A global chip shortage is choking the production of machines used to “mine” bitcoin, an industry dominated by China, pushing up hardware prices as a cryptocurrency surge spurs demand.
The rush is to assess small miners and accelerate an industry consolidation that could see players with deep pockets, many outside of China, profiting from the bitcoin bull run.
Bitcoin mining is closely watched by traders and users of the world’s largest cryptocurrency as the amount of bitcoin they make and sell in the market affects its supply and price.
Trading around $ 32,000 on Friday, bitcoin is down 20% from its record highs two weeks ago, but up 700% from its March low of $ 3,850.
“There aren’t enough chips to support production of mining rigs,” said Alex Ao, vice president of Innosilicon, a chip designer and major supplier of mining equipment.
Bitcoin miners use increasingly powerful, specially designed computer equipment to verify Bitcoin transactions in a process that produces newly minted bitcoins.
Taiwan Semiconductor Manufacturing Co and Samsung Electronics Co, the main producers of specially designed chips used in mining rigs, would also prioritize sectors such as consumer electronics, where demand for chips is considered more stable, Ao said.
The global shortage of chips is disrupting the production of a global range of products including automobiles, laptops and mobile phones.
The profitability of mining depends on the price of bitcoin, the cost of the electricity used to power the platform, the efficiency of the platform, and the computational power required to mine a bitcoin.
Demand for platforms exploded as bitcoin prices soared, said Gordon Chen, co-founder of cryptocurrency asset manager and miner GMR.
“When the price of gold goes up, you need more shovels. When milk prices go up, you want more cows. “
Lei Tong, general manager of financial services at Babel Finance, which lends to miners, said that “almost all large miners are browsing the platform market and are willing to pay high prices for used machinery.”
“The purchasing volumes in North America have been huge, reducing the supply in China,” he said, adding that many miners place orders for products that can only be delivered in August and September.
Most of the products from Bitmain, one of China’s largest drilling rig manufacturers, are sold out, according to the company’s website.
A sales manager at Jiangsu Haifanxin Technology, a rig dealer, said second-hand market prices have jumped 50 to 60 percent over the past year, while prices for new equipment had more than doubled. Used high-end mining machines have been valued at around $ 5,000.
“It’s natural if you look at how much bitcoin has grown,” said the manager, who only identified himself by his last name Li.
The cryptocurrency boom is affecting who is able to mine.
The rising cost of investments is eliminating small players, said Raymond Yuan, founder of Atlas Mining, which owns one of China’s largest mining companies.
“Institutional investors benefit from both large-scale management and management skills, while retail investors who could not keep up will be eliminated,” said Yuan, whose company has invested more than $ 500 million. in cryptocurrency mining and plans to continue investing heavily.
Many of the biggest players growing their mining operations are based outside of China, often in North America and the Middle East, said Wayne Zhao, chief operating officer of crypto research firm TokenInsight.
“China used to have low electricity costs as a core benefit, but as the price of bitcoin now goes up, that’s gone,” he said.
Zhao said that while China’s bitcoin mining previously accounted for up to 80% of the global total, now it is around 50%.