The Bitcoin ASIC mining manufacturing industry ( BTC ) is expected to further consolidate due to increased competition, geopolitical pressures and slower return on investment after Bitcoin's recent halving .
In a new report the exchange of cryptographic BITMEX derivatives, issued June 15, researchers have written that they "think it is likely that only 2-3 players survive in the longer term."
The report analyzes the history and current state of the ASIC manufacturing industry, focusing on the main players currently involved - Bitmain, MicroBT, Canaan and Ebang.
ASIC refers to operating hardware that uses application-specific integrated circuit chips, which are designed to effectively mine cryptocurrencies based on a specific hashing algorithm.
On the other hand, configurations that use GPUs are less specialized and have thus far struggled to compete for rewards on the network with those that deploy ASICs.
This has raised lingering concerns about the centralization of various blockchains, due to rising capital investment costs for potential miners.
Consolidation among the ASIC manufacturers themselves, as BitMEX's analysis suggests, therefore implies increasing concentration at different levels of the industry.
Consolidation at all levels?
Notably, the BitMEX report predicts that not only will ASIC manufacturing continue to consolidate, but so will the mining operation.
In its Q1 2020 Q&A session, ASIC manufacturer Canaan reportedly revealed that:
“Even after the halving, we see more and more requests and there are a lot of them, big requests for potential orders. We see that sales are more and more key customers or large customers. "
BitMEX journalists say they heard the same message during discussions with ASIC manufacturers MicroBT and Bitmain.
Reasons for consolidation within ASIC manufacturing
The BitMEX report indicates that Bitmain - whose market share was 75% during the 2017 bull market - has lost its dominance in the past 18 months to new players like MicroBT. The latter would hold 35% of the market in 2019.
Bitmain remains nevertheless, for the moment, the “number one”, despite “an almost catastrophic corporate governance situation” in the midst of a power struggle between its main leaders.
Meanwhile, rival manufacturer Canaan has obtained public listing and therefore offers more transparency in its operations and results, but BitMEX notes that:
“ASIC manufacturing is a cash-intensive and difficult industry [and] given the technical leadership that MicroBT and Bitmain have , without a strong bull run for Bitcoin , the road ahead for Canaan can be difficult.”
Ebang, which is also seeking an IPO (like Bitmain), faces a "relatively weak market positioning with regard to the energy efficiency of its products".
Other factors weighing on industry players include tensions over US-China trade, the impact of COVID-19 and the difficult political situation in Hong Kong.
Elsa Zhao, Marketing Manager for MicroBT, appears to corroborate BitMEX's assessment, saying:
“The clientele is moving more and more outside of China. Since the return on investment has been halved, the period has increased […] depending on the difficulty and the current price. At the same time, […] clients are now larger funds, no longer small businesses or individuals. […] After cutting Bitcoin in half , the competition becomes more serious and only the most competitive mining machines will survive. Further consolidation is likely. "
