HIVE Blockchain Technologies Ltd

XTSX:HIVE

Earnings Call Transcript 2021-Q2

[Holly Schoenfeldt]

Good morning, everyone, and thank you for joining us today for our webcast announcing HIVE Blockchain Technologies results for the second quarter ended September 30, 2020. My name is Holly Schoenfeldt.Except for the statements of historical fact, this presentation contains forward-looking information within the meaning of the applicable Canadian securities legislation that is based on expectations, estimates and assumptions as of the date of this presentation. And please see the corresponding Slide #2 up on your screen for full disclosures.Now I'm pleased to welcome the presenters for today's program: Frank Holmes, Interim Executive Chairman; Darcy Daubaras, Chief Financial Officer; and Tobias Ebel, Director.And now I would like to hand the presentation over to Frank to start us off.

[Frank Edward Holmes, Interim Executive Chairman & Interim CEO]

Well, thank you, Holly, and thank you to all you shareholders out there listening that have been loyal through all the challenges we've had to deal with. I'm really proud and thrilled to share with you we've weathered that storm and that -- all those difficulties, the winter and then the largest shareholder, all those changes couldn't have been done without Darcy and Tobias. Tobias is on -- Tobias is a musician. He is a violinist extraordinaire. He is a tax lawyer. And he's been very helpful for us at everything we've done in Europe, in the restructure, repositioning of HIVE Blockchain Technology to be able to announce our record revenue and earnings. I'm thrilled to share that with you.So let's go quickly. As you can see, like a gold stock, when gold goes up, gold stocks historically have more volatility, and they thorough perform. Not so business as usual to show you. You can see easy, gearings had a spectacular move this year, but nothing like HIVE has been able to for the shareholders.Next, please. And we are also the leader when it comes to stock price performance. We had the biggest market cap, but I noticed that why just surpass this, but when it comes to liquidity and it comes to overall performance and the breadth of our shareholders around the world, HIVE has clearly responded to that audience of investors that do not want to open up an account with a wallet and have to put their own Bitcoin Ethereum into it that they're using us as the proxy.And I think, too, that the sort of interest in HIVE is that we are the largest kind of Ethereum producer as an industrial scale that's a public company where traders and investors are going to. Clearly, this is an attractive and more wide and deep audience of traders and investors. But never forget the DNA of volatility. In every asset class is its own DNA of volatility. And as you can see, the S&P, it's plus or minus 1%. But when it comes to Bitcoin, it's plus or minus 5% and using up over 16 -- over a 10-day trading period, the highest volatility for gold stocks, oil, you name it, it is Bitcoin. And Ethereum is just slightly greater volatility than Bitcoin itself. So it's important that if you're going to this asset class or you're a new shareholder contemplating HIVE that you respect the DNA of its volatility. We move with the price action of Ethereum and Bitcoin.Next, please. Bitcoin price increases following most recent halving, as you can see, if you go back at this time period of the golden [ cross ] of where that 50-day moving average across above the 200-day, it happened basically 10 days after the Bitcoin halving, but there were still so many negative people out there and that we could see Bitcoin is slowly climbing that wall of worry and doubt.Price returns following Bitcoin having. This is an example of what took place in the previous runs and where we are today when you look at days since the halving took place. So this is a spectacular performance, and there's a rational reason for it. There are many more Bitcoin wallets. There are many more retail traders and investors globally, and institutions have come into Bitcoin in the past 4 years.Next, please. Now I'm going to turn it over to Darcy to give you the detail on the financial review and what's driving our successes. Darcy?

