Cryptocurrency markets fall to their lowest levels in years, but it’s not all good news for players

The last few days have seen a bloodbath of cryptocurrencies, and the declines may not be over. Simply put, the world economy is going to hell and cryptocurrency is coming with it.

There is a combination of factors behind the precipitous drop. Broader economic issues are certainly an important factor. Rising inflation and rapidly raising interest rates to combat it are adding major pressures on the cost of living. Wages aren’t going up enough to make up for this, which means people have less purchasing power. Flow effects, including rising energy prices and falling asset values, are creating the right conditions for a major economic downturn.

Then there is the war in Ukraine. It’s becoming hard work with no real prospect of a quick finish. Russian lockdowns mean Ukraine cannot export its food supplies – particularly grains – which is leading to soaring food prices and could lead to famine in many areas suffering from food shortages.

Cryptocurrency faces its own problems beyond these broader economic issues. There is the recent collapse of the Terra Luna ecosystem (opens in new tab) that hit the markets, but that’s not all. On Monday, DeFi platform Celsius announced an operational shutdown, putting billions of dollars of assets at risk.

As the value of the underlying assets drops, so does the risk of more failures in crypto projects. Negativity continues to swirl around stablecoin, Tether (opens in new tab), mainly due to the lack of transparency about their reservations. If it lost its dollar peg, it would make the recent Terra Luna meltdown look like someone wasting a buck at a vending machine.

Well, not exactly, but you get the idea.

Tether is the third largest coin by market cap and it is vital that it maintains its 1:1 USD peg.

From its high of nearly $70,000 in November last year to a low of just over $22,000 at the time of writing, Bitcoin is teetering. All other cryptocurrencies, including Ethereum, follow Bitcoin’s example. It is important for Bitcoin to keep its head above the key psychological level of $20,000. If this breaks, then who knows where this will end up.

Where does that leave Ethereum? In the same precarious position as Bitcoin. Ethereum’s all-time high was above $4,800 in November 2021 while it was at $1,200 at the time of writing; that’s a 75% decline. Those Wall Street guys who panic at a 5% drop should play the cryptocurrency markets to see what it’s really like to be rekt.

(Image credit: Discord)

The drops will have some effect on graphics card prices (opens in new tab)? It is obvious that the lower the price of Ethereum, the less profitable it will be to mine, especially when faced with rising energy costs. Casual and industrial scale miners are much more likely to sell their GPUs to recoup costs. This means that purchases of new mining hardware are much less likely.

Will this lead to a glut of second-hand RTX 30 and RX 6000 series cards? It’s definitely possible. Efforts to increase production have a delaying effect. As component shortages decrease, bottlenecks are removed and the number of available cards increases.

That means it’s good for gamers! But players face the same economic headwinds as everyone else, and a discretionary purchase isn’t as important as paying for gas to get to work, or higher rent or higher mortgage payments. An oversupply combined with lower demand from players and miners means that GPU prices could fall somewhat.

There is something else to consider. Will excess inventories of current-gen cards lead to Nvidia or AMD delaying the introduction of next-gen cards? If there is genuine oversupply, the answer to that would be yes. GPU manufacturers won’t want unsold inventory taking up space in warehouses that no one wants to buy. When you add to that some recent rumors that the RTX 40 series still have a lot of development work to complete (opens in new tab)signs point to a release closer to the end of the year.

Crypto still feels like the wild west at times. How low can it go? Be careful out there, this roller coaster still has some twists and turns.

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