Industry Update

US Equity Research
Digital Assets
20 June 2022

Joseph Vafi, CFA | Analyst | Canaccord Genuity LLC (US) | JVafi@cgf.com | 415.229.0651
Pallav Saini | Associate | Canaccord Genuity LLC (US) | psaini@cgf.com | 212.389.8054
Company Rating Price Target
Digital Assets
ARBK-NYSE Buy US$3.76 US$13.00 Canadian Sector Coverage*: Robert Young | Canaccord Genuity Corp. | ryoung@canaccordgenuity.com |
HIVE- Buy US$2.94 US$14.00 416.869.7341
NASDAQ
HUT-
NASDAQ
Buy US$1.59 US$6.00 Digital asset mining update: network hash rate down,
IREN-
NASDAQ
Buy US$3.74 US$14.00
covered miners still ramping output, HODL vs. sell
Priced as of close of business 17 June 2022
amidst volatility
Summary
As a follow up to our Digital Asset Mining Industry Update in April, we are highlighting
some recent developments across the broader industry along with company-specific
production updates for May for covered companies and our view on their outlook when
BTC rebounds.
From an industry perspective, we are seeing a continued uptick in mining production
from our covered companies, offset somewhat by an increase to overall network hash
rate. While North American miners are ramping output, Chinese mining capacity is being
redeployed and coming back online. According to a study by the Cambridge Centre
for Alternative Finance (CCAF), China's share of the network hashrate was up to 20%
during October to January from 0% in July and August.
While declining Bitcoin spot price is driving lower revenue and profit margins currently,
there are some partially offsetting factors to consider. For one, less efficient miners are
starting to go offline, directly benefiting high efficiency machines with low shutdown
prices. Most of the leading mining companies in our coverage have a relatively new fleet
which can remain profitable at a much lower BTC price than current levels, as evidenced
by a breakeven price of $7,000-$9,000 for a majority of them for incremental hashrate
output. Second, USD pricing of ASICs has come down materially, giving companies with
strong balance sheets with the option to place orders for 2023 at a much favorable rate
then 3-6 months ago.
In addition, leading miners under coverage are well-capitalized and executing well
against their exahash ramp plans. It is important to note that most of the companies
in our coverage (Argo, Hut 8, Hive and Iris Energy), if not all, were able to raise
substantial amount of capital last year during the Bitcoin rally. Given their public-
company profiles and histories of strong execution, they also have access to debt
markets. Some are also selling a portion of their digital asset reserves to stay on track.
Overall, despite the sharp pullback in BTC spot price, the mining model remains highly
profitable for most of the leading miners. Importantly, we are seeing consistent monthly
production levels and solid execution in building future capacity. Clearly, BTC spot
prices have yet to decouple from risk equities, but we still see attractive long-term
characteristics for the digital asset. As such, we continue to have a favorable investment
view on covered companies operating in this space: Argo Blockchain, Hive Blockchain,
Hut 8, and Iris Energy.
Leading miners still growing output faster than the overall network. Bitcoin
network hash rate is now around 205M TH/s, down from 231M TH/s just a week ago
as some of the miners have become unprofitable, we suspect. Also, given ambitious
production plans, we expect North American miners generally to grow faster than the
network by a material amount. Most miners under coverage have grown their hashrates
by an average of ~60% in the past 6 months alone. During this time, miners from China
were redeployed to make up ~20% of the overall network hashrate compared to 38%
for the US, according to CCAF data.

Canaccord Genuity is the global capital markets group of Canaccord Genuity Group Inc. (CF : TSX)
The recommendations and opinions expressed in this research report accurately reflect the research analyst's personal, independent and objective
views about any and all the companies and securities that are the subject of this report discussed herein.

