SHANGHAI / HONG KONG (Reuters) – A global chip shortage is choking production of machines used to “mine” bitcoin, a China-dominated sector, sending prices of computer equipment soaring as the cryptocurrency drive demand.
The skateboarding prints smaller miners and accelerates the consolidation of an industry that could see deep pocket players, many outside China, benefit from the bitcoin bull run.
Bitcoin mining is closely watched by the world’s largest cryptocurrency traders and consumers, as the amount of bitcoin they make and sell to the market affects its supply and price.
Trading at around $ 32,000 on Friday, bitcoin is down 20% from its highest highs hit two weeks ago but still rising some 700% from its March low of $ 3,850.
“There are not enough chips to support the production of mining rigs,” said Alex Ao, vice president of Innosilicon, a chip designer and leading provider of mining equipment.
Bitcoin miners use increasingly powerful, specially designed computer tools, or rigs, to verify bitcoin transactions in a process that produces newly mined bitcoins.
Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co., major producers of specially designed chips used in mining rigs, would also prioritize supplies to sectors such as consumer electronics, whose demand for chips is considered more stable, Ao said.
The global chip shortage is disrupting production across a global range of products, including automobiles, laptops and mobile phones.
The profitability of mining depends on the price of bitcoin, the cost of electricity used to power the rig, the efficiency of the rig, and the amount of computing power needed to mine bitcoin.
Demand for rigs has boomed as bitcoin prices increase, said Gordon Chen, co-founder of cryptocurrency asset manager and GMR miner.
“When gold prices jump, you need more shovels. When milk prices go up, you want more cows. ”
Lei Tong, managing director of financial services at Babel Finance, which lends to miners, said “almost all large miners scour the market for rigs, and are prepared to pay high prices for second-hand machines.”
“Purchasing volumes from North America have been huge, squeezing supply in China,” he said, adding that many miners place orders for products that can only be delivered in August and September.
Most Bitmain products, one of the largest rig manufacturers in China, are sold out, according to the company’s website.
Sales manager at Jiangsu Haifanxin Technology, a rig trader, said prices on the second-hand market have jumped 50% to 60% over the past year, while new equipment prices have more than doubled. High-end second-hand mining machines were quoted at around $ 5,000.
“It’s natural if you look at how much bitcoin has risen,” said the manager, who noted his surname Li.
The cryptocurrency surge affects who can mine.
The rising cost of investment is eliminating smaller players, said Raymond Yuan, founder of Atlas Mining, which owns one of China’s largest mining business.
“Institutional investors benefit from large-scale management and proficiency, but retail investors who couldn’t keep up will be weeded,” said Yuan, whose company has invested over $ 500 million in cryptocurrency mining and plans to continue investing heavy.
Many of the larger 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 one core advantage, but as the bitcoin price now rises, that’s gone,” he said.
Zhao said that while bitcoin mining in China used to account for as much as 80% of the world’s total, it now accounted for about 50%.
Reporting by Samuel Shen and Alun John; Editing by Vidya Ranganathan and William Mallard