Volatility is built into the “DNA” of cryptocurrencies; investors and traders should not worry about the price drops earlier this week, said Frank Holmes, executive chairman of HIVE Blockchain Technologies. Speaking on Ethereum and DeFi, Holmes said “I think that this is a phenomenal industry, and there’s going to be many new derivatives come from it, and it has nothing but blue sky, but extremely volatile.”
The crypto market has seen a flash crash starting with Ethereum over the last 48 hours. Frank Holmes, executive chairman of hive, blockchain technologies and CEO of us global investors is back to talk all things crypto. I'm sorry, Frank. I know you're dressed up for Goldman. What are you doing now? Go, this is wholly jumping.
I'm not going to handle all this. I have to go to the quid pro suit now. No gold suit. Oh, Hey, we're going to have to, we're going to have to put that gold suit OSI for the day. Yeah. Your, your, your crypto suit looks good too. I like that. You know, it's been a hell of a ride, as you would say, because it's extremely volatile in every presentation we make.
We try to explain that the DNA of volatility of goal is the same as the S and P 500. And for 20 years, it's performed the S and P 250%. But when it comes to Bitcoin, Ethereum, the volatility is five times greater on a daily basis. What gold, uh, is, or the stock market. Yeah, that's a great point. Now people are concerned that Bitcoin and Ethereum has fallen off their highs, but when you look at the price, it's, it's, it's still very high, right?
It's still, you know, should people be worried at this point? No, I think we've seen this incredible volatility when something is disruptive. Think about Tesla. Tesla has the same DNA of volatility as Bitcoin and Ethereum. In fact, he, Miriam is more believable than Bitcoin. Like silver is more volatile than gold, but whenever something is disruptive and it's like digital money is coming into the market stream and in full throttle this past year, uh, it's going to have.
All these naysayers and early adopters. So we have seen now the gold market, you know, come through a correction here and everyone's focused on Ethereum and Bitcoin. I say if the both are incredible alternative asset classes, but this flash costs crash. And Ethereum happened a little over a year ago when he theory him search, the 300 fellow 100 came right back up the 200 and sort of went sideways before it went onto these other levels.
Okay. Now let's talk about Bitcoin and theory of now you've I know you've done a lot of research on the relationship between these two cryptocurrencies. I'm looking at the CR Ethereum to Bitcoin charter. The ratio it's spiked earlier in the year with Ethereum going way up. And now it's actually coming back down to historical averages.
So it's more or less normalized to the average from here. Do you see a few? Em's continue to outperform Bitcoin. I do because they're very, they're very different. David. You've got to look at the industrial. So when we talk about silver and has much bigger industrial footprint because of solar panels, well, when it comes to a theory, it's a smart contract.
So when you hear about JP Morgan, stable coin or other people come in with these stable coins, they basically are using Ethereum algorithm. That is a pent up demand. And now we have this explosion in decentralized finance, known as defy at last year group I 20 billion, I think in the first month of this year, it was 30 billion.
Uh, it's all the backbone of Ethereum. So in theory is a unique animal in his own way. And so second biggest market cap and most liquid cryptocurrency. But I think Bitcoin is like the collector's item is like for me at the Andy Warhol original paintings, uh, it's going to go up in value as more people come in and buy it.
They can buy in fractals. Uh, and we were seeing that and what's called Metcalf's law Metcalf fly explains. Why you're seeing this rising crypto, it's very powerful that you compared it to an Andy Warhol, uh, piece of work. And, uh, I had the discussion with an analyst last week about the valuations of cryptocurrencies and the conclusion was that, look, it's very difficult to value something that doesn't generate any cash flow it's ultimately based on.
On market perception. Beauty is in the eye of the beholder. If you think Andy Warhol is worthless, you're going to pay $0 store. It likewise, if you think Bitcoin is worthless, you're going to pay $0 for it. So why is Bitcoin worth $48,000 in the eyes of the beholder? So to speak? Can you, can you give it a, give an explanation it and bill Gates, uh, when the richest man in the world doesn't buy any Warhols and he doesn't like Bitcoin.
