(Repeats Friday’s story without changing the text)
By Samuel Shen and Alun John
SHANGHAI / HONG KONG, Jan. 22 (Reuters) – Global chip shortages are stifling production of machines used to “mine” bitcoin, a sector dominated by China, causing computer equipment prices to skyrocket as a increase in cryptocurrency drives demand.
The confusion is eliminating smaller miners and accelerating an industry consolidation that could make players with many pockets, many outside China, profit from the rise of bitcoin.
Bitcoin mining is closely watched by traders and users of the world’s largest cryptocurrency, as the amount of bitcoins they produce and sell on the market affects their supply and price.
Trading at around $ 32,000 on Friday, bitcoin fell 20% from the high records it hit two weeks ago, but still rose about 700% from the March low of $ 3,850.
“There are not enough chips to support the production of mining platforms,” said Alex Ao, vice president of Innosilicon, a chip designer and a major supplier of mining equipment.
Bitcoin miners use specially designed and increasingly powerful computer equipment, or platforms, 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 platforms, would also prioritize supply to sectors such as consumer electronics, whose chip demand is seen as more stable, Ao said .
The global chip shortage is disrupting the production of a global range of products, including automobiles, laptops and cell phones.
Mining profitability depends on the price of bitcoin, the cost of electricity used to power the equipment, the efficiency of the equipment and how much computing power is required to extract a bitcoin.
Demand for platforms has skyrocketed with rising bitcoin prices, said Gordon Chen, co-founder of the mining company and cryptocurrency asset manager GMR.
“When the price of gold goes up, you need more shovels. When the price of milk goes up, you want more cows.”
CONSOLIDATION
Lei Tong, managing director of financial services at Babel Finance, which lends to miners, said that “almost all major mining companies are searching the market for rigs and are willing to pay high prices for used machines.”
“North American purchasing volumes have been huge, reducing supply in China,” he said, adding that many miners are placing orders for products that can only be delivered in August and September.
Most of Bitmain’s products, one of the largest platform manufacturers in China, are sold out, according to the company’s website.
A sales manager at Jiangsu Haifanxin Technology, a platform trader, said prices in the second-hand market had increased by 50% to 60% last year, while prices for new equipment more than doubled. High-quality second-hand mining machines have been priced at around $ 5,000.
“It is natural if you look at the amount of bitcoin that has gone up,” said the manager, who identified himself by the surname Li.
The rise in cryptocurrency is affecting who can mine.
The rising cost of the investment is wiping out smaller players, said Raymond Yuan, founder of Atlas Mining, which owns one of China’s largest mining companies.
“Institutional investors benefit from large scale and management proficiency, while retail investors who failed to 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 developing their mining operations are based outside of China, usually in North America and the Middle East, said Wayne Zhao, director of operations at crypto research firm TokenInsight.
“China used to have low electricity costs as a main advantage, but as the price of bitcoin goes up now, it is over,” he said.
Zhao said that while bitcoin mining in China was responsible for up to 80% of the world total, it is now responsible for about 50%. (Reporting by Samuel Shen and Alun John Editing by Vidya Ranganathan and William Mallard)