How Undervalued Is Hive?
All the rage in the world of crypto is market cap. The focus is upon price and what a token is worth. It is interesting to witness the mindset that occurs when people take this approach.
What is really intriguing is how one will take a token price as gospel yet believe the market is nuts when it comes to a stock like Tesla. Or they will believe that Gold is extremely undervalued and the market wrong, yet believe that token ABC is properly reflected by the market.
The reality is the market is often nuts. A look at the S&P 500 might tell you that. However, let's try to put things in perspective.
How big can things get? When tossing out numbers, it is best to have some kind of contrast. What is this number and how does it fit in?
$1 billion is a pretty healthy number. Would anyone be unhappy if Hive was worth a billion dollars? Do you think that possible? After all, from this point, it would be more than 20x.
We can start by looking at Riot Blockchain. Have you heard of them? Do not go looking them up on Coingecko because you will not find it. Instead, head over to Yahoo Finance and enter the symbol RIOT.
This is what you will come up with.
Here is an outfit few heard of yet it has a market cap of over a billion dollars.
How about this one? Anyone familiar with it?
This is worth more than 4 times the value of Hive.
So what are these entities? They are crypto mining companies that are publicly traded.
Here is probably the most discussed one, Marathon.
This one is more than 12x the market cap of Hive. Thus, we can see all of these are much bigger entities.
However, if we look closer, how are they really doing? After all, they are miners of Bitcoin, they have to be kicking ass.
Let us look at the income statement on RIOT, the $1 billion baby.
As we can see, they operating income was a $10.5 million loss over the last 12 months.
Marathon and Hut8 both were in the same boat, registering $3.8 million and $550K losses for the same time period.
In other words, these entities are losing money, numbers that rival their revenues taken in. Yet they have valuations that are multiples of Hive.
Naturally, this is not uncommon for newer companies to operate in the red for extended periods of time. Growth of market share, technological advancements, and industry maturation are often causes for them.
However, these companies are mining cryptocurrency, how long do you go sustaining a loss? How are they ever going to make it up.
A blockchain is not a company. This point is obvious. Thus when looking at things, we are comparing apples to oranges to a degree. It is especially true when it comes to something like Hive which is dependent upon what is built on there.
Nevertheless, if we are going to focus upon the financial, i.e. price, aspect of things, what are we really dealing with?
At the end of the day, those who are focused upon price care about making money. Thus, it is the crux of the equation: is this making money?
Obviously, these miners are not doing so well. However, how does this stack up to Hive?
Here is another simple way of looking at it? Are you making money on Hive?
Since there is no centralized company, we simply have to look at the totality of the operations. There are a number of different approaches to making money. If we were to draw up an income statement for Hive as a whole, would we be in the red or green?
The answer is rather obvious. Each day, there are tens of thousands of dollars issued on Hive and associated applications. Over the course of the year, that adds up into millions of dollars that people are receiving in their wallets from associated applications on Hive.
In fact, looking at Hiveblocks, we see the present reward pool has over $100K in it.
This is, obviously, only one payout method. There are all the different tribes that issue tokens on a daily basis, all carrying some value even if it miniscule. A platform like Leofinance is doling out a significant amount at today's price.
This was last week's token distribution. For that time period, there were over 51,000 tokens issued which equates to an annualized rate of more than $600,000 doled out.
The point is, if we were formulating an income statement, this is revenue. From there, we would deduct the expenses which are the costs associated with running everything. Obviously, this is rather difficult to figure out since there are a lot of variables such as running the blockchain, development costs, and other items. However, for the average users, is there such costs?
Blockchain running is paid out of the reward pool, so that is covered. Development costs often come out of pocket which is why many of the applications are started by those with coding skills. For the rest, we simply show up and participate.
Valuation of an entity is always going to be a subjective number. There are many ways to look at things.
That said, if we compare what the market is pricing some of the miners at, we can see how a blockchain, which is "mining through activity" is offering a much better return for most participants. Thus, a case could be made that the entity that is Hive is undervalued. When we look at what is being distributed, we see millions of dollars going into people's pockets.
Certainly, the fact it is not passive such as buying a stock does add another degree to the equation. Yet, if we figure there is $3 million doled out on Hive in total, annually, with a $50 million market cap, that is roughly 6% return. That sure beats what the banks are paying.
In conclusion, the math is not going to line up perfectly because we are dealing with two different types of entities. However, from the financial perspective, it is all about money and the return. Thus, it is hard to argue that Hive is doling out a return in the form of income unlike the miners, who are losing money.
Nevertheless, Hive's market cap is much smaller.
Just an example of how the market might be mispricing Hive.
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