A severe global shortage of computer chips used to make bitcoin mining rigs has reduced the production capacity of the rigs in China, which has the world’s biggest BTC mining rigs manufacturing industry.
The crisis is now causing the price of new rigs to skyrocket, as demand for cryptocurrencies continues to soar in the ongoing crypto market bull run.
According to a report by Reuters, small miners are likely to be phased out due to expensive rig prices, leading to a consolidation of the mining industry into the hands of a few deep-pocketed players, most of whom are located outside of China.
Alex Ao, vice president of major Wuhan-based chip designer and rig manufacturer Innosilicon said:
“There are not enough chips to support the production of mining rigs.”
Bitcoin miners are a crucial part of the Bitcoin network as they keep it alive by processing transactions, providing security, and adding new bitcoins into the circulating supply through mining. The chip shortage has also disrupted other industries around the world, causing a disruption in the production of automobiles, laptops, and cellphones.
Mining Rigs Contribute Significantly To Miners’ Profitability
Bitcoin mining farms require dedicated ASIC miners which often need to be upgraded to keep up with the ever-increasing mining difficulty of the Bitcoin network.
The profitability of the mining business depends on a few factors such as the price of BTC, the electricity cost, the efficiency and computing power of the mining rig.
At a time when BTC price and demand for mining rigs are high, low supply has pushed almost all major miners to scour the markets for powerful and even second-hand mining rigs.
Miners are placing orders for rigs that won’t be delivered until August and September 2021, according to the managing director of financial services at Babel finance, Lei Tong.
“Purchase volumes from North America have been huge, squeezing supply in China.”
China, which has dominated the BTC mining and rig manufacturing industry at over 80% for over a decade is currently being pushed down by rising BTC prices and rigs’ scarcity.
Bitmain’s Rigs Are Sold Out
Leading Beijing-based bitcoin mining manufacturer Bitmain has doubled the price of its rigs to capitalize on the extreme demand in the market. A top mining rig Bitmain’s Antminer which sold at $1,897 in late November has increased by 98% to $3,769.
As early as December 2020, the company was already pre-selling rigs with a shipping date of Q2 2021. Additionally, most of the products are currently sold out as indicated on its website.
Some of the mining companies placing massive orders on mining rigs include Riot Blockchain, (31,000 new rigs), Core Scientific (59,000 Bitmain rigs), and Marathon Patent Group (over 100,000 rigs).
The scarcity of mining rigs in the current market represents a perfect storm for supply constraints, according to Armanda Fabiano, head of mining at Galaxy Digital.
“At this rate, hardware procurement will continue to be an obstacle throughout 2021.”
