Microchip Maker TSMC Sees Cryptocurrency Mining Lead Sales

Conor Maloney
  • TSMC expect continued "strong demand" for crypto mining 
  • Their most recently quartlery report show how crypto mining is carrying the company through a seasonal decline in phone sales

The world's leading microchip manufacturer, the Taiwan Semiconductor Manufacturing Company (TSMC), recently released its quarterly report, which reveals cryptocurrency mining has been carrying the company through a seasonal decline in mobile phone sales.

The recent surge in cryptocurrency mining has taken the world by storm, but it's still surprising to think that the relatively new trend could impact such an established market in a major way.

TSMC makes over half of the world's microchips, and while refusing to release the exact figures as to what percentage of their business is now dependent on cryptocurrency mining, the company’s executives had only good things to say about crypto mining in their bullish quarterly report.

Per the report, the company generated $8.5 billion in revenue on Q1 this year, showing a 6.1 percent increase over last year. TSMC provides mining hardware manufacturer Bitmain its ASIC chips, and it appears the success of the Antminer E3 may have something to do with the continued growth, as 41 percent of the Q1 earnings occurred in March.

C.C Wei, President and chief compliance officer (CCO) at TSMC, claimed that "these results were mainly driven by strong demand from high performance computing such as cryptocurrency mining".

“Our first quarter business was impacted by an unfavorable foreign exchange rate as NT dollar has appreciated by 5.9% against US dollar over first quarter of 2017, as well as mobile product seasonality, while the continuing strong demand for cryptocurrency mining moderated the mobile softness,” said Lora Ho, the company’s SVP and Chief Financial Officer (CFO).

She added:

“Moving into second quarter 2018, continued weak demand from our mobile sector will negatively impact our business despite strength in cryptocurrency mining. Based on our current business outlook, management expects the overall performance for second quarter 2018 to be as follows”:

Lora Ho

Mark Liu, also CCO, said "We see very strong demand in the first quarter from cryptocurrencies. During the second quarter, while we do see some weakness in the 28mm chip, the [demand for] the rest of the technology is still very strong on cryptocurrency." Liu went on to say that blockchain technology and cryptocurrency mining would bring "innovation and demand for years to come.”

The fourth quarter of 2017 was also largely driven by cryptocurrency mining - as the largest semiconductor foundry in the world and producer of over half of the world's microchips, crypto mining sustaining the manufacturing giant is a strong sign cryptocurrency adoption and mining are rising worldwide.

How Bakkt Can Bring the Crypto Space an Institutional Investor Influx

Cryptocurrency enthusiasts have for years been waiting for institutional investors to enter the space. While the introduction of bitcoin futures contracts on regulated exchanges in late 2017 didn’t gain a lot of traction, but Bakkt may.

Bakkt is a long-awaited bitcoin futures exchange and on-boarding platform from the Intercontinental Exchange (ICE) - the parent company of the New York Stock Exchange – and it’s set to launch this year. Bakkt itself has remained tight-lipped over the precise launch date after delaying its launch last year, with ICE CEO Jeff Sprecher in February simply saying “later this year.”

It’s possible that this quarter may see the launch or at least more news about when the exchange is finally coming. At the end of March, Bakkt CEO Kelly Loeffler explained:

While we’re not yet able to provide a launch date, we’re making solid progress in bringing the first physical delivery price discovery contracts for bitcoin to the U.S.

Bakkt’s launch could be a major milestone for the cryptoasset industry. A venture backed by Microsoft and Starbucks, its institutional pedigree alone will switch many cautious investors on. Specifically, the firm is set to help consumers pay for goods and services with cryptocurrencies, with Starbucks being the flagship retailer in its arsenal.

Bakkt’s Bitcoin futures contracts will be the first physically-settled derivatives on a regulated trading platform. This means investors will receive the contract’s underlying asset, bitcoin, when it expires.

Currently the Chicago Mercantile Exchange (CME) offers cash-settled bitcoin futures contracts, meaning investors get the equivalent of BTC’s value in fiat when the contracts expire. This is seen by some as a major development in the cryptocurrency space, as it shows traditional finance is willing to interact with the nascent cryptoasset industry.

It’s worth noting that earlier this year the ICE’s CEO called Bakkt a “bit of a moonshot bet,”  as it was organized in a way “very different than the way ICE typically does business.” The firm has its own offices and management team, and could undergo more rounds of financing in the future.

Bakkt And a Potential Bitcoin ETF

What’s significant about Bakkt’s launch beyond this, is that it may bolster the chances of a Bitcoin Exchange-Traded fund (ETF) being approved. Such a product would make it easier for institutional investors to gain exposure to cryptocurrencies.

In August, the US Securities and Exchange Commission (SEC) rejected nine other ETF applications, in particular highlighting how those applying hadn’t provided evidence that “bitcoin futures markets are of significant size’” for an ETF to be launched.

Once Bakkt is launched its trading volumes may very well help quell the SEC’s concerns over the bitcoin futures markets’ small size as institutions and other investors may feel comfortable entering it. Larger futures contracts trading volume, increased liquidity and a well-established company involved may prove enough to convince the SEC that the time is right for a Bitcoin ETF.

Bakkt therefore represents a very significant milestone for a maturing cryptoasset industry and may well herald the “institutional influx” that many have been anticipating since 2017. Despite the markets remaining relatively flat throughout 2019 these looming decisions in the U.S. have the power to move the entire industry forward, for better or worse.