One of the biggest investing trends of the last couple of years has been the rise of cryptocurrency, specifically Bitcoin. Although the currency has tapered off in recent times, Canadian blockchain stocks remain an interesting proposition for Canadian investors.
There are other prominent crypto coins out there – like Ethereum, Litecoin, and Ripple – but ultimately Bitcoin gets all the attention. It’s the biggest and most famous cryptocurrency, and everyone invested in the sector watches it like a hawk.
Why would someone be interested in Canadian blockchain stocks?
If you’re on the fence about investing in this new asset class, thinking they’re riskier than other Canadian stocks, let’s run through a few of the reasons you might be interested.
Firstly, Bitcoin and other cryptocurrencies are designed with inflation in mind. Unlike regular dollars, which you can create out of thin air, there are a limited number of Bitcoins.
Once they’re all mined, that’s it. There’s no more. People like that protection.
Secondly, Bitcoin transactions are anonymous. This appeals to a certain subsection of investor, folks who like being able to exchange money without anyone knowing about it.
Privacy protections are built right in; Bitcoin is designed to ensure your coins belong to you, but it’s very hard to tell who the parties are in each transaction.
There is extensive risk with blockchain stocks and crypto
Don’t get me wrong, it’s not all roses with bitcoin and Canadian blockchain stocks. A ton of investors looking to learn how to buy stocks don’t truly realize how volatile cryptocurrency and blockchain stocks are. They see high flying plays like Shopify and get the idea they want to catch the next big thing before it becomes big.
Bitcoin is volatile, with the value of one coin often rising or falling by 5-10% per day. That’s much more volatile than any other major world currency, which indicates the asset class has plenty of speculation moving its price.
And although there are more websites that are starting to accept it as payment, most people end up selling and then converting their Bitcoins into cash.
There are also security risks when buying Bitcoin. Yes, your coins are kept secure in a digital wallet, but that’s only as safe as the underlying company.
You might remember Quadriga, a Canadian cryptocurrency exchange that went under in 2019 after the owner unexpectedly passed away in India. Nobody has been able to access his laptop, where all the coins were held. Thousands of customers were out a collective $200 million.
Because of situations just like this one, the safer way is to invest in cryptocurrency stocks on a major stock exchange. You can’t buy Bitcoin directly on the TSX, but you can invest in Canadian stocks that mine Bitcoin. Let’s take a closer look at the three top Canadian cryptocurrency stocks of 2020.
3. Hive Technologies (TSXV:HIVE)
Hive Technologies (TSXV:HIVE) has grand ambitions. It hopes to throw off the shackles of being a mere cryptocurrency miner by creating partnerships with major companies and assisting them in using the blockchain for all sorts of different applications outside of what’s possible today.
So far, Hive has partnered with Genesis Mining to build several state-of-the-art cryptocurrency mining facilities in Iceland and Sweden. These facilities mine Bitcoin, Ethereum, and other types of crypto assets.
Although its head office is in Vancouver, Hive has listed shares on the over the counter market in Germany, a move that should create more demand when investors really start getting excited about the stock. That could come soon, especially if we see Bitcoin or other cryptocurrencies explode higher again.
Hive has been a growth story during its short history as a company, increasing mining capability by a factor of 15 since September 2017.
The company still has ambitious growth plans, but also recently announced various cost-cutting methods in an attempt to get closer to profitability. The good news is although it lost money during its last quarter, the company did generate positive free cash flow.
2. BitFarms (TSXV:BITF)
BitFarms (TSXV:BITF) is the owner and operator of server farms that mine Bitcoin – as well as other types of cryptocurrencies trading on the blockchain — helping facilitate transactions in exchange for a small piece of the pie.
The company’s business plan is interesting. It has five operating facilities scattered around Quebec, attracted to the region by low-cost labor, cheap real estate, and low-cost power provided by the province’s many hydroelectric dams. This allows it to mine these currencies at a good price, all while minimizing harm to the environment.
In fact, BitFarms can boast an average cost to mine a single Bitcoin at around US$3,500. Remember, the price of Bitcoin is currently hovering US$10,000. There’s some definite profit potential there.
Unfortunately, BitFarms, like many start-up companies in a new sector, is stubbornly unprofitable.
The good news is the company’s financials are trending in the right direction. In its most recent quarter, its gross mining profit was up 17.6%. Its adjusted EBITDA soared, increasing some 50% compared to the same quarter last year.
And the company expanded operations significantly in 2019, increasing its computing capacity by 29%. Look for those assets to contribute to the bottom line in 2020.
The company’s growth plans aren’t over, either. It has plans for a number of new facilities in Quebec, to fully utilize the province’s competitive advantage.
And finally, you’ve got to like the insider ownership with BitFarms. Management and board members own 38% of the company. They want the share price to go up just as much as investors do.
1. Hut 8 (TSX:HUT)
Hut 8 Mining Corp (TSX:HUT) is our top pick in the cryptocurrency and blockchain sector in Canada. The company has a lot going for it.
Let’s start with its operations. Like with BitFarms, Hut 8’s management did their research before settling on rural Alberta for its Bitcoin farms. It has two facilities, with a larger one located just outside Medicine Hat and a smaller one in Drumheller, Alberta.
These locations offer plenty of cheap power, and wages are generally depressed because of a weaker economy.
The company has a partnership with BitFury, which both manufactures equipment and designs software specifically for mining Bitcoin. In exchange for this partnership, BitFury owns almost 50% of Hut 8’s outstanding shares.
Its financial results have also been encouraging lately. In fact, the company can now boast two consecutive quarters of profitability, at least on an adjusted EBITDA basis. It has also recently negotiated a new credit facility that will see it save some significant interest costs.
One thing Bitcoin and blockchain enthusiasts will really like about Hut 8 is the amount of cryptocurrency on its balance sheet. It holds approximately 3,500 Bitcoin currently and is steadily adding more as its technological assets are busy mining.
Perhaps the biggest reason investors should be bullish on Hut 8 is because the company recently used a special clause to graduate to the Toronto Stock Exchange, despite this usually being a privilege reserved for much larger organizations. Its presence on a major stock exchange should attract investor attention from around the world, which should translate into a higher price.