Frank Giustra, the Canadian mining maverick who amassed a fortune building what would become one of the world's largest gold companies, is digging for another kind of gold: cryptocurrencies.
The company he's backed, Vancouver-based Hive Blockchain Technologies Inc., is among the first publicly traded stocks to provide exposure to cryptomining – the vast data crunching needed to verify the blockchain and the volatile currencies they produce, such as bitcoin and ether.
So far, his decision to dig for data servers has paid off. Hive's shares have soared about 633 per cent, giving it a market value of $553-million, since it took over the listing of Leeta Gold Corp. and began trading on Sept. 18. After only three days, the company raised $30-million in a share sale led by GMP Securities LP.
"We're quite lucky to be first out of the gate," said Hive chief executive officer Harry Pokrandt, a former Macquarie Group investment banker who bought his first bitcoin for $100 in a Vancouver coffee shop on his iPad. Speaking from a makeshift office adjoining Mr. Giustra's Fiore Group, which is listed as an adviser to Hive, he said, "We're a unique way to get into the space."
Mr. Giustra helped build the company that would become Goldcorp Inc. then founded film studio Lions Gate Entertainment Corp. He counts Bill Clinton and George Soros among his close pals. Those connections may position him to grasp a nascent corner of finance and navigate bitcoin's uncertain regulatory waters. Mr. Giustra didn't respond to a request for an interview.
Blockchain is the technology used to verify and record transactions on a public, online ledger. "Miners" use computers to solve complex math problems to verify transactions, earning a reward of a newly issued coin, such as bitcoin or ether. Hive paid Hong Kong-based Genesis Mining Ltd., builder of the world's largest ether mining facility, $9-million and gave it a 30-per-cent stake to acquire a new data centre in Reykjanes, Iceland.
There, Hive plans to mine different cryptocurrencies, depending on which ones offer the best margins and build an inventory of coins on the expectation they'll appreciate.
Hive said it plans to buy a second Genesis data centre next door for $5-million and has the option to buy more in Iceland and Sweden, cold countries which can keep power and cooling costs down.
Institutional investors have largely watched bitcoin's development from the sidelines, put off by the difficulty of buying digital coins, their volatility, and the criminal activity the market's anonymity can draw. Governments are struggling to regulate the industry, with China closing all cryptocurrency exchanges and at least 13 other countries tightening rules. Hive is listed on the TSX Venture Exchange, no stranger to volatile stocks. Hive jumped 28.4 per cent to $2.49 in Toronto.
Hive may make investing in the market easier, but "I suspect the vast majority of accounts aren't contemplating an investment in virtual currencies right now," said Jeff Klingelhofer, managing director of Santa Fe, New Mexico-based Thornburg Investment Management Inc.
Still, in an era of low yields, bitcoin is drawing many investors. The market value of the world's roughly 1,000 cryptocurrencies, led by bitcoin, surged more than eight fold this year to top $150-billion (U.S.). Bitcoin has returned 445 per cent and set a record above $5,000 on Thursday. Ether has gained an even more dramatic 3,600 per cent this year.
Being first out of the gate has its challenges. "Do we recognize revenues the moment we mine it? Do we recognize it when we actually sell it and convert it into fiat? What happens in the meantime?" Mr. Pokrandt said. "There are a lot of issues we haven't solved yet."
Only a few vehicles are available to institutional investors seeking exposure to cryptocurrencies and none of them are pure miners. Bitcoin Investment Trust, for example, invests exclusively in bitcoin and trades over-the-counter. It withdrew an application last month to list on the NYSE Arca market. It's currently trading at a 75-per-cent premium to the coins it holds as assets.
The high-risk, high-reward mentality of those who back hard-rock mining exploration eases the leap from physical to digital gold, said Mr. Pokrandt, who's focused on mining and resources for more than two decades. But there's something else, he says.
"I've discovered that cryptoculture and gold bugs are the same sort of thing: you've got mistrust of government, mistrust of fiat, you want a decentralized ecosystem," Mr. Pokrandt said. "The difference is that gold bugs tend to all be 60 years old and crypto guys are 20."