For important information, please see the Important Disclosures beginning on page 7 of this document.
 Digital Assets
Industry Update

As such, we view much of the increase over the last couple of quarters as a function
of Chinese miners being redeployed and other miners turning on their contracted
hardware.
May production numbers. While our miners under coverage have experienced
strong growth over the past six months, numbers remained relatively flat from April
to May. Hive Blockchain maintained its hashrate of 3.4 EH/s in May, producing
459.2 BTC, roughly in line with April. Hut 8 slightly increased its hashrate from 2.58
EH/s in April to 2.64 EH/s in May while producing the same amount of bitcoin at 309
BTC. Iris Energy mined 151 BTC, an increase of ~10% month/month. Overall, we
are encouraged to see the consistency in bitcoin production while also building out
their capacity.

Figure 1: Monthly production tracker

Source: Company reports, Canaccord Genuity research

Putting money to work: Site visit to Argo's newly opened Helios facility. We
recently had the opportunity to visit Argo's new Helios mining facility, located about
an hour outside of Lubbock, TX. Surrounding the facility are scores of electricity
generating windmills from which Helios is procuring quite cheap, renewable energy.
The first phase of the Helios facility will support up to 200MW of production, with
options to expand to up to 800 over time. The cost of electric power produced from
wind in Dickens County is so low that some windmills had stopped turning during
our visit and a check of spot electricity prices being procured by Argo was less than
a penny a KWH. At the same time, in May, Argo Blockchain experienced unforeseen
circumstances when their BTC production fell ~25% due to a voluntary energy
curtailment in Texas and lower production from Terra Pool as a result of short-term
probabilistic outcomes. We were quite impressed with the immersion cooling system
that Argo is putting into production at Helios and believe that it should provide a
positive ROI versus air cooling the miners over time. Based on our observations,
Helios continues to receive a steady supply of miners from leading producer
Bitmain, and those miners are being deployed in a timely manner. Overall, we were
pleased to see quite steady progress at Helios as follow up to the company's $112M
equity raise last September. We believe capital raised at higher valuations, and now
being put to work in a ramping hashrate, provides an attractive investment
consideration right now. Despite the energy curtailment and the negative mining
pool outcome, Argo increased its hashrate in May from 300 PH/s to 1.9 EH/s,
provided an encouraging update on its Intel miner orders, and completed 25% of
the machine swaps with Core Scientific.
New York passed its mining moratorium. New York state recently passed the
first state-wide moratorium on digital asset mining, banning new PoW mining
projects powered by carbon-based fuel for two years. That said, existing operations
are not affected by this moratorium. However, this bill may cause other state
legislators to put more attention towards energy intensive mining which could have

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broader implications on the industry. On the flip side, the bill may allow other states
to capture more crypto companies as a means of boosting their economy and
revolutionizing their renewable energy infrastructure. The final step is the signature
of Governor Hockhul, who most expect will sign the bill into law.
Miners are evaluating alternative financing strategies. With significant sell-
offs across the broader crypto and equity markets, access to capital has been
somewhat restricted in the last few months. As a result, miners have looked for new
ways of financing equipment orders to keep up with growing competition and
network hashrate. In May, Hive Blockchain decided to use a portion of their HODL to
finance Intel machine orders, selling 10,000 ETH. In addition, Iris Energy has
multiple debt processes underway, with discussion of new equipment financing
similar to the recent $71M NYDIG facility. Despite the market volatility, it is
encouraging to see that the large publicly traded miners continue to find ways to
execute on their production plans.
Some miners moving BTC to exchanges. According to data provided by
Glassnode, Bitcoin miners’ exchange flow reached a 7-month high last week, as BTC
fell to a 52-week low. Bitcoin miners’ exchange flow measures how much BTC is
sent by miners to crypto exchanges. As miners move their HODL out of cold wallets
and onto exchanges, it is likely that they are considering liquidating some of their
bitcoin reserve to either fund their operations or expand capacity.

