What crypto volatility means for electronic component supply chain

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As global economic downturn affects consumer markets, and cryptocurrency itself goes through some major changes, a new crash in demand is once again influencing electronic component supply. As crypto continues to shift availability and pricing of components, companies should track its movements to secure their own supply chains.

How Has Cryptocurrency Influenced the Semiconductor Industry?

The crypto market is intricately woven into supply and demand for the semiconductor industry, and crypto's fluctuating value has shown the effect it can have.

In 2017, crypto miners stockpiled supply of Nvidia's GTX 10 series and AMD's RX 500 series graphic cards and consequently drove them into a shortage. Nvidia tried to discourage crypto mining customers by reducing their chips' mining efficiency by 50%, but they continued to buy the parts regardless and drove up pricing.

During the COVID-19 pandemic, consumers upgraded computers for both professional and personal use. This, combined with a boom in crypto demand, caused component prices to skyrocket while supply dwindled. Manufacturers' suggested retail prices (MSRP) for GPUs tripled during periods of intense demand. Supply decreased to the point that consumers were forced to pay scalpers outrageously marked-up prices.

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

How Proof-of-Stake Changes the Game

Ethereum was the top consumer of high-end GPUs through 2021, but a new "proof-of-stake" mining system has eliminated the need for GPU cards. In preparation for this process, demand for GPUs fell rapidly in the beginning of 2022. The first two months of the year saw Nvidia's sales of GPU cards drop by 75% in comparison to the year prior.

Additionally, proof-of-stake is predicted to reduce global electricity consumption by 0.2%. This comes just in time, as environmental policies have started to focus on crypto's excessive use of energy. Previously, bitcoin mining operations alone accounted for 2.2 GW of total energy consumption in China. China's recently announced carbon neutral policy put a target on crypto mining, making it a popular target for cutbacks in energy consumption.

Environmental policies like this, combined with the drop in demand caused by global economic downturn and Ethereum's new system, have caused GPU prices to fall below MSRP, and demand has flatlined.

How Your Business Can Secure Supply

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 as it 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.

What crypto volatility means for the electronic component supply chain

What crypto volatility means for the electronic component supply chain
Photo: Fusion Worldwide