like HIVE or HUT 8 that can hypothetically mine Bitcoin for $20,000 per coin. When the price of Bitcoin is $75,000, for example, the company could make $55,000 profit on each coin.

Should the price rise to $100,000, that would be a 33% increase in the price of Bitcoin. However, the miner would see its profit per coin increase from $55,000 to $80,000 — a 45% increase, which is why the stock would move more.

This, of course, is just a simple hypothetical example, but it shows why investors of mining stocks can expect a more volatile investment, which means more upside over the long run should the price of the cryptocurrencies they mine, such as Bitcoin, continue to increase.

But unlike every other industry, cryptocurrency mining is much more competitive, and the industry requires consistent investment in upgrading computing power. This is one of the main reasons why we have seen HIVE underperform Hut 8 stock so far this year.

hut 8 hive stock

How to find a top crypto mining stock to buy

As I mentioned above, cryptocurrency mining is unlike mining for any other commodity, because it’s much more competitive. In the gold industry, for example, two companies may compete against each other, but they each own their own land, and much of the success of their mining operations relies on how much gold is underground.

With cryptocurrencies, it’s all about having the most computing power. Bitcoin mining stocks like Hut 8 and HIVE all compete against each other to solve the mathematical equations and verify the transactions on Bitcoin’s blockchain.

If you’re going to invest in a cryptocurrency mining stock, it’s crucial to understand one of the most important metrics: the hash rate. You can learn more about what a hash rate is here, but the simple explanation is that it’s the number of guesses that a company’s computer can make in a second to try and solve the mathematical equation and verify the block.

So, you can see how competitive and efficient a miner’s operations are by looking at its hash rate. In addition, you can also look at the total hash rate for the whole Bitcoin network (all the miner’s hash rates totalled) to see if a particular mining stock’s computing power is keeping up with the rest of the market.

Here’s where Hut 8 stock has outperformed HIVE

According to both companies’ most recent investor presentations, HIVE has seen its share of the total network fall, as the difficulty of mining and the total hash rate of all miners has increased.

As of November 11, HIVE had reported its hash rate was 1.25 Exahash, which at the time was roughly 0.8% of the total market. Hut 8, however, expects its Bitcoin mining hash rate to be three Exahash by the end of 2021, up from 1.1 Exahash in 2020.

So, over the year, as Hut 8 has continued to improve its computing power, its stock has started to pull away from HIVE. During the summer months, this wasn’t as big of a deal, as the crackdown in China led the total network hash rate to fall by roughly 50%.

However, Bitcoin’s hash rate has now fully recovered, and mining is now the most difficult it’s ever been. So, if you’re going to buy a high-potential mining stock like Hut 8 or HIVE, it’s crucial to understand how their operations work.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Daniel Da Costa has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Bitcoin.

More on Investing

The virtual button with the letters AI in a circle hovering above a keyboard, about to be clicked by a cursor.
Tech Stocks

Emerging Canadian AI Companies With Big Potential

These tech stocks are paving the way to an AI-filled future, but still offer enough growth ahead for a strong…

Read more »

Young Boy with Jet Pack Dreams of Flying
Tech Stocks

Is Constellation Software Stock a Buy, Sell, or Hold for 2025?

CSU stock has long been a strong option for high growth, high value stocks. But are there now too many…

Read more »

rising arrow with flames
Investing

2 Riskier Stocks With High Potential for Canadian Investors in November

Risky stocks such as Well Health Technologies have the potential to provide life-changing long-term returns.

Read more »

hand stacks coins
Dividend Stocks

3 Ultra-High-Yield Dividend Stocks You Can Buy and Hold for a Decade

These three high-yield dividend stocks still have some work to do, but each are in steady areas that are only…

Read more »

senior man and woman stretch their legs on yoga mats outside
Dividend Stocks

TFSA: 2 Canadian Stocks to Buy and Hold Forever

Here are 2 TFSA-worthy Canadian stocks. Which one is a good buy for your TFSA today?

Read more »

Canada day banner background design of flag
Investing

Got $500? 5 Top Canadian Stocks to Buy and Hold

These top Canadian stocks have solid fundamentals with potential to outperform the benchmark index by a wide margin.

Read more »

man touches brain to show a good idea
Energy Stocks

1 No-Brainer Energy Stock to Buy With $500 Right Now

Should you buy a cyclical energy stock at its decade-high? Probably not. But read this before you make a decision.

Read more »

Asset Management
Stocks for Beginners

TFSA: 4 Canadian Stocks to Buy and Hold Forever

Thinking about what to buy with the new TFSA contribution space in 2025? These four Canadian stocks are worth holding…

Read more »