The world’s biggest contract chipmaker recently informed investors that sales were slowing due to “falling demand” for the microprocessors that specialize in blockchain mining. Almost two weeks ago, Taiwan Semiconductor Manufacturing Co. (TSMC) had to lower this year’s sales growth forecast to 6.5% from earlier estimates of between 7% and 9%.
“Chip orders are down,” says Zhang Jian, founder of Fcoin/F1, a cryptocurrency exchange from China. “This is a clear reflection of the continuing bear market within the cryptocurrency space. It is no secret that mining cryptocurrency has accelerated the advance and sales of computing power, but this pace has slowed significantly in Q2 and Q3.”
Cryptocurrencies are shedding some of their magic. The proxy for legal tender had once charmed investors while spawning countless fintech startups that are building services based on blockchain technology. But prices for bitcoin have slumped 60% this year, making it more difficult for the miners to turn a profit by using their powerful computer systems to generate and verify units of cryptocurrencies.
TSMC produces high-performance computing chips for clients like AMD, which has also been showing signs of a slowdown. This industry news report went so far as to say that AMD saw a “huge” decline in second-quarter business from crypto mining chips and that the company was not anticipating a rebound in the third. TSMC declined to discuss cryptocurrency mining chips for this report.
Interest in cryptocurrency mining has tapered this year in part because Bitcoin prices have tumbled. This commentary predicts a bear market through year’s end. Mining has also grown increasingly competitive and reward formulas more complex. When the market slumps, a miner’s equipment’s income will “sag a lot” and “even become unprofitable,” Intelligent Investing says in this July commentary.
“A decline in demand for cryptocurrency mining equipment has to do with the high cost of purchase,” says Peng Mao-jung, an international strategy center manager with the Taiwan government’s Industrial Technology Research Institute. “The lack of interest in mining equipment also has to do with the implosion of crypto prices.”
Just a leveling off in demand?
To be sure, slumping prices of cryptocurrencies aren’t the only reason for the slowdown. Orders for mining processors may have “leveled off” as buyers wait for an upgrade in chips from a 16-nanometer to a 7-nanometer process, says Shone Anstey, executive chairman and cofounder of BlockChain Intelligence Group, a Vancouver-based cryptocurrency tracking firm. Chips made through a 7-nanometer process would offer more power per machine, with more energy efficiency. Producers may find this scheme “profitable,” Anstey says for this post.
“The indicators are there that the market has been slowing down in preparation for this new family of mining chips to come into production,” he adds. “The increased power of these new mining chips may prompt the smaller mining operations to pool resources in order to scale up.”
Today bigger miners have an edge in generating new units of crytocurrencies because of their relative computing power.
Blockchain technology is expected to grow anyhow as financial institutions and stock exchanges use it more often. “The key factor that drives the growth of this market is the ability to share the ledger and continually reconciled database,” Peng says.