[Darcy Daubaras, Chief Financial Officer]

Great. Thank you, Frank. As we can see here, we're looking at our capital structure. As we've had before, our key shareholder is still Genesis Mining, 15.9%. This is based on the most recent and available public disclosure that's been provided by Genesis to the markets and provided through their requirements on SEDAR, and you can see what our issues and outstanding is.Next slide, please. Throughout the quarter, we're continuing to have Ethereum driving our production and business both in Iceland and Sweden. The year-over-year increase in Ethereum mining has been driven by this reboot in Sweden of the mining facilities that we took over in July of 2019 from our former Genesis Mining, who is running the facilities for us.On the Bitcoin side, we do have lower than what we've had in the past. And that is because we got out of our peta-cloud mining Bitcoin contract that we had because it was unprofitable moving forward.Next slide. Here, we have a look at our income from digital currency mining year -- quarter-over-quarter, comparing it to the following previous year. And this quarterly income from digital currency mining represents HIVE's highest and best-ever quarterly results at $13.0 million for the second quarter of 2021. This increase in income versus the same quarter in fiscal 2020 was primarily due to higher Ether prices during the quarter. And these higher Ether received was partially as a result of the sharp increase in transaction fees received as part of DeFi. All of this, as I've mentioned earlier, partially offset by a decline in the production of the Bitcoin mining stemming from the shutdown of the prior cloud mining agreements in Q3 fiscal 2020.Our gross mining margin, which equates to our revenues minus direct operating and maintenance costs, increased substantially in absolute dollars and remained strong as a percentage of revenues at 71%. The gross mining margin is also partially dependent on various external network factors. These include the mining difficulty, the amount of digital currency rewards that the miners receive and, of course, the market price of the digital currencies at the time of mining.Next slide, please. As you can see and the same as what we had in Q1, the Ethereum mining margins have enabled HIVE Blockchain to make our initial acquisition into the Bitcoin mining space and gives us the opportunity to diversify our business, which we did in April of this year by purchasing Lachute Bitcoin mining facility in Québec. As I've mentioned before, we -- this is our fourth consecutive quarter of positive adjusted EBITDA and profitability. This is a huge accomplishment for the HIVE team across the board. And it's coming from a focus that we've been putting since myself and Frank sort of started this, as we called it, HIVE 2.0, focusing on the operations and focusing on the reduction of costs.The gross mining margin and adjusted EBITDA are non-IFRS figures, which I want to make sure I'm highlighting to everybody on the call. The net income for the first quarter of fiscal '20 -- sorry, for the second quarter of fiscal 2021 was $9.2 million. This is a huge increase, obviously, from what we had in the prior quarter. And as discussed before, this gross profit, adjusted EBITDA and net income, this is all as a result of our concerted efforts to reduce our operating costs, take advantage of the opportunities that have been given to us. And the biggest thing is being -- is when we were able to take control of our facilities and bring them under our own umbrella and control our costs. And also, we've been very fortunate to take advantage of the higher average digital currency prices that we experienced this quarter versus what was experienced in the market the prior year.Next slide, please.

[Frank Edward Holmes, Interim Executive Chairman & Interim CEO]

