HIVE Blockchain is due for a fall, this fund manager says

Heading into the new year, blockchain technologies continue to hold investor interest, but the field is fraught with danger, say some observers, who caution that it can be difficult to separate the solid businesses from the hype.

Take Canada’s own HIVE Blockchain (HIVE Blockchain Stock Quote, Chart, News: TSXV:HIVE), which is feeling the heat after a scorching rise this fall. The Ethereum cryptocurrency miner earlier this year secured an agreement with Iceland’s Genesis Mining Ltd. to operate its currency mining centres in Reykjanes, Iceland, and immediately, investors responded positively: the company began trading on September 18 and within three days had raised $30 million in a share sale. By November 2, its stock had risen to $5.37 up from $0.96 in less than two months.

But an anonymous short-seller report in early November took issue with Hive’s valuation and questions began to mount concerning the company lack of revenue. Hive recently released its second quarter results ending on September 30, 2017, having raised $71.5 million in the quarter and producing $170,819 in revenue from currency mining over twelve days at its Iceland facility.

As reported in the Financial Post, Toronto-based AlphaNorth Asset Management announced a short position on Hive in mid-November, based on poor earnings prospects.

“It checks a lot of the boxes you want to be negative,” said Steven Palmer, chief executive officer at AlphaNorth. “The founders have three cent stock, millions of dollars have been spent on promotion, and the EBITDA forecast for next year is minimal.”

And Small Cap Power wrote that Hive could experience “significant selling pressure” this week, as approximately 37.8 million additional shares are to be released from a hold period.

The volatility might reflect investors’ lack of awareness about the new blockchain and cryptocurrencies space, which has been pumped up as fintech’s ultimate takeover of the banking industry, with blockchain platforms in addition being touted as having a myriad of potential applications for beyond the financial industry.

“Some people are buying the stock and really have no clue, other than thinking the company is going to be a market leader, this is a new space, and the government is going to do something,” Palmer said. “It’s all very vague, and they don’t have any specific data on industry capacity or market size. Nobody really knows, it’s just guesswork.”

Even with the uncertainty, Canada seems to be plunging ahead and pushing to be a world leader in the new terrain. Bloomberg News reports that more than 50 companies related to blockchain and cyptocurrencies will be listed on Canadian exchanges in the coming year, with a reinvigorated tech scene on the West Coast and around Toronto and Montreal being key to the surge — along with exchanges like the TSXV which are proving supportive of emerging tech.

But some industry players say the quality is there with blockchain issuers.

“The level of activity in this market of quality plays, quality teams is as high as I’ve seen since the internet age,” Harris Fricker, chief executive officer of Toronto-based GMP Capital says. “Canada’s place in this is dramatically more important than what it was in the first phase of the internet.”

Shares of HIVE Blockchain today closed down 3.4 per cent to $3.13.