Figure 2: BTC miners to exchange flow

Source: Glassnode

Some mining equipment might be going offline due to low Bitcoin price. As
Bitcoin's price fell close $20K, it is likely that some of the older ASIC miners have
started to become unprofitable. Consequently, some miners are likely being forced
to turn off their less efficient machines, reflected over the past week when difficulty
fell from ~231M EH/s on June 11 to ~205M EH/s on June 17. Still, next-gen BTC
mining rigs are still largely in profit, including the Antiminer S19 XP which boasts a
shutdown price slight below $12K BTC, based on an average cost of power
incorporating the various types of power, we think. We think the large mining
companies might have an advantage here as most of them have a fairly updated
fleet with ongoing deliveries of new equipment.

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Industry Update

Figure 3: Miner BTC shutdown prices

Source: BitDeer

Nonetheless, a declining BTC is likely to impact the profitability of mining

companies. At its current levels, the hashprice of BTC miners has reached its lowest
levels since 2020, falling below $0.11 cents/TH/day. Hashprice refers to the
expected value of 1 TH/s of hashing power per day, quantifying how much a miner
can expect to earn based on their hashrate. With historically low hashprice levels,
investors must consider the business model's three key drivers - network difficulty,
BTC spot price, and cost of power, to understand the outlook for miner profitability.
That said, with a breakeven price in the $7,000-9,000 range, most of the miners in
our coverage remain nicely profitable, in our view.

Figure 4: Bitcoin hashprice index

Source: Hashrateindex.com

Long-term outlook remains positive. Our view on the long-term outlook for
Bitcoin mining remains positive, and we see a few current factors helping offset
lower profitability. For one, as less efficient miners go offline, the lower network
hashrate will directly benefit high efficiency machines with low shutdown prices.
Second, rising power costs will thin margins for miners utilizing natural gas while
miners powered 100% by renewables may benefit from lower competition. Third,
USD pricing of ASICs has come down materially, allowing companies with strong

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Industry Update

balance sheets to ramp machines orders for 2023. While this may take time to be
reflected on the P&L, lower initial purchase price will also yield in lower depreciation
expense.

Figure 5: ASIC price index

Source: Hashrateindex.com

For the covered companies specifically, it is important to note that most of them
raised a substantial amount of capital before the downturn in Bitcoin prices began
earlier this year, at much higher valuations. In addition, given their public company
status and proven execution, they are able to tap into alternative funding methods
to avoid equity dilution for the time being. As such, they are able to continue to
expand their hashrate capacity. And so, when Bitcoin rebounds, we think our
covered companies will see a meaningful increase in their valuation.

Covered company commentary

Argo Blockchain (BUY rated): In May, Argo mined 124 BTC bringing its bitcoin
HODL to 2,379 BTC, of which 187 were BTC equivalents. Lower production numbers
in May were due to higher network difficulty, lower mining pool production, and
voluntarily curtailment due to high energy demand. Argo completed 25% of its
machine swaps with Core Scientific and installed an additional 300 PH/s to bring its
total mining capacity to 1.9 EH/s. Argo also executed the purchase agreement for
6,600 custom mining machines from Intel, with a right to place additional orders for
up to 23,400 machines. New contracted machines will be installed at the company’s
Helios facility in Texas, which officially commenced operations in May. Putting the
market volatility aside, Argo is well positioned to execute on its hashrate ramp.
HIVE Blockchain (BUY rated): HIVE continues to receive its monthly machine
orders on time and scale its operations. In one year, the company expects to be at
6.2 EH/s in BTC equivalent hashrate from its current 3.4 EH/s. These projections are
based on the timely delivery of the company’s contracted orders of Intel ASIC
machines and GPU machines. So far, HIVE has made progress developing its
immersion Intel machines, funded partly through the sale of 10,000 ETH in May.
New machines on order will be used at the company’s New Brunswick site which just
completed a 25 MW expansion to total 75 MW of power capacity. As of June 5,
HIVE’s HODL consisted of 3,186 BTC.
HUT 8 (BUY rated): Hut 8 continues to employ its HODL strategy, growing its
bitcoin holdings to 7,078 BTC at the end of May. Similar to HIVE, Hut 8 is using
GPUs that mine Ethereum. At its current production capacity, the company is mining