Great. Thanks, Darcy. I'll come back to Darcy and then on to Toby. But we reported earlier this year in September at the end of the month that the Ethereum mining production is driven by DeFi demand. Some of these additional transaction fees, which we've been able to receive. They're a big benefit to anyone mining Ethereum, and we had several of them during the quarter, these big bonuses.So what's really important to recognize is that when some of these DeFi, decentralized finance, models are actually going out and buying Ethereum, people take their Ethereum and then deposit into an investment vehicle that to turn around and the securities or Ethereum lending against Ethereum and [ treasury ] yield. And what that has done is also taken a number of Ethereum supply out of the market, which is an important part whenever you take a look at as a copper today is making an 8-year high. Well, predominantly, that's because there's been supply-side restrictions along with a reboot in demand.And that's what I think is happening here, there's a reboot in demand for Ethereum, and we're going to continue -- and if you go, by the way, that coin telegraph, and coin telegraph is always pinging you, and it's always sending you new information. And you won't believe how many articles that you're not aware on the sort of build-out of the DeFis as an industry, a subset of the blockchain. And it reminds me of what took place when Ethereum ran to $1,400. On the backbone of that was ICOs. All these initial coin offerings all backed by Ethereum is sort of the collateral behind them, and that drove Ethereum prices. So the resurgence of DeFi is another very significant factor supporting the long-term demand for Ethereum. Next please -- and that is my opinion.This is a visual that you can get from various chart services. And basically, it shows you some of the transaction fees and bonuses you get. And as you can see here, what Darcy talked about is that during the quarter, there were several of these transaction bonuses and even coming in, in this quarter. So it's very public on what those benefits are for investors.Next, please. Healthy balance sheet. As you can see, the cash on hand, accounts receivable, digital currencies, darcy and I were chatting with this yesterday and how much of that's improved from a year ago. And so our overall economic position has been much stronger, and we needed that. What's happened, what's been a big challenge that's going to take place, which is a big benefit because we're ahead of that curve, is the -- what's called the DAG file. The DAG file is basically that long piece of blockchain, which has to get validated on a regular basis, and it's getting so long and so real big that the 4 gigabyte memory chips just can't process it. And it's going to start slowing down your rewards. So you're going to be noncompetitive. And I think by the end of February, these 4-gigabyte chips are going to be basically no longer viable for mining Ethereum.So during this quarter, we have been taking a lot of our cash and deploying an upgrade. We've mentioned this on previous presentations, but there's been a big spend this quarter on upgrading all of our facilities. We're still halfway there, more than halfway there, but we've still got a long way to go for us. And so we think by the end of January, we'll fully reboot it every 1 of our 4-gigabyte chips to be replaced by 8 and be able to participate.Now what will that mean for us is that we believe that most of the world that's mining Ethereum on 4-gigabyte memory chips, they're going to fade away. They're going to be a nonevent. And therefore, the difficulty is going to drop. And our presence within mining is going to be even bigger. And the reason why I say this is because this is on previous cycles when technology, all of a sudden, wipes out the competition.Now I want to turn it over to Tobias. Tobias Ebel is a very important -- basically, on the ground floor of the launch and the creation of Genesis Mining. Then, he turned around with the creation of HIVE. He is a tax lawyer and has tremendous depth and experience in crypto and also capital markets in Europe. And so one of the big parts he's helped push us along in this direction as we've taken control of our destiny is the ESG strategy and which is becoming more and more important if you look at securities and ETF fund flows and mutual fund flows is what is our position. And one of the big parts is that we only use green energy and what we're seeing in Sweden. We started in Iceland and now in Canada, in Québec. And hopefully, we get this transaction closed with GPU.One with the final due diligence. And that will give us, once again, a green energy, and it will be at New Brunswick.But I want to turn this over to Toby to talk about this sort of ESG strategy for millennials and social issues. As you can see -- next visual, please. Why it's important for those investors. Toby, you're in charge here.

[Tobias Ebel, Director]

Thank you so much, Frank. And I'm really excited to participate in this webcast now and to bring that news to you, shareholders, because when we went public 3 years ago, we had a great vision about crypto currencies and also about the sustainability of this company, about a strategy, including a sustainable business and using energy only from hydropower production, so green energy. But what we did now in the last -- so in the last quarters, we even bring this vision of sustainability really to a reality and which is very exciting. We are not only using electricity from hydropower. Our facility is located right beside the hydropower station -- hydropower turbines. What we're also doing is now that we are working together with the hydropower electricity production to spend our availability and ability to reduce the energy demand for the grid.So what is the problem? The problem is that green energy is very promising for the world, but in particular, hydropower production is not fast enough for the always-changing supply and demand in the electricity grid. So the demand is always changing from minute to minute even. And the electricity producers are making forecast of it. But these forecasts are not always in the bandwidth as they have been anticipated. And now -- so the lead time of hydropower turbines is something like 15 minutes or so to ramp up electricity production.And so now we said with the hydropower production, okay, we can step in here and fill that gap because the hydropower turbines, they can ramp-up in seconds -- in 15 minutes only, but we can switch down our computers in seconds. And so I'm explaining this to you to give you an understanding what we're doing. We are working together with the hydropower production, and we are spending the full capacity of our facility, which is 17 megawatts, to reduce our electricity demand within seconds. So we are receiving when this -- when actually, the supply of electricity and demand of electricity is out of the bandwidth, we are receiving signals from the electricity producer and some kind of routers or so. And we are switching down the computers in seconds, and we are selling this availability of making electricity available to the market.And we are getting compensation for that, of course. So we are even making a profit with it. We are buying that electricity actually below the market price, below all participants in the market, and we are doing something very exciting and very great because what we are doing is actually, as a consequence, we are making the base supply of electricity in the grid possible for many, many more megawatts, not only that 17 megawatts, but with a multiplier of maybe 5, 10 or 15 available for the whole electricity grid. And that is really an exciting piece of our sustainable strategy, and that's what I wanted to share with you. And we are very proud of it. And what is also good for the company is we are getting -- with the compensation we are buying the electricity now for the next year at around about USD 0.013, and that makes the facility in Sweden definitely profitable anyhow.

