The battle for ASIC supremacy: Bitmain is still the top player

By MARIE HUILLET

Odaily Planet Daily Translator | Yu Shunsui

Further consolidation in the Bitcoin ASIC mining machine manufacturing industry is expected due to increased competition, geopolitical pressures, and slowing returns on investment after Bitcoin’s May halving.

In a newly released report, “The Battle for ASIC Supremacy,” from crypto derivatives exchange BitMEX, researchers wrote that they “believe it is likely that only 2 or 3 players will survive in the long term.”

The report analyzes the history and current status of the ASIC mining machine manufacturing industry, focusing on the current major players - Bitmain, MicroBT, Canaan and Ebang.

Application-Specific Integrated Circuits (ASICs) refer to mining hardware that uses application-specific integrated circuit chips that are customized to a specific hashing algorithm and designed to mine cryptocurrencies efficiently. In contrast, GPU devices are less specialized and have thus far struggled to compete with ASIC devices for network rewards.

There have been concerns about centralization of various blockchains due to the rising capital investment costs for future miners.

Therefore, as the BitMEX analysis shows, consolidation among ASIC manufacturers means increasing concentration at all levels of the industry.

Full integration?

Notably, the BitMEX report predicts that not only will the ASIC manufacturing industry continue to consolidate, but also the mining farm operations industry.

In a Q1 2020 earnings call, ASIC manufacturer Canaan Creative reportedly disclosed that “even after the halving, we are seeing more and more inquiries, and they are inquiries for large quantities and large potential orders. We are seeing sales increasingly to key customers or large customers.”

The BitMEX authors claim they have heard the same message from discussions with ASIC manufacturers MicroBT and Bitmain.

Reasons for internal consolidation in the ASIC manufacturing industry

BitMEX reports that over the past 18 months, Bitmain’s market share (which stood at 75% during the 2017 bull run) has begun to be eroded by new players such as MicroBT, which is estimated to have a 35% market share in 2019.

Image source: BitMEX, ASIC mining market share by manufacturer (TH/s sold)

However, Bitmain remains the "number one player" at present, despite "facing an almost comical and poor corporate governance situation" amid power struggles among its executives.

Meanwhile, competitor Canaan Inc. is publicly listed, so its operations and earnings are more transparent, but BitMEX noted that “ASIC manufacturing is a cash-intensive, difficult industry, [and] given MicroBT and Bitmain’s technological lead, Canaan’s future path could be challenging without a strong bull run in Bitcoin.”

Ebang, which is seeking an IPO like Bitmain, faces "relatively weak product energy efficiency market positioning."

Other factors affecting the industry include trade tensions between the United States and China, the impact of COVID-19, and others.

Elsa Zhao, marketing manager at MicroBT, seemed to confirm BitMEX’s assessment, noting that “the customer base is increasingly moving out of China. Because the investment payback period since the halving is getting longer, it is now much longer than six months based on the current mining difficulty and price. At the same time, the average customer size is now growing significantly, and customers are now larger funds, no longer small businesses or individuals. Three to five years ago, there was only one leading company in this industry, and some of the top companies competed in the past one or two years. But from now on, there will be 2 or 3 leading companies in this industry. After the Bitcoin halving, competition is getting more and more fierce, and only the most competitive miners will survive. Further consolidation is likely.”