Hive Blockchain – When A 350% Stock Price Rise Is Really A 30% Fall

Hive Blockchain (NASDAQ: HIVE) stock appears to have regained the price it lost back on May 20, when it dived from $4 and change to under a $. This is not wholly and entirely so it should be said. For what has happened today is that the board approved a five for one reverse share split – or a consolidation to Brits.

The reason given for this is “to efficiently allocate shareholder capital” which is as endearing a piece of fluff as we're likely to see in a corporate announcement. For of course a consolidation, or reverse share split, makes absolutely no difference at all to the allocation of shareholder capital – for it makes no difference to shareholder capital. No capital has moved or been changed as a result of this. All that has changed is that what used to be five pieces of stock are now one piece. And we'd expect the price today to be 500% of the price before.

Which is exactly what is meant in that headline. The price has gone up, according to the ticker, 350% premarket. Yet it should have gone up 500%. So, that 150% that didn't happen is that 30% loss from what the price should be purely as a result of the consolidation.

There are reasons to have such consolidations. One is simply fashion. London share prices tend to be in the £1 to £10 range just because that's the range that people in London think share prices should be. New York prefers the $10 to $100 range. That's why ADRs of London stocks are usually of 10 units – to get into that desirable price range in both places. Stocks that go well beyond those price ranges often enough have stock splits – Amazon and Google have both done so recently.

At the other end there's something unfashionable about being a penny stock so we often enough do see these consolidations. There's also the point that being below a $ nominal will eventually get your NASDAQ listing cancelled. Hive Blockchain is nowhere near that as yet because it needs to be for some time but it's something that does drive a number of such consolidations.

As to what the real underlying here is this chart gives us a start:

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Bitcoin is less valuable than it was – therefore bitcoin miners are likely to be less valuable. However, bitcoin miners suffer from the same problem that regular miners often do. The cost of mining stays fixed, while the cost of what is produced can vary wildly. This can mean that a fall in the output price leaves no margin or creates losses. Fixed production costs and variable output revenues just can mean that.

Now, whether bitcoin is down in price just because folk are less excited about it isn't clear and obvious. It could be that implosion of the Terra/Luna system. Could be Tether breaking the buck and scrambling to not do so. Could even be that the massive redemptions of Tether making bitcoin purchases harder or rarer.

The exact why does matter because if it's something reversible then maybe Hive Blockchain will come back. If it's a change in the underlying market that will stick then perhaps it won't. Today's action in Hive Blockchain stock though is just proof that a 350% price rise can really be a 30% price fall – when it's a 5 for 1 consolidation.