[Frank Edward Holmes, Interim Executive Chairman & Interim CEO]

Thank you, Toby. You know what Toby has done for us was create a hedging process, which you can hedge your costs in Sweden and something with the new management team, and he's basically partnering that for us, the relationships. And we did it last year successfully and significantly dropped our cost probably the lowest of all the public mining companies. And now with this less than, what, $0.016 you said, is our cost?

[Tobias Ebel, Director]

Yes. We locked in the price for the next year at $0.017. But taking into account our compensation that we're getting the electricity cheaper than the rest of the market, cheaper than the spot price, we are ending up in something like USD 0.013 per kilowatt hour.

[Frank Edward Holmes, Interim Executive Chairman & Interim CEO]

Thank you, Toby. What's important, I think, for investors to recognize in this sort of carbon footprint concerns and what we're doing and how we help the community, when everyone in the morning switches on their hairdryers in the cold Northern Sweden in the winter, and there's a huge spike in demand. And so the time line for the -- and the infrastructure, as Toby said, is 15 minutes to boot it up. Well, we can download, go down from 20 megawatts down to 1 megawatt for only minutes and maybe an hour, but we get compensated for that and then immediately boot up faster than what they can do. And it's our flexibility with our offers that we're helping the community. We're helping the overall -- and what does that mean for Sweden? Well, it means less infrastructure spending, which is billions of dollars, billions. And so we are a big contributor to the overall ecosystem for recycling of the green energy.Next, please. So earlier this year, during COVID, we announced the Lachute acquisition. The Québec was -- it's been a slow build-out for numerous reasons. And fortunately, their land has just been sold new landlords, and we think that will also help fast track our growth. But the biggest issue has been COVID. And the -- what you're seeing, if you want to get equipment coming over from Asia, the time lines where people wrote checks for millions of dollars, and they couldn't get the equipment for not weeks but months, 6 months out, and there was some equipment that we have paid for. And I think we just got 19 S19s or 17 S19s installed because they just showed up, and we should have had those in July, and it was a part of a bigger order.So the delivery mechanism, the production mechanism coming out of Asia, the cargo, the shipping of cargo has really created supply chain tensions for every product, for all products, but we are experiencing that. So the process of building out Québec has been slower than we anticipated. But nevertheless, we've been adopting and getting more equipment, and we hopefully to get this thing upgraded in the next 3 months to completely finish what Lachute is. And I think that that's an important part.Now in this ESG strategy coming back, these are some of the other slides. I think we just missed them on the flow here. But I think what -- the reason why I'm reiterating this is this ESG is just so important today. And I know I have some fellow fund managers listening and who are all ESG-compliant and other ones are sort of just pure looking at the growth in revenue and cash flow. If you look ET fund -- ETF fund flows, ESG just picks up stocks. It's just amazing to see this direction that's taking place. And I think going forward for the branding strategy of HIVE is to really make sure that investors -- so the next visual will show you that we are very focused on green energy. And that's another part of it. We're happy that we are controlling our destiny because we found out that our other strategic partner was using coal energy in other countries. And so that was never our vision. We wanted to stay purely focused on green energy, and now we're doing everything, as Toby points out, to become really conscientious of how we can help.Another part of this whole program but is a wild load, I think, is the thought processes in Sweden was taking our heat and taking the excess heat we have from mining at a 20-megawatt facility and using that to build greenhouses that would then you would be able to use to grow tomatoes and grow lettuce and cabbage, et cetera. And therefore, you wouldn't have to ship stuff off from Spain, prices would be cheaper for local citizens, and also, you would lower that overall carbon footprint. So we're doing a lot into that idea of planning and thinking about it. And so stay tuned to that because I think we have an exciting story to share with you.Now what's also really exciting for me to share with you is that HIVE Blockchain has entered into an agreement to buy GPU.One's new 50-megawatt campus of data centers at New Brunswick. It's an interesting transaction. It shares to the shareholders. And it's predominantly a commitment to build out and complete the last building of the facility, which is a de minimis amount of money in the scheme of getting this 50 megawatts up in fully -- full throttle by the first quarter of 2021. But I really want to thank the team, there's Billy Khan as the founder. He's a special adviser, and I'm sure he's on this call.But what HIVE needs going to our next level is a great team of honest, ethical, professional people. And this is just a great team. One thing about this ecosystem I found in the crypto world, it makes -- mining promoters always get the bad rep out of Vancouver. It makes them all look like choir boys. It really is a hard thing to find in that critical space. I was