From January 2020 to date, the price of Bitcoin has skyrocketed nearly 9 times, but the computing power has only increased by 60%. Taking into account the halving factor, it has also indirectly pushed up the price of mining machines by nearly 6-8 times, and the profit margin has reached several times.

The core reason for the limited improvement in the computing power of the entire network is that the mining machine chips have reached the advanced process stage of 5-8nm, and the production capacity is very scarce. At present, the production capacity of advanced process chips has become a decisive factor in determining the manufacturers of Bitcoin mining machines. In other words, whoever can get the production capacity can make huge profits in the bull market.

Interestingly, Bitmain, Shenma, and Canaan have formed strategic partnerships with the world's three largest wafer foundries, TSMC, Samsung, and SMIC. The advanced process chip production capacity of these three wafer foundries will determine the fate of these three Bitcoin mining machine manufacturers.

Bitmain

How many mining machines did Bitmain sell from October 2019 to January 2021 when it was controlled by Wu Jihan? Public information shows that a total of about 200,000 units of the S19 series using TSMC's 7nm were sold, and futures sales will last until the end of 2021.

The major orders currently sold include:

Blockcap 10,000 units

Core Scientific 59,000 units

Marathon 100,000 units

Riot Blockchain 15,000 units

Vbit 0.3 thousand units

After the Spring Festival holiday, Bitmain returned to the control of Zhan Ketuan and began to sell the S19j series using TSMC's 5nm chips on a large scale. It was released twice in a row and is expected to be shipped in the third or fourth quarter of this year. Regarding Bitmain's 5nm production capacity in the second half of the year, there is information that it is about 2,000 pieces per month, which is equivalent to an output of 200,000 to 300,000 units in the second half of the year. It is estimated that Bitmain will ship between 300,000 and 400,000 units in 2021.

As early as 2020, Wu Blockchain learned from supply chain sources that TSMC's 7nm production capacity is very tight, but 5nm is relatively loose, especially with the recent cancellation of Apple mobile phone orders. Therefore, Bitmain began to seek more 5nm chip production capacity and manufacture S19j and the next generation of 5nm chip mining machines.

For Bitmain, one uncertainty is the quality of 5nm chips and their mining machines. The current mass production and sales are the first generation of 5nm chip mining machines, and Bitmain has experienced many failures in the 7nm chip, including the poor reputation of the 17 series, before the 19 series came to relative stability. However, in the bull market, quality issues seem to be negligible.

Shenma

Shenma has been using Samsung 8nm chips, and mainly sells M30S mining machines. The total volume in 2021 is expected to be between 150,000 and 300,000 units. The major orders currently disclosed include:

Foundry 14,000 units

Bitfarms 48,000

Blockstream: about 10,000

The9 5,000 units

TAAL 5,000 units

Hut8 5,400 units

An important piece of information is that Shenma recently disclosed a large order of 48,000 units with Bitfarms, with the delivery date from the beginning of 2022 to the end of 2022. This illustrates Samsung's production capacity difficulties in 2021 from another level.

Wu Blockchain learned that Samsung itself has limited advanced process production capacity, and has received large orders from Qualcomm and Nvidia, some of which are of poor quality, causing Qualcomm's new mobile phone chips to be criticized. Therefore, there are relatively few orders left for the mining industry at least before the third quarter of 2021.

Canaan

Since Canaan is a listed company, it has the most comprehensive information disclosure. Canaan has a rare multi-fab strategy, cooperating with TSMC, Samsung, and SMIC. In the second half of 2020, it began to turn to SMIC's n+1 process. Canaan's recent large orders include:

Core Scientific exceeds 25,000 units

AQ Group Limited Over 25,000 units

Blockcap 8.4K units

HIVE BlockChain 6,400 units

Canaan's public information pointed out that the company completed the design and production of SMIC's first-generation N+1 process Bitcoin mining chip in mid-2020. The chip was returned at the end of August, and the performance exceeded expectations in the test. The company expects to start using this chip in large quantities in the middle of the fourth quarter of 2020. Canaan's pre-sales amount in the third quarter of 2020 was close to 300 million yuan.

However, compared with Bitmain and Shenma, Canaan uses SMIC's N+1 chip, which has performance equivalent to 8nm and 7nm, but the quality and yield need to be greatly improved. Its advantage is that there is no dimensionality reduction competition from mobile phone and graphics card manufacturers. It is estimated that the annual shipments in 2021 may be between 200,000 and 350,000 units. At present, Canaan's market value has risen from the previous lowest of 200 million US dollars to a staggering 5 billion US dollars recently. Whether Canaan can catch up or not, there is only one key, that is, the quality of the N+1 chip.

variable

There are many combined reasons for the tight production capacity of advanced process chips, such as the demand for the transition from 4G to 5G, the increased demand for high-end electronic products, server chips, and audio and video processing chips due to the epidemic, the increased demand for chips due to the rise of electric vehicles, and the chip hoarding caused by previous US sanctions, etc.

However, as the epidemic eases, the Biden administration loosens its China policy, and wafer fabs expand production, the above-mentioned demand for chips may change. We can see that Apple has cut orders for 5nm. Therefore, in the fourth quarter, the capacity of wafer fabs will loosen, and mining machine manufacturers will get more capacity to start shipping, which will become another potential possibility.

Another variable is the price of Bitcoin. Although Zhan Ketuan has just called for Bitcoin to reach $300,000, there is also a judgment that the transition from a bull market to a bear market for Bitcoin may come as early as autumn, due to the adjustment of quantitative easing policies brought about by the popularization of the new crown vaccine in the United States. If the price of Bitcoin falls below $30,000 or even lower, the market demand for purchases will drop sharply, and the demand for wafer fabs from mining machine factories will become less urgent. Miners will choose mining machines with better quality and higher cost performance for purchase.