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Sino-US trade war is reshaping bitcoin supply chains

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Three Chinese firms control more than 90% of mining rig

market

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Reliance on China for hardware is risk for US, experts say

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Chinese firms also up against US security concerns

By Samuel Shen and Vidya Ranganathan

SHANGHAI/SINGAPORE, June 18 (Reuters) - The world's

three best-selling makers of bitcoin mining machines - all of

Chinese origin - are setting up manufacturing footholds in the

United States as President Donald Trump's tariff war reshapes

the cryptocurrency supply chain.

Bitmain, Canaan and MicroBT build over 90% of global mining

rigs - essentially computers dedicated to number-crunching that

produces bitcoin. Establishing U.S. bases could shield them from

tariffs but risks stoking security concerns the U.S. has with

China in areas as varied as chip making and energy security.

"The U.S.-China trade war is triggering structural, not

superficial, changes in bitcoin's supply chains," said Guang

Yang, chief technology officer at crypto tech provider Conflux

Network.

Moreover, for U.S. firms, "this goes beyond tariffs. It's a

strategic pivot toward 'politically acceptable' hardware

sources," Yang said.

Bitmain, the biggest of the three by sales, started U.S.

production of mining rigs in December in a "strategic move"

following Trump's presidential electoral win a month earlier.

Canaan started trial production in the U.S. with the aim of

avoiding tariffs after Trump on April 2 announced his so-called

Liberation Day levies, senior executive Leo Wang told Reuters.

The initiative is exploratory as the volatile tariff situation

precludes heavy investment, he said.

Third-ranked MicroBT in a statement said it is "actively

implementing a localisation strategy in the U.S." to "avoid the

impact of tariffs".

The trio dominate a sector analysts estimated to be worth

$12 billion by 2028. It is the upstream of a business chain that

extends through the energy-intensive process of mining bitcoin,

the supporting IT infrastructure and the trading platforms.

U.S. rival Auradine - backed by top bitcoin miner by market

value, MARA Holdings ( MARA ) - has been lobbying to restrict

Chinese supplies to stimulate competition in hardware.

"While over 30% of global bitcoin mining occurs in North

America, more than 90% of mining hardware originates from China

representing a major imbalance of geographic demand and supply,"

said Auradine's chief strategy officer, Sanjay Gupta.

Consultancy Frost & Sullivan estimated the top three held

95.4% of the hardware market in terms of computing power sold as

of December 2023.

When it comes to Chinese mining rigs, "hundreds of thousands

of them connected to the U.S. electrical grid" is a security

risk, Gupta said.

Canaan's Wang said mining rigs do not threaten security

because "they are useless if not applied to bitcoin mining".

Still, manufacturers could suffer "collateral damage" from U.S.

restrictions on high-tech sales to Chinese firms, he said.

Underscoring the risk, Bitmain's AI affiliate, Sophgo, has

been blacklisted by the U.S. government on security grounds.

Bitmain did not reply to a request for comment.

FIRST-MOVER

China once dominated the entire bitcoin value chain - from

rig-making through mining to trading - until its government

banned cryptocurrency activity on the Chinese mainland in 2021

citing risk to financial stability.

Miners, traders and exchanges moved abroad. Shielded by

their role as technology manufacturers, however, Bitmain, Canaan

and MicroBT continued to dominate in hardware. They fended off

Western rivals partly due to first-mover advantage in developing

high-performance chips tailor-made for mining.

Canaan has since moved its headquarters to Singapore from

China - though it still has Chinese operations - and set up a

pilot production line in the U.S., a market that contributed 40%

of revenue last year.

"The rationale is to try to reduce the cost for both us and

our customers," said Wang, Canaan's vice president of corporate

development and capital markets. The prospect of tariffs means

"we have to explore all alternatives".

The U.S. this year imposed a 10% baseline tariff on imports

from many countries plus an extra 20% on imports from China. It

has also said it could increase tariffs for Southeast Asian

countries where Chinese rig makers have set up assembly plants.

CHOKE POINT

Trump has promised to be the "crypto president" who

popularises cryptocurriencies' mainstream use in the United

States. Son Eric Trump together with energy and technology

firm Hut 8 ( HUT ) launched miner American Bitcoin with the goal

of building a strategic bitcoin reserve.

The president's crypto-friendly policies, however, can only

highlight China's outsized role in bitcoin infrastructure,

potentially putting rig makers in the crosshairs.

China's hardware dominance "creates a choke point for U.S.

miners," said John Deaton, a U.S. crypto-law attorney.

"If China restricts exports or manipulates supply ... it

could disrupt bitcoin's network stability and affect U.S. users

and investors," Deaton said.

The biggest miners by market value - MARA, Core Scientific ( CORZ )

, CleanSpark ( CLSK ) and Riot Platforms ( RIOT ) - are

all U.S.-based, so over-reliance on hardware of Chinese origin

"is potentially problematic", said Ryan M. Yonk, an economist at

the American Institute for Economic Research.

Chinese rig makers might be setting up shop in the U.S. but

in the short term, U.S. miners will still buy rigs from China

and be stung by higher import costs, said Kadan Stadlemann,

chief technology officer at crypto platform Komodo.

"But this isn't about hurting the industry. It's about

forcing a long-overdue shift," he said.