This article originally appeared in MarketWatch.

Research firm Bernstein recently published a report on the profitability of Bitmain Technologies, a secretive Chinese company with a huge impact on the bitcoin and cryptocurrency markets.

With estimated 2017 profits ranging from $3 billion to $4 billion, the size and scope of Beijing-based Bitmain is undeniable, with annual net income higher than some major tech players, including Nvidia and AMD. The privately held company, founded five years ago, has expanded its reach into many bitcoin-based markets, but most of its income stems from the development and sale of dedicated cryptocurrency mining hardware.

There is a concern that the sudden introduction of additional companies in the chip-production landscape could alter how other players operate. This includes the ability for Nvidia, AMD, Qualcomm and others to order chip production from popular semiconductor vendors at the necessary prices to remain competitive in their respective markets.

Bitmain makes most of its income through the development of dedicated chips used to mine bitcoin. These ASICs (application-specific integrated circuits) offer better performance and power efficiency than other products such as graphics chips from Nvidia and AMD. The Bitmain chips are then combined into systems called “miners” that can include as many as 250 chips in a single unit. Those are sold to large mining companies or individuals hoping to turn a profit from the speculative cryptocurrency markets for prices ranging from a few hundred to a few thousand dollars apiece.

Bitcoin mining giant

Bernstein estimates that as much as 70%-80% of the dedicated market for bitcoin mining is being addressed by Bitmain and its ASIC sales.

Bitmain could create headaches for NVIDIA, AMD, and Qualcomm - Graphics Cards 2

Bitmain has secondary income sources, including running mining pools (where groups of bitcoin miners share the workload of computing in order to turn a profit sooner) and cloud-based mining services where customers can simply rent mining hardware that exists in a dedicated server location. This enables people to attempt to profit from mining without the expense of buying hardware directly.

A Bitmain Antminer

The chip developer and mining hardware giant has key advantages for revenue growth and stability, despite the volatility of the cryptocurrency market. When Bitmain designs a new ASIC that can address a new currency or algorithm, or run a current coin algorithm faster than was previously possible, it can choose to build its Antminers (the brand for these units) and operate them at its own server farms, squeezing the profitability and advantage the faster chips offer on the bitcoin market before anyone else in the ecosystem has access to them.

As the difficulty of mining increases (which occurs as higher-performance mining options are released, lowering the profitability of older hardware), Bitmain can then start selling the new chips and associated Antminers to customers, moving revenue from mining directly to sales of mining hardware.

This pattern can be repeated for as long as chip development continues, giving Bitmain a tremendous amount of flexibility to balance revenue from different streams.

Imagine a situation where one of the major graphics chip vendors exclusively used its latest graphics chips for its own services like cloud-compute, crypto-mining and server-based rendering and how much more valuable those resources would be — that is the power that Bitmain holds over the bitcoin market.

Competing for foundry business

Clearly Bitmain is big business, and its impact goes well beyond just the bitcoin space. Because its dominance for miners depends on new hardware designs and chip production, where performance and power efficiency are critical to building profitable hardware, it competes for the same foundry business as other fabless semiconductor giants. That includes Apple, Nvidia, Qualcomm, AMD and others.

Companies that build ASICs as part of their business model, including Samsung, TSMC, GlobalFoundries and even Intel to a small degree, look for customers willing to bid the most for the limited availability of production inventory. Bitmain is not restricted to a customer base that is cost-sensitive — instead, its customers are profit-sensitive. As long as the crypto market remains profitable, Bitmain can absorb the added cost of chip production.

Advantages over Nvidia, AMD and Qualcomm

Nvidia, AMD and Qualcomm are not as flexible. Despite the fact that Nvidia can charge thousands for some of its most powerful graphics chips when targeting the enterprise and machine-learning market, the wider gaming market is more sensitive to price changes. You can see that in the unrest that has existed in the gaming space as the price of graphics cards rises due to inventory going to miners rather than gamers. Neither AMD nor Nvidia will get away with selling graphic cards to partners for higher prices and, as a result, there is a potential for negative market growth in PC gaming.

If Bitmain uses the same foundry as others, and is willing to pay more for it to build their chips at a higher priority than other fabless semiconductor companies, then it could directly affect the availability and pricing for graphics chips, mobile phone processors and anything else built at those facilities. As a result, not only does the cryptocurrency market have an effect on the current graphics chip market for gamers by causing shortages, but it could also impact future chip availability if Bitmain (and its competitors) are willing to spend more for the advanced process technologies coming in 2018 and beyond.

Still, nothing is certain in the world of bitcoin and cryptocurrency. The fickle and volatile market means the profitability of Bitmain’s Antminers could be reduced, lessening the drive to pay more for chips and production. There is clearly an impact from sudden bitcoin value drops (from $20,000 to $6,000 as we see saw this month) on mining hardware sales, both graphics chip-based and ASIC-based, but measuring that and predicting it is a difficult venture.