So what does that mean? Uh, whereas friends of mine have bought the Prince for $10,000. I've seen them their mouth go up to a quarter million dollars. So, you know, I don't want to get into that. Our biggest what's good or bad if you like Warhol art, uh, and Metcalf's law will prevail there too. So let's let's, I think it's just a side story.
What's really important. And we saw this happen last year in GameStop, all these kids that have been playing those games and playing war games, internet games, they've been re rewarded. In digital money in that, in that game, they had their own digital currency like monopoly money. And if you're really good, you got big bonuses and you can upgrade and buy more software.
What we have all these generation X and millennials that are used to going to GameStop to buy their equipment, or they've been going on the internet. They're very quick to buy into the concept of digital money. finance, because they're used to it. Uh, and I think that when we heard all this drama on GameStop, well, all these kids that were trading the stock were also buyers, just like people that bought Starbucks, went and bought Starbucks coffee every day.
Yeah. Uh, w w when you look at Satoshi's white paper, the origins of Bitcoin and the original protocols for Bitcoin, we use surprise that it's become more of an asset for speculation over time. Well, I don't think so. I think it's really, is that a remarkable piece of engineering, but really it's on the backbone of Telekom.
Um, blockchain really came out in the early nineties before the internet was released. And it's because the banks actually are the biggest movers of money, not if telecom companies that do all the wiring between. And then the idea was could they create a blockchain, a ledger? There's open ledger to be able to track everything.
This concept that Satoshi basically took was already there and polished it up to create decentralized finance as just the same as a lot of gold bugs. Don't like central banks printing all this money, practicing MMP. Uh, the new world, the new millennials, et cetera, we're addicted to this digital world.
And that's why group. And we can see this past year, uh, what happened when the supply halved for, uh, Bitcoin. And that only took six months and all of a sudden prices doubled and tripled. So I remain very bullish, but they're going to be extremely volatile. Uh, does that, what you just said? It's a, it's a great bullish case.
Does that at all concern you in any way that it's Mo it's mainly driven by younger investors, like you said, hurting into this space. No, because they can speculate their young person is my age. It should be careful about the great speculation, a younger person. Uh, they've got 40, 50 years in front of them, uh, that as you get older, you should tone down your speculation.
And one of the reasons I was trying to launch an ETF in the space and I wasn't going nowhere. So that was the whole creation. The concept when I got invited to participate in became a principal co-founder. Of high blockchain technology, which was the first public company, mining, Ethereum, and then Bitcoin in the Canadian capital markets.
And it attracted a billion dollars of us, uh, money managers going into Canada to participate in other blockchain companies. Yeah. Well, you have some good news to talk to share with us about high, but just a minute now, uh, last question about the, uh, the markets, the, uh, you mentioned that these, these kids are speculating well when they get older, Frank.
Um, w when they become close to retirement age and they don't want to speculate in volatile assets anymore, would they be dumping their Bitcoin and Ethereum, and then, and then, you know, the biggest holders are now w w what then would then, uh, you know, release them into the markets and we'll have a big sell-off.
I don't know, it's like asking me, you know, when the internet first came out and just asked Jeeves, is he still going to be around? He's Ms. Green? I, it evolved. And then Google and Yahoo was first and then Google turned around and basically, as they like to say, Uber eyes, uh, Yahoo, uh, I think that it's, it's early innings.
Uh, in this little world, and I think it's only going to grow. It's going to remain extremely volatile. Uh, we saw that now in PayPal, you can buy Bitcoin. Uh, if you go to, um, uh, some of these websites in particular in stocks, uh, you can go to Robin hood and you can buy Bitcoin. So it's a big game changer what's going on in the capital markets.
Okay now hive, let's talk about hive. Now. It was named 2020s, most liquid TSX listed stock. Uh, can you, I'll let you explain the good news here. What does that mean? Well, I think David, when I first launched a high blockchain. Uh, as the chairman, before I became the executive chairman involved more in the running the company, I, it was, to me, it was fascinating to watch the sort of journey of how it attracted so many gold investors who were reluctant to go on one of these crypto exchanges, uh, fearful of hackers.