just so disappointed in so many scams. Everyone you read about people hacking, et cetera, but getting really straight-up professionals like [ Savelli ] has been able to put together is significant for HIVE to [ Jennison's ] position and to take it to the 1,000 petahash of Bitcoin mining in the future.Our footprint there is still small when we take a look at the total number of Bitcoins that we're mining in the scheme of all the other peers are only Bitcoin. We're the dominant Ethereum player, and I look forward to closing this transaction, so that these young superstars can come and help HIVE build on its vision.So as you can see, this is a picture of GPU.One's facility, and it's just a state-of-the-art building up access to additional 50 megawatts of low-cost green energy.I'm going to jump to something else that's important, and we're seeing this in data points that the number of Bitcoin address holding greater than 1 or equal to 1 Bitcoin share has continued to grow, and it's grown even with the sort of winter that we had in Bitcoin. And that means a broader adopters, and that's very, very bullish, if you apply what's called Metcalfe's Law to the idea and the concept of price projection of where Bitcoin has the potential to go to.And I think that next year is going to be a shortage of equipment. And so having the equipment and being able to build out and access to will be very, very important for that growth profile, which I think we're in a strong position to be able to execute on.The next visual is just another previous having a Bitcoin seen what took place with the exponential moves are, as you can see on this visual. The next is Ethereum 2.0. This headwind of going from proof of work to proof of stake. I have heard of this story since I first launched Ethereum mining -- sort of mining in Iceland in my first investment and going into HIVE Blockchain back in September of 2017. And you meet with institutions, and there is always, this is going to happen tomorrow. Ethereum was a bad coin to be mining. It was nothing but a negative headwind by several institutions. And what's interesting is that it hasn't happened, right? It hasn't happened. And just now, today is the proof of stake, the nodes of Ethereum have surpassed Bitcoin because people are now pushing in their Ethereum to be able to get a yield on their Ethereum. But once they do that, they can never get back to Ethereum. They can only get a yield on that node. So that means the supply of Ethereum is shrinking.And based on my experience in the commodity world that if you have demand is growing at an even modest basis and you have supply contracting at a modest basis, you get tremendous upside movement in that particular commodity. And I think that that's important for investors to appreciate that this -- when will you go from proof of work to proof of stake, 100%, and talking to industry leaders and experts that are in the Ethereum space, one of our directors, Olivier, has put in contact and spoken to people that on the originally Ethereum project.And basically, it's going to take 3 to 4 years before that's going to be a serious issue. And I think that HIVE, well, not only is the biggest Ethereum producer, can have, and upgrading now all of its GPU memory chips, will be in a very strategic position to be a major player in the mining of Ethereum. And then as we build up our inventory, then we'll have a huge sticking node for it.So these last 2 visuals is just to tell you that the money supply, the G20 finance ministers and treasury central bankers seem to last longer than many presidents and prime ministers, and they have their own country club as they meet on a regular basis. And what's important is that they're all fighting COVID-20 -- sorry, COVID-19 in 2020, and you're seeing a conservative money printing, an incredible. It's not just the U.S., you hear about it. It's a global phenomenon. And you have -- and you're seeing the adoption of Bitcoin Ethereum growing with this. And those are alternative asset classes, and they're getting the attention of other institutions, like Paul Tudor Jones that started buying Bitcoin last year, that's been known for his world in commodities, has all of a sudden becoming a crypto enthusiast and putting capital to work. And when you take a look at overall blockchain spending, it's expected to grow in the next 5 years by 60%. I mean that's just a huge CAGR.The last visual here is to show you all that high blockchain trading volume has been trending up. Yesterday, I think there was like 20 million shares. So we're very happy and thank all of those shareholders that have stayed with us, and please recognize that we correlate with the Ethereum and Bitcoin price action over the past year is -- if you look on a daily basis now, it used to be 70%, and I think it pushes up something like 92%, the day-to-day price action. And we fell from our highs all because Ethereum fell and Bitcoin fell. And Bitcoin has come back up. Ethereum is at a bigger move. For us what we think that Ethereum is going to do a big catch-up with Bitcoin on a relative basis. And this is only going to benefit HIVE as we're positioned over the next 3 months to complete our build-out to 8-gigabyte chips. And we think, as I said earlier, that all the 4-gigabyte memory chips will fall to the side, that difficultly will drop, the profit margins will rise. And that's we're excited about in our growth opportunities.We have a couple of other visuals you can look at later, just showing you the enthusiasm, the open interest. And just thank you all for being loyal and to shareholders, and thank you.Now to some questions.

