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Canaan (CAN 5.08%), one of the small universe of companies that sprang up to mine Bitcoin (BTC -0.09%), is a direct beneficiary of that cryptocurrency’s rise over the past few days. On Monday, thanks to the general sustained bullishness on Bitcoin and other top coins, Canaan’s stock closed just over 5% higher.
We should be careful not to tag the recent market action in Bitcoin and its ilk as a rally. Investors are getting a bit less bearish about the current state and looming future of the economy, a shift that benefits (often very) speculative investments like cryptocurrencies. But sentiment can turn on a dime, particularly with such assets, so a sudden and sharp reversal is always a possibility.
Either way, any shift in such assets immediately affects Bitcoin. That’s because it is far and away the most important, closely followed, and influential of the bunch.
So when Bitcoin sneezes, Bitcoin miners such as Canaan catch a cold. The flip side of this, of course, is that when the market’s hot on the coin, it likes Canaan and its peers, too.
Canaan isn’t exclusively about digging Bitcoin out of the digital soil; it also sells the technology that allows others to do their own mining. So for the stock, “The Bitcoin Effect” is often amplified, which is a key reason the share price bounced higher than Bitcoin’s value on Monday. It’s also why it’s likely to stay on that trajectory if the key cryptocurrency keeps up that momentum…or lurch suddenly down if the rally fizzles.
Eric Volkman has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
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