(Repeat Friday story without changing text)
By Samuel Shen and Alun John
SHANGHAI / HONG KONG, JANUARY 22 (Reuters) – A global shortage of chips is suffocating the production of machines used to mine bitcoin, a sector dominated by China, which is pushing up computer equipment prices in the crypto-currency the demand rises.
The scramble is pushing out smaller miners and accelerating a consolidation in the industry, which could lead to deep pockets, far beyond China, taking advantage of the bitcoin run.
Bitcoin mining is closely watched by traders and users of the largest cryptocurrency in the world because the amount of bitcoin they make and sell in the market affects supply and price.
If bitcoin trades around $ 32,000 on Friday, bitcoin is 20% lower than the record high it reached two weeks ago, but still about 700% higher than the low of $ 3,850 in March.
“There are not enough chips to support the production of mining drills,” said Alex Ao, vice president of Innosilicon, a disk designer and major supplier of mining equipment.
Bitcoin miners are increasingly using more powerful, specially designed computer equipment, or rigs, to verify bitcoin transactions in a process that produces newly cut bitcoins.
Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co., the major producers of specially designed chips used in mining platforms, will also prioritize supplies to sectors such as consumer electronics, whose demand for chips is becoming more stable, Ao said.
The global shortage of chips is disrupting production in a global range of products, including cars, laptops and mobile phones.
The profitability of mining depends on the price of bitcoin, the cost of the electricity used to power the rig, the rig’s efficiency, and how much computing power is needed to mine a bitcoin.
Demand for equipment has risen as bitcoin prices have skyrocketed, said Gordon Chen, co-founder of the asset manager and miner of the cryptocurrency.
“If gold prices jump, you need more digging. If milk prices go up, you want more cows.”
CONSOLIDATION
Lei Tong, managing director of financial services at Babel Finance, which is provided to miners, said that “almost all major miners are looking for the equipment market, and that they are willing to pay high prices for second-hand machines.”
“The purchase volumes from North America were huge, and it suppressed the supply in China,” he said, adding that many miners place orders for products that can only be delivered in August and September.
Most of Bitmain’s products, one of the largest straighteners in China, have been sold out, according to the company’s website.
A sales manager of Jiangsu Haifanxin Technology, a rig dealer, said prices on the second-hand market have risen by 50% to 60% in the past year, while the prices of new equipment have more than doubled. High-quality second-hand mining machines are quoted at about $ 5,000.
“It’s natural when you look at how much bitcoin has risen,” said the driver, who identified himself on Li’s side.
The rise of the crypto-currency is affecting who can mine it.
The rising cost of investment eliminates smaller players, says Raymond Yuan, founder of Atlas Mining, which owns one of China’s largest mining businesses.
“Institutional investors will benefit from both large-scale skills and management, while retail investors who could not keep up will be undone,” Yuan said. The company has invested more than $ 500 million in cryptocurrency mining and plans to continue investing.
Many of the larger players expanding their mining operations are outside China, often in North America and the Middle East, said Wayne Zhao, chief operating officer of crypto-research firm TokenInsight.
“Previously, China had low electricity costs as one core advantage, but as the bitcoin price now rises, it has passed,” he said.
Zhao said that bitcoin mining in China used to be 80% of the world total, but now accounts for about 50%. (Report by Samuel Shen and Alun John Editing by Vidya Ranganathan and William Mallard)