[Holly Schoenfeldt]

Yes. As Frank mentioned, we're going to open it up to questions right now. And just as a reminder, you can enter questions in the control panel on your screen, but we already have a few that we would like to address. The first one being, Frank, maybe you can speak to this, are there any plans for a NASDAQ listing?

[Frank Edward Holmes, Interim Executive Chairman & Interim CEO]

It's -- you can never make a promise where you're going to get this or when. It's a no-no to do anything promissory in the regulatory world. But let me paint a picture for you, our long-term vision. In addition to 2 things, one, is to own our own data centers. That's very, very important and get great people to help us that really understand high-density data center management. And that is a very important point for that growth.Two is what we've seen is that HIVE has become a proxy for people that are reluctant to go on exchanges to open up a wallet to buy Bitcoin or Ethereum. So they use us as that proxy. And so they do that. And we know that we have shareholders all over the world, and with that was to get listed all over the world. So our vision will be to get listed in the dominant markets, and it's an application process. So I know that we trade. We're very liquid in the German market. The German market is a top 10 most active exchanges in the world. We trade millions every day in the U.S. over-the-counter, in addition to in Canada. And so it will be now going globally. And just like crypto trades globally, we want HIVE to trade globally.

[Holly Schoenfeldt]

Thanks, Frank. I have another question here. Darcy, maybe you can address it. Currently, are all coins mined being sold at market during the quarter?

[Darcy Daubaras, Chief Financial Officer]

No. What we'd like to do is we like to maintain an inventory of coins. And that's just sort of been built up, gone down as markets have moved. So what we're doing right now is, in essence, selling what our current production is. So as production is happening, we're selling something close to that and maintaining the inventory we've got. We have had to accelerate a little bit of the sale of our coins, and this is taking a look at where the 50-day, 60-day averages are and taking a look at the metrics to fund the upgrades that we're doing in Iceland and Sweden for our 4-gigabyte cards moving them to 8-gigabyte cards.But we do like -- as one of the market leaders, we feel it's important to our shareholders and as a company to maintain a good inventory of coins, Bitcoin and Ethereum because Ethereum will be important moving forward, depending on when the changeover happens between proof of state and proof of work.

