What happened

Shares of Canaan (CAN -2.63%) went up 36.3% in March according to data provided by S&P Global Market Intelligence. More impressively, at one point the stock was up 140% before finishing the month "only" up 36%. That's a massive move for this stock and yet there's not a satisfying explanation for it. 

So what

Canaan manufactures equipment that's used to mine Bitcoin (BTC -0.26%). The price of Bitcoin increased 27% in March and many cryptocurrency stocks like Canaan traded higher as a result. But the rising price of cryptocurrencies hardly seems to explain why this stock had more than doubled at one point in March.

A businesswomen draws a growth curve over a bar chart displayed on a transparent touchscreen.

Image source: Getty Images.

Everything with Canaan's business in 2021 should have already been priced in, compounding the mystery of why the stock was up. In February, the company announced that orders for its Bitcoin mining machines would cause it to run at capacity for the rest of the year. That's certainly good news, but it came long before March's outsized gains.

For better or worse, the stock market is this way sometimes. We don't always have satisfying explanations for why investors are gobbling up shares of a company. But we do know Canaan stock was in demand in March, which is why it went up.

CAN Chart

CAN data by YCharts

Now what

Mining machines are measured by something called a "hash rate" -- think of it like computing power. In the third quarter of 2020, Canaan sold 21% less hash rate than the year before. However, this drop pales in comparison to its revenue, which plummeted nearly 76% year over year. This highlights a unique aspect of Canaan's business. The company depends on what the market price for its products will be when it sells and this price fluctuates based on supply and demand.

Demand is strong enough now that Canaan will be busily manufacturing its products throughout the rest of 2021. That's the only thing investors have visibility on right now. We don't currently know what prices will be next month or by the end of the year. Canaan could either have a bumper year or a modest one.

Hopefully this is a topic that Canaan's management can elaborate on when it reports fourth-quarter earnings on April 12.