And they use hype as a proxy and high was, and has been an infant phenomenal proxy. It went up. From 30 cents from the seed financing all the way up the $6. And as the winter took place for the crypto space and Bitcoin went from 19,000 to 3000 high fell, 90%, uh, high was turned around and made new highs and is basically as a proxy and is traded door 2 billion shares.
And in the U S on the over-the-counter market, it was the fourth, most liquid stock. On the over-the-counter market, it traded almost a half a billion shares. So it is becoming a moose by the hour. It's up by the hour we theory and Bitcoin are up. And if they fall rolled over, it goes down. So quad funds are also using hive as a proxy for this space.
Uh, high was the only public company that is mining, both Ethereum and Bitcoin. And this is important. Strategic difference is it. Last year, Bitcoin was up about 300%. Ethereum was up 475%. And hive just exploded up 2500%. So a hive was, has been the most profitable so far crypto mining company. Uh, when you take a look at all these other companies in the U S and Canada, and, uh, the future is how many more, how much more equipment can you get?
We're seeing a huge shortfall. There's no more equipment, just like there's no chips for car companies. And they're having a difficulty with GP chips. We're seeing this also for crypto. Uh, I like to get a bit of your history here. Now transitioning into the crypto space. People know you as a prominent figure in the precious metals and resource sector.
You've written books, for example, on mining and gold. And you've worked with miners closely throughout your decades of your career. I wonder why you decided, okay. I've worked with precious metals miners. Now I'm going to start working with crypto miners. How, how did that transition take place? Can you walk us through the rationale there?
A couple of things. One when the CEO of fidelity, uh, goes to a crypto conference, which people are spending $2,000 to attend and it's sold out and she has her CFA, Abigail Johnson, and she does not go to investment conferences. So here is this person speaking at a crypto event for a couple years in a row.
She's been doing our own Bitcoin mining a law before all of a sudden it got became mainstream. That was a big wake up call of looking for the future. Uh, and I think the other part was. The ecosystem they like to call it. There was 10,000 nodes for Bitcoin and Ethereum had 30,000 scientists around the world in this ecosystem.
Talk about this being the future. There are not 30,000. Engineer's talking about gold mining and investing and ecosystem and nodes around the world. So that really impressed me about the depth and breadth that just under w which was basically invisible to the securities market. It's grown. Okay. So what were the major challenges for you then setting up a crypto miner?
I mean, I, I, I I'd imagine that it's a very different business model than. A resource, a physical asset, minor like a gold miner where a silver miner. Well, you buy equipment. Uh, you, we only use green energy. It's been very, very significant high ESG footprint, uh, where mining in Sweden and Iceland and in, in Quebec and shortly here, uh, in new Brunswick, uh, and it's all green energy.
So that was a key component difference. Uh, some of these other miners are using coal. Uh, and I think the other part was in this, looking at it. We have to buy equipment just like you produce gold. We use. Green energy. And we do use the technology to remind in the cloud. So we are mining a commercial asset that we can sell.
It goes 24 seven. Uh, it's a phenomenal, uh, volatility, also your profit margins. So you can have this incredible swings in your gross margins. Right now we're experiencing 90% gross profit margins in mining, Ethereum. Even at 1500, uh, we're a corrected from 2000 range. So I think that this is a phenomenal industry and there's going to be many new derivatives come from it.
And it has nothing but lots of blue sky, but extremely volatile. Yeah. I'd like to understand the mining industry a little bit more in terms of the crypto space, not, not gold mining, but drawing parallels to the gold mining space. Do you think the crypto miners are facing some of the same challenges? Like the gold miners are gold.
Miners are running out of reserves. The exploration companies there's the economic deposits, as you know, are. Drawing up around the world. Similarly for crypto, uh, if you take a look at Bitcoin, for example, there's only 21 million Bitcoins available to be mine around 18.5 million have already been mined.