[Frank Edward Holmes, Interim Executive Chairman & Interim CEO]

And I'd just like to add to what Darcy is saying to is that had we not had to this massive buildout, figuring this big CapEx spend we did not expect 6 months ago, then we'd have a much bigger inventory of coins. But we use a quant approach and we did this in the first quarter of this calendar year, where we saw Bitcoin, but in [ reality ] it was Ethereum jumped 4 standard deviations trading over 60 days and 20-day rates have changed. And mathematically, we sold into that.And then as it fell dramatically, it went down 2 standard deviations. We started mining, and we've just rebuilt our inventory. So we're not afraid short term of losing money on the -- that is the cost of mining those coins. If we can rebuild it in an advantageous position because we do know and we do respect the volatility. So when things, the coins go these -- and I write about this at usfunds.com, written about for years now, managing expectations about understanding one of these charts I showed earlier, is the DNA of volatility. And what happens is that whenever you get the DNA where the price action is up over 20 days and over 60 train days, which is a quarter, whenever those are both up 2 and 3 standard deviations, it is just wise that to sell into that, take that capital and improve your facilities or expand your facilities, buy more equipment to increase your overall production for the next leg up.These things always correct. They're violent when they correct. They correct much faster than they went up. And when they've done -- when they're down dramatically 2 standard deviations, we don't like to sell coins. We just like to mine them, and we've done that several times now, I would touch -- would say, successfully.

[Holly Schoenfeldt]

Thanks, Frank. I think you both kind of mentioned or touched on this, but -- so on a longer-term picture, is there a plan to accumulate and then hold Bitcoin and Ethereum?

[Frank Edward Holmes, Interim Executive Chairman & Interim CEO]

We're always holding.

[Holly Schoenfeldt]

Okay.

[Frank Edward Holmes, Interim Executive Chairman & Interim CEO]

So we always have a holding position. And like I said, had we not had this massive CapEx of $10 million to upgrade all of our chips, then we would have had many more coins or we wouldn't be selling today 100%. And so it's just managing every day where we have a -- we create a process so to upload and these new chips are coming in, new cards are coming in from Asia. And so expecting 5,000 a week. They have to be download, upload, download, upload. We didn't want to have a huge number of cards at one time. So we create the sort of machinery process that we're always expecting deliveries of new memory cards. The management, the team in Sweden is always taking down the old and putting up the new. So everyone stays active in this build-out.

[Holly Schoenfeldt]

Thanks, Frank. And Darcy, I have another question that maybe you can touch on. So is there a plan to leverage Ethereum 2.0 and take some of the Ethereum mined for additional reoccurring income?

[Darcy Daubaras, Chief Financial Officer]

Yes. It's something that we've got on the -- I guess, on the horizon that we're keeping an eye on. This is one of the reasons that we like to maintain an inventory of the Ethereum coins for the possibility of the staking because there are some great opportunities out there to get some income. I guess part of the downside is having that Ethereum locked up once you stake it. It's -- it does have its advantages. We have to look at a little bit more. And as it moves on to take advantage of some of those opportunities without hurting the shareholders, so to speak, by having Ethereum tied up for an extended period of time when we do stake.

[Holly Schoenfeldt]

Okay. Thank you. And another question here says, how is coin inventory held? Is it in a cold wallet?

[Darcy Daubaras, Chief Financial Officer]

Yes. Yes, they are. They're held in cold wallets. They're also -- we're looking -- we're working now with a company called Fireblocks of the U.S. What they're going to be doing is working with us for the custody of our Ethereum and Bitcoin. We're working on that transition. Block -- Fireblocks is someone that has been used by a lot of investment on institutional shareholders. I believe Fidelity has been mentioned. And this is one that has incredible security, incredible controls, SOC 2 compliant from -- if there's any accountants and auditors on the call, which is very important for us as a company to make sure that anything that we have in inventory is safe and secure.

[Holly Schoenfeldt]

Perfect. I think we'll have 1 or 2 more questions. This one says, what is the plan for 4 GB chips once they become obsolete?

[Frank Edward Holmes, Interim Executive Chairman & Interim CEO]

So one of the things that Toby and -- the team and Toby was able to locate a -- with our other service provider, and I think Toby, maybe you could jump in here on the swaps. So we are -- swapping explain that, how we get back credits of $80 and $50 or something.

