Canaan Stock May Be an Alternative Way to Trade Bitcoin
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Cryptocurrency mining equipment maker Canaan (NASDAQ: CAN) stock has exploded in 2021 as traders piled into this stock with the surge in Bitcoin (BTC) and cryptocurrency prices. Unlike bitcoin miners like Marathon Patent Group (NASDAQ: MARA) and Riot Blockchain (NASDAQ: RIOT), Canaan primarily manufactures the hardware including its artificial intelligence (AI) chips and mining rigs. The Company was the innovator of algorithm-specific-integrated-circuit (ASIC) powered rigs that are being purchased in mass quantities by bitcoin miners. While MARA and RIOT tend to trade in correlation with bitcoin prices, Canaan tends to trade in correlation with the bitcoin miners. Canaan did announce they would partner with miners to partake in mining bitcoins in exchange for providing rigs. There are red flags in terms of financials and little information on the Company that make it risky for investors, but the robust liquidity and price action has made this stock suitable for nimble seasoned traders and speculators as an alternative way to trade bitcoin price action both long and short.
The Company is a maker of integrated circuits (IC) primarily for supercomputing, AI, and datacenter operations. The CEO was a pioneer in the development of ASIC development releasing the world’s first ASIC minter in 2013. The surge in cryptocurrency markets has spawned strong tailwinds for its chips. The impromptu resignation of its CFO and lack of audited financials has been a concern for investors. On Feb. 10, 2021, Canaan announced improved visibility as a result of receiving purchase orders for over 100,000 bitcoin mining machines from North American customers. The orders will preoccupy the current manufacturing capacity for the rest of 2021. Canaan CEO, Mr. Nangeng Zhang, stated, “We have changed our operations model in 2021. Previously we were selling bitcoin mining machines mostly to individual mining operators who may not have longer-term planning. In late 2020, we shifted our client base to mostly publicly traded companies and bitcoin-focused investment funds which tend to place sizeable orders with longer-term commitment.
As a result, we can now forecast our revenue much more precisely. Our increased revenue visibility is not only enabling us to plan our production and logistics well in advance, but also helping us to optimize our cost structure and improve customer satisfaction rate.” Diversified fintech The9 (NASDAQ: NCTY) announced the purchase of 26,007 bitcoin mining machines on Jan. 25, 2021, which investors assume was made with Canaan due to the partnership agreement with the former Director and Co-Chairman of Canaan, Mr. Jianping Kong to spearhead the crypto mining business. On March 1, 2021, Integrated Ventures (OTCMKTS: INTV) completed the purchase of 600 high-end Avalon 1246 Miners from Canaan for $2.7 million.
A major catalyst for Canaan is the proposed IPO for the largest supplier of bitcoin and cryptocurrency mining equipment, Bitmain. It’s been estimated that Bitmain owns an 80% market share of the cryptocurrency mining equipment sector with its highly sought after ASIC chips. While details are still private, analysts estimate that Bitmain is generating up to $3 billion in annual profits. The IPO is speculated to value the company between $40 billion to $50 billion. MARA and RIOT are both large customers of Bitmain. The two main catalysts for upside moves in Canaan is rising bitcoin prices and the launch of the Bitmain IPO.
CAN Opportunistic Pullback Levels
Using the rifle charts on the weekly and daily time frames enables a more precise near-term view of the price action for CAN stock. The weekly rifle chart is uptrending with a rising 5-period moving average around the $24.40 Fibonacci (fib) level. However, the weekly stochastic has crossed down under the 80-band setting up a reversion and potential test of the weekly 5-period MA. The weekly upper Bollinger Bands (BBs) sit at $34.15. The daily rifle chart is undergoing a channel tightening as the 5-period MA slope down at $30.35 closing the gap with the 15-period MA at the $26.88 fib. The daily stochastic has a mini inverse pup, which is setting up the stage or a make or break. The daily market structure low (MSL) trigger is above $30.29 but offset by the daily market structure high (MSH) trigger under $31.37. Seasoned traders can trade opportunistic pullback levels at the $22.65 fib, $20.49 fib, $18.91 fib, $17.11 fib, and the $14.75 fib. The upside trajectories range from the $31.37 daily MSH trigger to the $42.64 fib. Keep an eye on MARA and RIOT as shares are currently correlated to their price moves.