So are crypto miners running out of reserves, so to speak? Well, the definitely when you look at Bitcoin in particular with is having taking place every four years, uh, in a finite number of Bitcoins will be ever produced, uh, and understand it, David, every 10 minutes, it's a drop pot. Yeah. And all these miners around the world go into get.
The chance to validate that, that transaction. And if they do, they earn 6.25 new Bitcoins, and it's extremely competitive. So you have to have the fastest technology and provide the downdrafts. You have to have the cheapest electricity, or you're going to have a great difficulty. So there are many pockets of electricity that are stranded.
And so there's whole exaggeration that Bitcoin is using up all the world's electricity, et cetera. It's greatly missing this information, just like gold is, is so bad as an asset class by environmentalist. Um, uh, I, I think that we're going to see these data centers become very valuable because we're all zooming it now or using these other service providers, covert was a big game changer for how people conduct themselves for learning and school for business transactions, et cetera.
So you're going to need more and more of these data centers. You need them for rendering? You want smart cities are GPU chips thing could be used to look at everyone in a city with cameras and be able to see who's not paid their parking tickets. Uh, this is going to happen. This is a New Zealand right now.
Uh, it's definitely in the UK and it's going to continue to do. Yeah. Do you think, is it true that. That it becomes harder and harder to mine. Uh, crypto, uh, as less of it is available to be mined. You need more energy, more resources per coin, after that. Yeah. Don't need so much the more energy you need, better computer systems.
Uh, and, and faster. So the , uh, the super pros and they have all these new names coming out like their BMWs and Mercedes new series of cars. Uh, but what's important here is, is, is that you have to get this new technology. But there's a shortage and the shortage is not going away. These companies are Sodo.
Uh, Taiwan, semiconductor is no longer going to give the ASIC chip manufacturer more chips to be able to manufacture these, uh, uh, minors. So we're going to see a real supply side, uh, shrinkage. So therefore the entrust people competing for mining, those Bitcoins are going to drop off. All right. Now, looking ahead now.
Frank, uh, for the crypto miners, where's the future for crypto miners? What kinds of coins should they be focusing on for the highest margins, uh, to meet the biggest demand? What are the, what are the, what are the coins? What are the sectors you would be paying attention to them? For us, it's been Bitcoin and Ethereum.
Uh, we announced today that we've expanded our footprint, that we're pushing for 2000. Petahash, uh, we're almost there. Uh, we made that to get up our ACX because we are the biggest, uh, GPU miner for mining Ethereum in the world. Now there's many other points. Uh, we've gone back and forth through the period classic, et cetera.
But the issue is that we're so big, then all of a sudden we could be too big of a player in that coin. So we really just want to stay focused on Ethereum, uh, which we think is a three-year window of huge opportunities on the upside and Bitcoin mining. I know that, um, physical miners have all this sustaining costs.
For example, gold miners. Typically that's around 800 to $1,000. All in sustaining costs. Is there a, is there a floor for Bitcoin and Ethereum price for you? Uh, if it hits below that floor becomes unprofitable to mine. Well, it depends what technology, if you've got your on right now, they're profitable. Uh, but soon as it falls below 15,000, you're no longer profitable.
Uh, and you're gonna need S nineteens really to, to be able to stay ahead of the game. Um, but, uh, I think you have to have the cheap electricity. You have to have the new tech, the new chips that are out there, and there's a shortage of them. So it's a very bullish scenario for crypto mining. It's a very profitable business.
If you can have access to these chips and you have transparency, now there's a couple of new guys coming into knockoff, hive, success, et cetera. Uh, but they're not hive. And, uh, and I think that investors out there act to be very, very conscientious. On transparency because that's something that's been a big issue for me in the whole high tech high blockchain experience.
Uh, they have to make sure that track record of these people that they believe in good corporate governance, uh, that they do believe in the green energy. Uh, these are important factors because a lot of them, yes. All right. Well, uh, Frank continued success as always. Thank you very much for your updates today on the crypto space.
It was a great talk. Thank you very much. Happy investing and thank you for watching Kitco news. I'm David Lynch. .