Global Shortage Of Microchips Is Taking A Toll On Chinese Bitcoin Miners
There is a global shortage of computer chips, and this is posing a problem for many Chinese Bitcoin miners and miners of other cryptocurrencies as well. This is happening at a time when there is a significant increase in the price of Bitcoin, particularly as a result of increased participation by financial institutions.
The recent rise in the price of Bitcoin which has seen the pioneer cryptocurrency cross the $40,000 mark for the first time has been attributed to the demand created by such institutions as mentioned above. Unlike previous bull runs that were influenced by whales and speculators, the current trend with the influx of institutional investors has created a new vibe of sustainability in the mainstream. The ripple effect of that is the entrance of even more participants into other areas in the industry, including mining.
The State of Bitcoin Mining Industry
Bitcoin miners play a fundamental role in maintaining the network by confirming transactions. This is carried out via the competitive process of solving complex algorithmic mathematical problems. In return, the miners earn rewards in the form of transaction fees and the creation of new Bitcoin contained in the freshly mined blocks.
Due to the competitive nature of the mining exercise, a lot of factors come into play which includes the cost of electricity, and the cooling of equipment among others. This is why Bitcoin mining has over the years appeared to adopt a regional identity, which China representing a global hub for the mining of Bitcoin and other cryptocurrencies.
According to Reuters, the prevailing shortage of microchips is affecting a number of industries which include car manufacturing, PCs, laptops, smartphone production and indeed, Bitcoin and cryptocurrency mining. The unique case of mining is complicated as a result of the coincidence with the increasing demand for Bitcoins and the associated expansion of the mining industry.
In a previous report on 8BTC, it was noted that Chinese cryptocurrency miners are already scrambling for second-handed machines just to keep up with industry requirements. The report explained that the recent bull run resulted in a 5 times increase in mining output, making mining exercise way more profitable than in the recent past.
Between The Newcomers and Existing Miners
The cofounder of crypto asset management fund and mining company GMR, Gordon Chen, explains that the demand for mining rigs soared in response to the spiking price of Bitcoin which began in December 2020. According to him, more participants wanted to enter the market, while existing miners are making efforts to expand their capacities.
Bitman, which represents one of the largest mining equipment producers in China has already stated on its website that it is sold out on all of its mining gears. In a similar tone, Reuters reports that a high-profile executive of Babel Finance, Lei Tong has also corroborated the earlier report on 8BTC. He said;
Crypto miners are so desperate for more equipment that they are purchasing second-hand machines and ordering rigs that will only be delivered in late summer or early fall this year.
Even the second-hand mining gears aren’t readily available in the market. The scarcity of these gears has led to prices spiking up to 50-60 percent over the past year, while the prices of new rigs have practically increased by 100 percent. This is according to a sales manager at rig merchant Jiangsu Haifanxin Technology, Li.
Situations such as explained in this article are leading to the drop in the dominance of China when it comes to the cryptocurrency mining industry. Originally, China was home to about 80 percent of the total Bitcoin and cryptocurrency miners. This dominance has dropped to about 50 percent as participants from other parts of the world are making entry into the space. This is as noted by the COO of TokenInsight, Wayne Zhao, as he acknowledged that Bitcoin miners outside of China are growing their businesses at a very fast rate.