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Industry Update

Ethereum, for which they receive payment in Bitcoin, at an average cost of $3,654
per BTC. The company also concluded its Bitcoin yield programs with Genesis and
Galaxy Digital and brought 100% of its reserves back into custody. Furthermore,
with the acquisition of TeraGo's data center business earlier this year, Hut 8 now
owns a high-performance computing platform. We like the steady cash flow,
uncorrelated to mining, this acquisition is providing, and we think there is still
appetite to further diversify the business. In the back half of the year, we can
expect the company to continue installing miners and ramping power supply at its
North Bay, Ontario mine to grow its hashrate from the 2.64 EH/s in operation at the
end of May.
Iris Energy (BUY rated): We continue to see solid execution on infrastructure
development and bringing capacity online from Iris Energy, surpassing 1.165 EH/s
in hashrate. Management continues to reiterate its plans to achieve ~10EH/s by
early 2023 and ~15EH/s by 2023. Construction at its Mackenzie (BC, Canada) site is
now ahead of schedule with the remainder of the first 1.5 EH/s (50MW) now
expected in Q3 CY2022 and the full ramp to 2.4 EH/s (80MW) expected to come
online in CY2023. At its Prince George site (BC, Canada) capacity expansion remains
on track to deliver 1.4EH/s (50MW) by the end of Q3 CY2022 and the full 2.4 EH/s
(85MW) in 2023. At its Childress site in Texas, the procurement and early
mobilization activities have commenced, and initial purchase orders have been
placed with the first 3 EH/s of building expected to be done by the end of CY2022
with energization in Q1 CY 2023.
In late March, the company secured $71M in equipment financing from institutional
bitcoin broker NYDIG. The financing has a 25-month term with an 11% per annum
interest rate and is backed by 19,800 of Iris’s Bitmain S19j Pro miners. We are
encouraged by the progress in the buildout and faster ramp in a British Columbia
site over the next couple of quarters that could drive a steep ramp to EH output.
We continue to like the differentiated approach Iris is taking by building fully owned
specialized data centers that are currently mining bitcoin with relatively high
efficiency while also positioning the company as a long-term play in renewable
energy infrastructure. In addition, the company’s strategy to sell its mined Bitcoin
daily also offers downside protection against volatility in the price of Bitcoin.

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Appendix: Important Disclosures

Analyst Certification
Each authoring analyst of Canaccord Genuity whose name appears on the front page of this research hereby certifies that (i) the
recommendations and opinions expressed in this research accurately reflect the authoring analyst’s personal, independent and
objective views about any and all of the designated investments or relevant issuers discussed herein that are within such authoring
analyst’s coverage universe and (ii) no part of the authoring analyst’s compensation was, is, or will be, directly or indirectly, related
to the specific recommendations or views expressed by the authoring analyst in the research, and (iii) to the best of the authoring
analyst’s knowledge, she/he is not in receipt of material non-public information about the issuer.
Analysts employed outside the US are not registered as research analysts with FINRA. These analysts may not be associated
persons of Canaccord Genuity LLC and therefore may not be subject to the FINRA Rule 2241 and NYSE Rule 472 restrictions on
communications with a subject company, public appearances and trading securities held by a research analyst account.
Sector Coverage
Individuals identified as “Sector Coverage” cover a subject company’s industry in the identified jurisdiction, but are not authoring
analysts of the report.

