Though volatile as ever, the cryptocurrency sector has generally moved substantially higher over the past several weeks. Naturally, this bullishness has likewise spiked interest toward associated investments such as Canaan (NASDAQ:CAN). A developer of artificial intelligence platforms and crypto-mining hardware, Canaan has witnessed a surge in demand since early April, roughly around the time when cryptocurrencies got their mojo back. But is CAN stock a worthwhile pick for the long run?
To answer that question, it depends on your belief in the viability of cryptocurrencies. Note that I’m not referring to the blockchain, the underlying platform from which the concept of digital reward tokens originates. Almost everyone nowadays believes in the blockchain. No, I’m talking about the tokens themselves and whether people will still want to trade bitcoin or ethereum or whatever would be the hot digital commodity years down the line.
If you have confidence in cryptos replacing a sizable portion of the broader investment market, then CAN stock is a tantalizing idea. Primarily, nothing gets done with virtual currencies if miners aren’t willing to expend massive amounts of computing (and electrical) power to provide something resembling intrinsic value to this market.
Love them or hate them, miners represent the fabric of virtual currencies. The promise of a higher-efficiency platform for them to do their job is what’s presently driving CAN stock.
Furthermore, the novel coronavirus pandemic has investors of all stripes seeking viable places to park their money. One of the reasons why a disconnect exists between stocks and the economy is this panicked search.
Undoubtedly, many investors are hedging their bets with cryptocurrencies. So long as this continues, CAN stock can move higher.
Classic Economics Both Bolster and Belie CAN Stock
In the nearer term, I’m willing to bet that the trajectory of Canaan will be largely a positive one. But as a long-term investment? This is where the situation gets tricky.
Aside from the coronavirus causing many investors to seek alternative assets, one of the main catalysts for cryptocurrencies is demographics. According to a September 2019 Gallup poll, around 55% of Americans owned stocks. This is significantly lower than the record highs seen in the pre-Great Recession years. Further, most of this ownership is likely in the hands of the older demographic.
With digitalization came changes not only in retail consumption but in the workplace. The rise of the gig economy doesn’t really align with the structured regimen of Wall Street. It does, however, match perfectly with cryptocurrencies, which is open 24/7/365 for trading.
Thus, while mainstream analysts dismissed cryptocurrencies as the modern-day tulip mania, consistently robust demand saw the sector through multiple (and volatile) swings. But someone must provide the supply to feed the demand, per classic economic theory. This is the catalyst and possibly the pitfall of CAN stock.
Part of the reason why some miners agree to the crypto-minting process is the drug dealer’s philosophy. If you want to get rich in this dirty business, you must never get addicted to your own product. In other words, it’s easy to make money producing something that people want rather than gambling on whether they want it.
But as mining and perhaps even verifying transactions in the blockchain become too power intensive, the mining community may one day determine that the cost-benefit analysis doesn’t work in their favor. If that happens, CAN stock can quickly unravel.
But that’s also a big “if,” which leaves Canaan in limbo.
An Interesting Idea for the Speculator
Having said that, cryptocurrencies aren’t exactly everyone’s cup of tea. Typically, you don’t have many of the security measures that you would expect from a traditional investment platform. Further, a Wild West element exists here, which tends to put off conservative investors.
However, if you want to have some exposure to the big gains of cryptocurrencies in a platform that all investors understand, CAN stock might work for you. No, it’s not perfect. If something, anything, goes wrong in the crypto space, shares could implode. But it gives you powerful exposure in a – dare I say it – more intuitive format.
So, here’s how I would approach Canaan. If you have “dumb money” lying around, you might as well take a shot. The company had a terrible debut as a publicly traded entity, which is your discount to advantage. Just be sure not to get too emotionally wrapped up in this name.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he is long the cryptocurrencies mentioned in this article.