[Tobias Ebel, Director]

Yes, of course. So we were working this year really as we spend a lot of time on how -- or what we are -- what we shall do, what is the best strategy. And what we're doing now is really, really genius. We're doing something which you can't do as a private person in the market. We can do it only with our large quantity of cards because we are in direct relationship with Chinese factories, and we are sending back old cards to them. We are avoiding, of course, any downtime of machines. So we're getting brand-new cards with -- even with a new warranty period. And we are sending over old cards, and we are getting a rebate for it and a really very, very good rebate. So in total, so we are -- on the one side, we are buying the cards as bulk were -- for very cheap prices, which are not possible for private users or private miners, and then also, we are getting -- for the old cards, we are getting a considerable rebate, and this makes it really attractive for us.And so right now, the decision has not been made if we still keep some 4-gigabyte cards because there are -- actually, I saw some of the questions in the chat. There are actually some other blockchains, which are still profitable with -- and GPU minable with our hardware. And we are looking into that, of course, but it's -- so we can't jump with more than 100,000 cards on these chains -- on these blockchains. But the decision has not been made until now, how many cars we will swap to new cards and how many we should keep them.

[Frank Edward Holmes, Interim Executive Chairman & Interim CEO]

And just to try to add dimensions, it's mega size. I mean we're talking about over 100,000 cards with 8 chips a card. Is that roughly the math?

[Tobias Ebel, Director]

Yes, exactly. Yes, exactly.

[Frank Edward Holmes, Interim Executive Chairman & Interim CEO]

It's 800,000 chips, we move the market. We've got to be so careful we don't did ourselves up and all of a sudden, in that sort of, we call it Navy Seal scramble to get in and get out. And so -- but that -- if you want to go buy these new cards, it's basically -- if you can get them at $300 a pop, and so you're talking about a $24 million to $30 million rebuild, and we've been able to do that for $120, $150 for those cards. So we've been very so far as stealth as possible in getting the rebuild. And what we're hearing is that a lot of these memory chips for -- are being absorbed by telecom. The whole G5 build-out globally, there is a scramble for getting these memory chips. So we're in, I guess, a sweet spot of what we've been able to do, and thanks to Toby and his team in Europe.Now I want to end this with questions. I think Holly says it's time out. And...

[Holly Schoenfeldt]

Yes. I would just ask if there's any closing comments from each of you. We can start with Toby and go to Darcy. And then Frank, if there's anything you wanted to mention and then get to.

[Frank Edward Holmes, Interim Executive Chairman & Interim CEO]

Toby, do you have any closing comments?

[Tobias Ebel, Director]

No, thank you. I was very happy participating in that webcast. Thank you so much, Frank.

[Frank Edward Holmes, Interim Executive Chairman & Interim CEO]

Thank you.

[Holly Schoenfeldt]

Of course. And Darcy, anything, any closing comments?

[Darcy Daubaras, Chief Financial Officer]

Yes. I guess overall, we're -- the plan that Frank and I talked about 2 years ago when I joined, I think we're well on our way. It's a focus on what we refer to back then as HIVE 2.0. And that's taking control of our facilities, reducing costs, so that we can be a very efficient miner, and I believe that we've achieved that over the last 2 years. We're not there yet. But what it does do is it makes us lean and mean, so that when we do have the downturns in the cryptocurrency markets, we're going to be one of the survivors to come out stronger on the other side.

[Holly Schoenfeldt]

Wonderful. And then, Frank, any closing comments?

[Frank Edward Holmes, Interim Executive Chairman & Interim CEO]

I just share that I couldn't have done this without Darcy and Tobias. The 2 of them, we are the 3 amigos. And thank all those shareholders that live with us through all the volatility, I really respect it. And let's get the GPU.One deal done and go forward for a phenomenal year in 2021. Thank you, everyone.

[Holly Schoenfeldt]

Thanks, everyone. This concludes HIVE Blockchain Technologies webcast for the second quarter 2020. Thanks for tuning in.