Investment Recommendation
Date and time of first dissemination: June 20, 2022, 23:33 ET
Date and time of production: June 20, 2022, 23:33 ET
Target Price / Valuation Methodology:
Argo Blockchain - ARBK
Our one-year price target of $13 is equivalent to 7.5x our 2023 EV/EBIT, including the company's BTC balance.
HIVE Blockchain Technologies Ltd. - HIVE
Our $2.80 PT is based on 8x our F2023 EV/EBIT estimate.
Hut 8 Mining - HUT
Our $6 PT is based on 7x our 2022 EV/EBITDA estimates, plus the company's BTC balance.
Iris Energy - IREN
Our one-year price target of $14 is equivalent to 4x our CY 2023E EV/EBIT.
Risks to achieving Target Price / Valuation:
HIVE Blockchain Technologies Ltd. - HIVE
There are industry-level and company-specific risks relative to the HIVE investment case.

Industry
• Volatility in spot prices of digital assets, including bitcoin and ethereum
• Regulatory scrutiny around digital assets
• Influence on digital asset spot prices coming from social media
• Increases to mining difficulty and overall network hashrate
• The next bitcoin halving event, expected in 2024

HIVE-specific
• Timely delivery of mining equipment from Bitmain, MicroBT & Canaan
• Potential for site buildout delays
Hut 8 Mining - HUT
Volatility in the spot price of Bitcoin. Clearly Bitcoin price volatility represents the biggest risk to the Hut 8 P&L both in terms
of revenue and profitability. Any downward pressure on BTC spot would result in less revenue even if the number of bitcoins mined
remains constant.
Procurement of new mining equipment. New mining rigs are in high demand and with many miners raising money, lead times for
new equipment are once again increasing.
Regulation. Hut 8 is a Canadian company. While we believe the regulatory landscape in Canada is more benign than in the U.S., we
are still cognizant of how any regulatory scrutiny across the globe can impact BTC spot prices. We are also generally positive that the
regulatory pathway for digital assets is becoming clearer even if the pace is gradual.
Iris Energy - IREN
There are industry-level and company-specific risks relative to the Iris investment case.
Industry
• Volatility in spot prices of digital assets, including bitcoin

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Industry Update

• Regulatory scrutiny around digital assets

• Influence on digital asset spot prices coming from social media
• Increases to mining difficulty and overall network hashrate as more miners come back online following the Chinese crackdown
• The next bitcoin halving event, expected in 2024
Iris-specific
• Timely delivery of mining equipment from Bitmain
• Potential for site buildout delays

Distribution of Ratings:
Global Stock Ratings (as of 06/20/22)
Rating Coverage Universe IB Clients
# % %
Buy 652 68.49% 36.81%
Hold 128 13.45% 15.62%
Sell 11 1.16% 18.18%
Speculative Buy 156 16.39% 43.59%
952* 100.0%
*Total includes stocks that are Under Review

Canaccord Genuity Ratings System

BUY: The stock is expected to generate risk-adjusted returns of over 10% during the next 12 months.
HOLD: The stock is expected to generate risk-adjusted returns of 0-10% during the next 12 months.
SELL: The stock is expected to generate negative risk-adjusted returns during the next 12 months.
NOT RATED: Canaccord Genuity does not provide research coverage of the relevant issuer.
“Risk-adjusted return” refers to the expected return in relation to the amount of risk associated with the designated investment or
the relevant issuer.
Risk Qualifier
SPECULATIVE: Stocks bear significantly higher risk that typically cannot be valued by normal fundamental criteria. Investments in
the stock may result in material loss.
12-Month Recommendation History (as of date same as the Global Stock Ratings table)
A list of all the recommendations on any issuer under coverage that was disseminated during the preceding 12-month period
may be obtained at the following website (provided as a hyperlink if this report is being read electronically) http://disclosures-
mar.canaccordgenuity.com/EN/Pages/default.aspx

Required Company-Specific Disclosures (as of date of this publication)

