Renowned global investor Frank Holmes leads the HIVE (CVE: HIVE) board of directors and is contributing to the company’s vision and strategy. Frank is chief executive and chief investment officer at U.S. Global Investors, a leading mutual fund and asset management firm. Frank is a sought-after keynote speaker at international investment conferences and a regular guest in business media. His Frank Talk CEO Blog is one of the most widely read in finance.
We caught up with Frank in advance of his keynote appearance in Hong Kong.
Mines and Money (MM): Why did you go into the Crypto space?
Frank Holmes (FH): I originally started this journey by having an interest in launching an exchange-traded fun (ETF) in this space. My son and godson were investing into cryptocurrencies and blockchain and I wanted to come up with a product that would appeal to the millennial generation. However, understandably the SEC and other regulatory authorities were concerned about hackers and the dangers of anti-money laundering (AML) issues.
I was then approached by a good friend of mine Frank Giustra, CEO, Fiore Corporation and Founder Lionsgate Entertainment. He was also looking to enter the cryptocurrency and blockchain space. I was keen to do this having built up this vast bank of knowledge.
So, I visited Munich, Zurich and Zug, meeting various investors and experts in the space including Marco Streng, CEO and Co-Founder of Genesis Mining. What I liked about Genesis Mining was its focus on mining virgin coins, which meant there would be no AML concerns.
We therefore decided to partner with Genesis to set up HIVE Blockchain Technologies.
MM: Tell us a little about HIVE? Why should an investor look at HIVE as opposed to other companies in the space?
FH: HIVE has three key unique selling points.
Firstly, it has first mover advantage.
It was the first publicly listed blockchain infrastructure company that bridges blockchain and cryptocurrencies to traditional capital markets. HIVE can accelerate development of the blockchain sector through traditional capital markets while creating long-term shareholder value. This is supported by an experienced team and set of advisors who have been integral to the success of several billion-dollar companies
Secondly, it is cash flow positive.
HIVE has a state-of-the-art GPU-based cryptocurrency mining facility located in Iceland, a stable jurisdiction with low energy costs. It has low working capital requirements that do not require immediate sale of mined coins and allows HIVE to strategically sell coins to maximize profit. Critically we have a healthy balance sheet providing flexibility to pursue further blockchain opportunities. HIVE just announced 36% ROCE in the 1st quarter. Most companies would love to do that over four quarters. HIVE delivers the goods.
Thirdly, in Genesis Mining we have an excellent strategic shareholder and partner.
It’s an exclusive partnership, extremely beneficial as Genesis is the world’s leading cryptocurrency mining hashpower provider. This gives us the ability to leverage Genesis Mining’s expertise, IP and procurement power to develop new facilities and other businesses. HIVE also retains the option to acquire at least three additional data centres in Iceland and/or Sweden from Genesis.
MM: Why does HIVE focus on Ethereum rather than alternative cryptocurrencies?
FH: Firstly, it is important to point out that Ethereum is the second most traded cryptocurrency.
Secondly, Ethereum, unlike Bitcoin is based on smart contracts.
Thirdly, and what makes Ethereum different, is its protocols and technology, not the fact that it’s yet another cryptocurrency.
Ethereum is a ledger technology that companies are using to build new programs. Both bitcoin and Ethereum operate on what is called “blockchain” technology. However, Ethereum’s is far more robust. Bitcoin was like version 1.0, a simple strand of spaghetti. Ethereum is version 2.0, like ravioli with spinach ricotta, allowing for the building of decentralized applications on top of it.
Ethereum is great for innovation. Most new initial coin offerings (ICOs) are based on Ethereum protocols.
MM: People say Crypto takes investors away from gold. Your response?
FH: Bitcoin early adopters were gold bugs and they never sold their gold to buy it, they diversified into it. All the research I’ve done and going around and talking to people that were the original investors, they were around 70 years old. They liked the fact that Bitcoin was decentralized and that is was capped at 21 million coins to be issued. As you have more and more buyers coming in all the time through Coinbase, then guess what? It’s going to grow exponentially.
However, these ICOs are hurting junior mining because millennials often find it hard to open an account to trade in mining stocks. But with cryptocurrencies they can open an account in five minutes and do a trade, rather than wait days for a brokerage account.
There are too many regulations in opening an account and if they could streamline that brokerage business and streamline the cost of doing financing then, I think you would have more money going and speculating in junior mining. Millennials and the speculators have gone to the ICOs instead.
MM: Mines and Money Asia and Crypto Mining and Money both take place in Hong Kong. China hosts the most and biggest Bitcoin mining facilities. For how long will this continue?
FH: Another Chinese unicorn that could be eyeing a possible IPO soon is Bitmain, the world’s largest manufacturer of Bitcoin mining rigs. It also operates Antpool, a cryptocurrency “mining pool” that generates digital coins using the pooled resources of a number of different miners. The Beijing-based Bitmain, whose valuation is reportedly “in the billions,” claims to have built around 70 percent of all mining rigs in operation around the world today.
Three-quarters of bitcoins globally are currently mined in China. Mining concentration is especially high in the southwestern province of Sichuan, where miners have managed to strike deals with hydroelectric power companies.
That could soon change. The Chinese government has already clamped down on Bitcoin exchanges and banned ICOs, and now it seeks to shutter the mines themselves. Recently a governmental taskforce on internet finance asked local authorities to assist in shutting down operations that produce cryptocurrencies.
At the moment, there doesn’t seem to be a deadline, but miners are already scouting the world for new mining locations. Bitmain, which also has a presence in Switzerland, is looking at potential sites in energy-rich Quebec, according to Reuters, and other miners could be following suit.
Many Chinese Bitcoin miners are looking at Canada, rich in energy and cool in climate, as a potential new site for their operations.
MM: Where will the price of Bitcoin be in one year’s time and why? Where will the price of gold be in one year’s time and why?
FH: Given the nature of volatility this is extremely hard to predict. Bitcoins’s daily volatility is 7%, gold’s daily volatility is 1% and the S&P’S daily volatility is also 1%.
I can see gold easily reaching US$1500 of higher given inflationary concerns.
For Bitcoin, given that there are only a finite number (21 million) of coins, of which approximately 10 million have been found, 5 million have been lost, and 5 million to be mined, One could see Bitcoin trading between US$4000 to US$40,000 per coin. There will be a corrections , but speculators need to remember that unlike other booms such as 2008 housing crisis, there is no leverage, like 20 to 1.
Frank will appear as a speaker at both Mines and Money Asia as well as at Crypto Mining and Money. Crypto Mining and Money, 3 April 2018 is Hong Kong’s first cryptocurrency and mining event and is targeted at both investors wishing to learn more about the market as well as those already engaged but who want to improve their knowledge of the sector and want to network with miners and other investors. To register click here