Market Intelligence
September 29, 2022

How Cryptocurrency Volatility Impacts Your Supply Chain

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For many people, cryptocurrency, or crypto, may as well be Monopoly money. Public perception has mostly relegated the crypto market to people who understand terms like hash code and blockchain, and who aren’t daunted by a mining process that conjures images of something akin to a video game. However, crypto is a very real — if not physically tangible — product that has had a serious impact on the semiconductor supply chain.

As global economic downturn affects consumer markets, crypto has been forced to weather a new crash — one with larger implications for the semiconductor industry. As crypto continues to shift availability and pricing of electronic components, companies should track its movements to secure their own supply chains.

How Has Crypto Influenced the Semiconductor Industry?

The crypto market is intricately woven into supply and demand for the semiconductor industry, and we have already seen how crypto’s fluctuating value can send waves through the supply chain.

In 2017 Nvidia’s GTX 10 series and AMD’s RX 500 series graphic cards were driven into a shortage as miners stockpiled supply. This drastic swing hit the GPU market and caused two GPU manufacturing giants, AMD and Nvidia, to lose revenue as product availability shrunk. Stock prices then plummeted and caused dramatic slashing of sales forecasts.

In 2020, the crypto market accounted for 19% of the world’s GPU production. These chips are necessary for the computers that generate crypto coins, but demand for these components shifts frequently. This has been a major obstacle for manufacturers trying to match supply with demand.

During the years of the COVID-19 pandemic, consumers around the world took the opportunity to upgrade their computers for both professional and personal use. This, combined with a boom of crypto demand, caused component prices to skyrocket while supply steadily dwindled. Manufacturers’ suggested retail prices (MSRP) for GPUs jumped from $300 to $800 plus, even tripling during certain periods of particularly intense demand.

By 2021, crypto mining comprised 35% of global consumer demand for GPUs. The increased number of orders for DRAM components, GPUs, plus other advanced chips and wafers overwhelmed manufacturers and once again caused a supply race.

To deter the crypto market, Nvidia reduced their chips’ mining efficiency by 50%, but miners continued to buy the parts regardless and consequently drove up graphic card pricing. Supply from manufacturers became so difficult to secure that consumers desperately looking for gaming consoles or trying to update their computers were forced to pay scalpers outrageously marked-up prices.

What Does Another Crash Mean for the Market?

Ethereum 2.0, one of the more popular forms of crypto, recently debuted a mining process that reduces the need for GPU cards. Instead of relying on a system of “proof-of-work,” Ethereum would switch to “proof-of-stake,” which uses less energy.

Instead of generating coins via the mining process that requires energy-consuming computers racing to find new codes, proof-of-stake entails contributors depositing a set amount of crypto into a pool. This places them in a lottery that selects a winner every time a transaction requiring approval occurs.

In preparation for this new approach, demand for GPUs has fallen. The first two months of 2022 saw Nvidia’s sales of GPU cards drop 75% in comparison to the year prior. Several factors contributed to the drop, like global economic downturn and reduced consumer spending, but crypto’s role in this trend cannot be discounted.

Nvidia’s stock consequently fell 48% in the beginning of 2022 and the company reduced hiring initiatives to prepare for slowing demand. The two largest verticals for Nvidia are crypto mining and gaming, neither of which is predicted to have a spike in orders again in the short term.

Demand for Crypto Has Decreased Rapidly, What Does This Mean for the GPU And Crypto Market?

Environmental policies have also impacted the already decreasing demand for crypto. In September 2020, China announced a carbon neutral policy, which cracked down on crypto mining farms. Crypto mining requires massive amounts of power and bitcoin mining operations alone accounted for 2.2 GW of total energy consumption in China. The new policy caps China’s energy consumption at 364 GW, and crypto has quickly become a main target as an area to cut back.

In response to China’s new policy, demand for GPUs quickly fell, along with other cryptomining hardware orders. GPU prices have already fallen to below MSRP, and demand has flatlined.

By September 2021, all crypto related activities – including mining, trading and marketing, had eroded in China. Mining owners had to relocate machines to Kazakhstan, Russia, Europe, and the U.S.

However, these markets may also sour on crypto as inflation continues and additional questions about crypto’s impact on the environment arise.

How Your Business Can Secure Supply

The crypto industry has repeatedly proven its ability to introduce volatility into the semiconductor market. When crypto prices rise, the cost of components will likely follow suit. If companies are looking for cost-saving opportunities, they should take advantage of the current market and buy components now while crypto demand and pricing is low. If the crypto craze returns with a vengeance, this market won’t stick around for long.

While manufacturers and their customers don't need to understand all the ins and outs of crypto, it shouldn't be ignored as a factor in the supply chain. The best way to prepare for the fluctuating demand for crypto is to pay attention to which components are most often utilized by crypto miners and prepare your supply in accordance with those waves of demand.

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