Argo Blockchain, HIVE Blockchain Technologies Ltd., Hut 8 Mining and Iris Energy currently are, or in the past 12 months were, a
client of Canaccord Genuity or its affiliated companies. During this period, Canaccord Genuity or its affiliated companies provided
investment banking services to Argo Blockchain, HIVE Blockchain Technologies Ltd., Hut 8 Mining and Iris Energy.
In the past 12 months, Canaccord Genuity or its affiliated companies have received compensation for Investment Banking services
from Argo Blockchain, HIVE Blockchain Technologies Ltd., Hut 8 Mining and Iris Energy .
In the past 12 months, Canaccord Genuity or any of its affiliated companies have been lead manager, co-lead manager or co-
manager of a public offering of securities of Hut 8 Mining and Iris Energy or any publicly disclosed offer of securities of Hut 8 Mining
and Iris Energy or in any related derivatives.
Canaccord Genuity or one or more of its affiliated companies is a market maker or liquidity provider in the securities of Argo
Blockchain, HIVE Blockchain Technologies Ltd. and Iris Energy or in any related derivatives.
Canaccord Genuity or one or more of its affiliated companies intend to seek or expect to receive compensation for Investment
Banking services from Argo Blockchain, HIVE Blockchain Technologies Ltd., Hut 8 Mining and Iris Energy in the next three months.
An analyst has visited the material operations of HIVE Blockchain Technologies Ltd.. Full payment was received for the related travel
costs.

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Industry Update

Argo Blockchain Rating History as of 06/17/2022

I:B:$24.00 B:$16.00 B:$13.00
10/18/2021 04/28/2022 05/20/2022
$25

$20

$15

$10

$5

$0
Jul 17 Oct 17Jan 18Apr 18 Jul 18 Oct 18Jan 19Apr 19 Jul 19 Oct 19Jan 20Apr 20 Jul 20 Oct 20Jan 21Apr 21 Jul 21 Oct 21Jan 22Apr 22

Closing Price Price Target

Buy (B); Speculative Buy (SB); Sell (S); Hold (H); Suspended (SU); Under Review (UR); Restricted (RE); Not Rated (NR)

HIVE Blockchain Technologies Ltd. Rating History as of 06/17/2022

I:B:$2.80
03/25/2022
$30
$25
$20
$15
$10
$5
$0
Jul 17 Oct 17Jan 18Apr 18 Jul 18 Oct 18Jan 19Apr 19 Jul 19 Oct 19Jan 20Apr 20 Jul 20 Oct 20Jan 21Apr 21 Jul 21 Oct 21Jan 22Apr 22

Closing Price Price Target

Buy (B); Speculative Buy (SB); Sell (S); Hold (H); Suspended (SU); Under Review (UR); Restricted (RE); Not Rated (NR)

Hut 8 Mining Rating History as of 06/17/2022

I:B:$12.00 B:$20.00 B:$12.00 B:$6.00
09/23/2021 11/11/2021 03/21/2022 05/12/2022
$25

$20

$15

$10

$5

$0
Jul 17 Oct 17Jan 18Apr 18 Jul 18 Oct 18Jan 19Apr 19 Jul 19 Oct 19Jan 20Apr 20 Jul 20 Oct 20Jan 21Apr 21 Jul 21 Oct 21Jan 22Apr 22

Closing Price Price Target

Buy (B); Speculative Buy (SB); Sell (S); Hold (H); Suspended (SU); Under Review (UR); Restricted (RE); Not Rated (NR)

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Industry Update

Iris Energy Rating History as of 06/17/2022

I:B:$30.00 B:$25.00 B:$14.00
12/13/2021 01/13/2022 05/11/2022
$35
$30
$25
$20
$15
$10
$5
$0
Jul 17 Oct 17Jan 18Apr 18 Jul 18 Oct 18Jan 19Apr 19 Jul 19 Oct 19Jan 20Apr 20 Jul 20 Oct 20Jan 21Apr 21 Jul 21 Oct 21Jan 22Apr 22

Closing Price Price Target

Buy (B); Speculative Buy (SB); Sell (S); Hold (H); Suspended (SU); Under Review (UR); Restricted (RE); Not Rated (NR)

Required Company-Specific Disclosures (as of date of this publication)

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20 June 2022 10
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 Digital Assets
Industry Update

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