A worldwide chip shortage is choking the production of machines used to “mine” bitcoin, an industry dominated by China, sending costs of the computer equipment soaring as a surge in the cryptocurrency pushes demand.
The scramble is pricing out smaller miners and hastening an industry consolidation which will see deep-pocketed players, many external China, profit out of your bitcoin bull run.
Bitcoin mining is closely watched by dealers and users of the world’s largest cryptocurrency, since the amount of bitcoin they sell and make in the marketplace affects its supply and cost.
Trading about $32,000 on Friday, bitcoin is down 20 percent from the record drops it struck two weeks ago but up some 700% from its March low of $3,850.
“There are not enough chips to support the production of mining rigs,” explained Alex Ao, vice president of Innosilicon, a processor designer and major provider of mining gear.
Bitcoin miners use increasingly strong, specially-designed computer gear, or rigs, to verify bitcoin trades in a process that produces freshly minted bitcoins.
Taiwan Semiconductor Manufacturing Co and Samsung Electronics Co, the main producers of especially made chips used in mining rigs, could also prioritise supplies to industries like consumer electronics, whose chip demand is viewed as more secure, Ao explained.
The global chip deficit is interrupting production across a worldwide array of products, including cars, laptops and cellular phones.
Mining’s profitability is dependent upon bitcoin’s cost, the price of the electricity used to power the rig, the rig’s efficacy, and how much computing power is necessary to mine a bitcoin.
Requirement for rigs has thrived as bitcoin prices jumped, said Gordon Chen, co-founder of cryptocurrency asset manager and miner GMR.
When milk prices rise, you want more cows.
Lei Tong, managing director of financial services in Babel Finance, which lends to miners, said that “almost all major miners are scouring the market for rigs, and they are willing to pay high prices for second-hand machines.”
“Purchase volumes from North America have been huge, squeezing supply in China,” he said, adding that many miners are placing orders for products which could only be delivered in August and September.
Most of the products of Bitmain, one of the largest rig manufacturers in China, are sold out, based on the company’s website.
A sales manager at Jiangsu Haifanxin Technology, a rig retailer, said costs on the second-hand market have jumped 50% to 60% within the past year, while costs of new equipment over doubled. High-end, second-hand mining machines have been quoted about $5,000.
“It’s natural if you look at how much bitcoin has risen,” said the manager, who identified himself on by his surname Li.
The cryptocurrency spike is impacting who is able to mine.
The rising cost of investment is removing smaller players,” said Raymond Yuan, founder of Atlas Mining, which owns one of China’s biggest mining business.
A number of the bigger players expanding their mining operations are located outside of China, frequently in North America and the Middle East, said Wayne Zhao, principal operating officer of crypto research company TokenInsight.
“China used to have low electricity costs as one core advantage, but as the bitcoin price rises now, that has gone,” he explained.
Zhao said that while formerly bitcoin mining in China used to account for as much as 80 percent of the world’s total, it now accounted for around 50%.
The team at Platform Executive hope you have enjoyed this news article. Translation from English to other languages via Google Cloud Translation. Initial reporting via our official content partners at Thomson Reuters. Reporting by Samuel Shen and Alun John. Editing by Vidya Ranganathan and William Mallard.
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