Cryptomania or Cryptocrisis?

Global demand for cryptocurrencies is on the rise and a new wave of cryptomania has been triggered by major institutional investors joining the market such as Grayscale, JPMorgan and Goldman Sachs. As a result of this renewed interest, additional pressure is now being added to the supply of global semiconductors.

This demand not only comes from small cryptominers, but also from large mining companies with rooms of mining equipment, such as rigs. A rig is required to mine various cryptocurrencies and uses specific components, including CPUs, GPUs, storage, memory and other specialized chips like ASICs. The more powerful the rig, the more quickly and efficiently one is able to mine.

As such, miners around the world are scrambling to obtain any technology that will allow them to remain competitive in the cryptocurrency market, leading to skyrocketing demand for these already constrained products. DRAM prices, for instance, have gone up by more than 60% in the past three months and are expected to rise another 20% in Q2 2021 due to cryptomining activity.

In addition to these components, advanced chips and wafers are experiencing rising prices and extremely limited supply for the same reason. The competition over resources will only worsen with the release of 5nm technology, TSMC’s next generation of processing nodes.

Because current generation rigs are utilizing 7 or 10 nm technology, the new 5nm technology will provide higher hash rates using the same amount of energy for a competitive advantage. However, Apple, Intel and AMD will be miners’ biggest competition for the newest chips – and the larger, more stable, companies will most likely win the battle to secure them.

Due to the high volatility of the market, manufacturers TSMC and Samsung are refusing to focus efforts on cryptocurrency demand and are instead continuing to focus on other stable sectors despite Bitcoin mining accounting for a tenth of TSMC’s entire sales in 2018. Even recently, cryptocurrency pricing crashed with $1.3 trillion USD lost from the general cryptocurrency market.

“Sony is patenting Bitcoin wagering as a form of in-game currency for online betting, which may drive GPU pricing higher. But, some manufacturers, such as Nvidia, are intentionally trying to curb cryptomining demand, because of how unpredictable cryptocurrency activity is,” states Kok How Yow, Global Commodity Director at Fusion Worldwide.

Nvidia’s partners have been unable to obtain needed GPU chipset supply because of how highly requested this component is for mining. In order to curb this, Nvidia’s new chips have been intentionally made to reduce mining efficiency by 50%. Regardless, miners have been able to overcome this hurdle, leading to a graphics card shortage and rising prices.

The RTX 3000 series, for example, is so limited that miners are using older generations of GeForce cards, such as the RTX 2060, GTX 1650 and GTX 660. Miners are even placing orders for products that can only be delivered in August or September. With the world’s leading GPU makers attempting to fulfill orders from two quarters ago, manufacturers are left to handle the competing needs of miners and PC gamers.

With nowhere to turn, in addition to a lack of resources to produce specialized chips or mining rigs, cryptominers are scouring the globe for second-hand machines and older generation mining rigs. Pricing for mining rigs in the Europe and US markets has already increased and is shown to be anywhere between 2-10 times higher than they were before the spike in activity.

“Cryptocurrency is still a potentially huge and growing market. The exponential growth value has attracted massive investors and miners over a short period of time. Technology is advancing at such a rapid pace and global demand for electronics components is unprecedentedly strong. The current bottleneck showcases the effects cryptocurrency activity can have on the global supply chain,” states Aaron Wong, purchasing representative at Fusion Worldwide.

Because all available components are being swept up by numerous industries, smaller miners are being eliminated as it requires a large investment to keep up with the industry. Larger mining companies, on the other hand, are prospering and growing their operations out of North America and the Middle East.

As mining activity continues to grow, so will the options of other cryptocurrencies, such as Ethereum, which accounts for 10% of the current market. Ethereum doesn’t require specialized ASICs chips like Bitcoin does, but instead uses multiple graphics cards for maximum efficiency.

“The cryptocurrency sector is driving memory, storage and GPU demand in the wake of rising inquiries and transactions, leading supply to severely tighten. However, overall activity has started to plateau with heightened prices appearing to give customers pause,” continues Wong.

Chia is another platform coming out of the woodwork and is designed to be an eco-friendly alt coin, which relies on the power of drives instead of on GPUs. Filecoin, another fast-growing platform, uses neither chips nor GPUs but mines through large storage capacity HDDs.

There is speculation that due to the market’s volatility, cryptocurrencies may diminish as manufacturers refuse to shift production to meet demand, but it is most likely here to stay in the long-term due to its tie to blockchain.

If so, the shortage of chips, memory, storage and GPUs will be made worse by cryptocurrency activity, especially since there is already competing demand from the automotive, 5G, AI and consumer electronics markets. With these industries already being stunted by a lack of components and raw material supply, it is likely the cryptocurrency market will face the same issue as well.

As we progress in blockchain technology and the acceptance of cryptocurrencies continues to grow, orders will carry on for substrates, ASIC designers, foundries, equipment factories, as well as for outsourced assembly and testing companies.