What happened
Shares of Canaan (CAN 1.03%) were going up today, apparently because the price of Bitcoin (BTC 2.08%) was also rising. Those who know the company will realize this doesn't make a lot of sense, as we'll see in a moment. But there's no company-specific news to otherwise explain the stock's movement. As of noon EST on Wednesday, Canaan's stock was up about 16%.
So what
Many cryptocurrency stocks have absolutely skyrocketed over the past several months with rising cryptocurrency values. Canaan is up over 1,100% in the past six months alone, placing it among some of the top performers. But today, the company didn't report any news or file any documents with the Securities and Exchange Commission. Nevertheless, it was outperforming many other Bitcoin stocks.
Image source: Getty Images.
The price of Bitcoin is up 7% over the past 24 hours, according to CoinDesk. That would be more material for Bitcoin mining companies than Canaan. I say this because Canaan already has orders for over 100,000 Bitcoin mining machines. These orders have already maxed out the company's capacity for the remainder of 2021 and perhaps even a little beyond. So while the rising price of Bitcoin could create more mining demand, Canaan won't be meeting it unless it also increases manufacturing capabilities.
Therefore, to me, it doesn't really make sense for Canaan stock to go up with the price of Bitcoin. But that appears to be what's happening today nonetheless.
Now what
Operating at capacity is a good problem for Canaan to have. From a managerial point of view, it's easier to make plans to optimize cost structure when you have a good idea of what your demand is. That said, it's not really possible for investors to forecast the company's full-year 2021 revenue right now. Canaan's management didn't give guidance with its latest update. Furthermore, the price of its Bitcoin mining machines is prone to volatile swings. In theory, equipment could sell for less in six months than it does right now.
In summary, there are positive developments with Canaan. But investors in this company need to be sure to keep long-term expectations from flying too high too fast.
