What happened
cryptocurrency mining company Canaan ( CAN -14.45% ) It is one of the great drivers of the current market. Its shares have plunged 20% in the past 24 hours as of 1 p.m.
news that crypto miner Hive Blockchain Technologies made a large purchase of integrated circuit chips for specific applications of Intel has fueled most of this movement. Previously, Hive had purchased its crypto mining machines from Canaan, which is a large Chinese producer of integrated circuits and other mining hardware. However, the fact that this large order went to US-based Intel has some investors considering how the competitive dynamics of this industry may be changing.
Image source: Getty Images.
So what
Crypto mining remains a hot topic for investors. The proof-of-work consensus mechanism, which requires high-powered computers to solve complex problems to validate and secure blockchain networks, consumes a lot of energy. From a regulatory point of view, there are already significant obstacles for this sector. Regulators in various jurisdictions have tried to oppose this less green aspect of the crypto market.
However, individual crypto mining stocks offer their own set of catalysts and challenges that investors need to consider. Given the dramatic rise in crypto mining in the US and the state of US-China relations, the outlook for Canaan following the release of this news appears to be deteriorating. The evolution of market share in this space is something that investors in this sector will continue to watch. But for now, Canaan's growth outlook appears to be less than stellar.
Now what
In the future, investors considering Canaan may be forced to pay more attention to the origin of crypto mining machines. Should more US miners switch to domestically sourced hardware, the Canaan sell-off could be indicative of more pain ahead.
On the other hand, perhaps today's sale is overdone. Investors looking for value in this sector certainly have much more attractive valuations to take advantage of. So maybe there is a value angle with Canaan at these levels.
Personally, I think this sector is too volatile for my liking. For Canaan in particular, I think it hasn't been decided yet how this hardware producer will perform in the coming quarters. Consequently, I am going to watch this action from the sidelines for now.
This article represents the opinion of the writer, who may disagree with the Motley Fool premium advice service's "official" recommendation position. We are motley! Questioning an investment thesis, even one of your own, helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
