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Companies like Hut 8 Mining (HUT), that generally track the price of Bitcoin (BTC-USD), offer terrific opportunities when the price of Bitcoin crashes like it recently has.
What’s important to know about that is even if investors get in and the price falls further, time will take care of the temporary gravitational pull of the share price, recovering as the price of Bitcoin resumes its upward trajectory.
A key element of investing in companies like Hut 8 Mining is to be sure not to sell during downside volatility if the price temporarily drops further; it’s no different than holding on to Bitcoin and not getting chased out of your position.
In this article we’ll look at a few variables associated with Hut 8, and the only thing you really need to do to successfully take a position in it.
Ignore the volatility
Since the parameters of this article are to consider taking a position in Hut 8 in light of the crash in the price of Bitcoin, a lot of the extreme volatility has already been removed from the play.
Even so, a position could be taken, and the price of Bitcoin drop significantly from where it was trading when entering the trade. Under these conditions, it would be a mistake in my opinion to be scared into selling out of your position. The key is to ignore volatility and continue to hold and be patient.
If it was a different type of company and sector, I probably wouldn’t make that suggestion, but being Bitcoin-related, at this point in its growth cycle there is no doubt it has a long way to go up before price discovery on the ceiling.
Whether or not you will feel comfortable with taking a position in Hut 8 will be if you believe we’re in a secular (long-term) bull market in cryptos or not. I believe we remain in one, so buying on big corrections is the key to generating significant, long-term gains.
Note the similarities in the 6-month Bitcoin and Hut 8 charts below.
6-month BTC-USD and Hut 8 chart
Trading View
Trading View
Ignore even positive catalysts
Some of you may be surprised by what I stated, but the fact remains, over the long haul, positive catalysts for Hut 8 and similar companies really don’t have much of an impact on the share price of the companies.
Where they can make a difference is if you are looking for a day trade to get quickly in and out of your position. Under that scenario, a positive catalyst can give the share price of the company a boost, but not too long afterwards, it drops back into moving in alignment with the price of Bitcoin.
For example, Hut 8 recently reported it had a Bitcoin balance of 5,826 in reserve. At the same time the company pointed out it had “installed 6,317 MicroBT M30S and M31S+ miners.”
In the same report it also noted that, on a daily basis it was mining 9.93 Bitcoins a day, all of which were deposited into custody.
In another release the company stated it had “installed 2,782 more efficient MicroBT M30S and M31S+ machines at company site in Drumheller, Alberta.”
There were other things included in the press releases, but if you were to look at a chart, you would have no idea when these announcements were made.
It should be taken into consideration that the price of Bitcoin is leverage on both sides of the play. So, whether a negative or positive catalyst, it has little impact on the share price of Hut 8 or its peers, outside of the price movement Bitcoin at the time. There may be a little more volatility for a short period of time, but it is never long before the share price of Hut 8 will once again move in conjunction with the price of Bitcoin.
Again, this could be an opportunity for a day trade, but for those in it for the long term, it’s just a small blip on the map of Bitcoin’s ongoing upward growth trajectory.
How to play Hut 8
With the volatility associated with the current market, and the inherent volatile nature of cryptocurrencies and Bitcoin, there are ways to mitigate risk.
As I’ve mentioned in a few articles recently, two ways are to maintain discipline in position sizing, while using dollar cost averaging to end up with a cost basis that provides a foundation for significant long-term gains.
Another way to play it if you prefer taking a position with one order, simply wait until the share price of Hut 8 falls to a level you’re comfortable with and get in at that time.
The problem with that strategy is there may be enough downside left in the share price to tempt investors to sell off. For that reason, unless time is a factor in your investing decisions, it would be better to take a position with part of the capital you’ve decided to invest in the company and work your way down if the price continues to fall.
Another thing to consider is the price of Bitcoin can move so fast that dollar cost averaging can contract into a relatively small period of time in comparison to what we usually think of when spreading our averaging out for a longer period of time.
Conclusion
Hut 8 Mining is positioned well to take advantage of the recent risk-on trade associated with the collapse of the price of Bitcoin. The key to success is to retain discipline while considering different price points to enter the trade.
The nice thing about moving in conjunction with Bitcoin is even it the flagship crypto starts to take off again, it’s never too late to take a position in Hut 8. It can be psychologically difficult when you could have gotten in at a great price, but where you enter really doesn’t matter when the price of Bitcoin starts another prolonged, upward move.
And if you’re not sure, just take a little piece of the action at a time to protect the downside while still having enough room for it to generate solid profits.
The bottom line is, you can safely ignore all the noise and things talked about concerning Bitcoin or Hut 8, and just make decisions based upon the price of Bitcoin. Wherever the price of Bitcoin goes, so will go Hut 8.
To me, this is the time to take a serious look at Hut 8, in light of the favorable conditions associated with the price of Bitcoin that has given it a great entry point.
