Bitcoin surging will impact graphics products from NVIDIA and AMD again

This week Bitcoin crossed the boundary into the $10,000 valuation, jumping over a hurdle that many would have thought impossible only months ago. Though there are competing opinions on the future of Bitcoin and the cryptocurrency market, some calling for an 80% crash and others predicting a $40,000 valuation by the end of 2018, there are secondary markets affected by the movement in the Bitcoin.

Both AMD and NVIDIA inherently have a lot riding on the success of the crypto markets. Graphics processors are used for a large portion of the computing necessary to make cryptocurrency viable, discovering new currency and validating transactions to allow Bitcoin and others to maintain scalability and security. Even though graphics cards with chips on them from NVIDIA and AMD might be used primarily to mine for smaller currencies, in the end it usually falls back to payouts made in Bitcoin, thus the impact Bitcoin’s $10k price tag can have.

Recently an analyst claimed that the value of graphics processors in the cryptocurrency mining areas would be “much less meaningful” due to a shift in Ethereum, the most popular coin to mine today. All crypto-based algorithms have a lifespan that takes them from GPU-based mining to a more specific mining hardware called an ASIC (application-specific integrated circuit). These chips are built with a specific algorithm or problem in mind and are tuned for the best performance and power efficiency, overshadowing the amount of viable work a graphics chip can offer.

Eventually Ethereum will hit that point and cross between the Proof-of-Work (GPU mining is profitable) and the Proof-of-Stake (only ASIC mining is profitable) designations. But that transition has been “just around the corner” for nearly a year. Even if Ethereum does transition, there will be numerous other cryptocurrency options on the market that will see profitability from the flexibility of graphics processors. This occurred with Bitcoin and Litecoin before and the acceptance of cryptocurrencies shows no signs of slowing.

Impact on graphics processor availability

Before this year, graphics cards were primarily built and marketed towards gaming and enterprise computing tasks. Only recently did AMD and NVIDIA introduce mining-specific hardware that was more cost and power efficient.

When the first major coin mining bubble hit this year in May, corresponding with Bitcoin’s crossing into the $2,000 valuation, there was a significant impact on the available inventory of graphics cards in the market. Gamers and miners alike found GPUs nearly impossible to find at expected prices and at some points, gone from virtual and physical store shelves all together. This affected AMD-based cards first as its graphics processors were more efficient for mining tasks, but it very quickly crested over the NVIDIA-based boards as well.

PC gaming, a vital and growing market for AMD and NVIDIA, was negatively affected by this mining phase. Because cryptocurrency buyers were willing to pay over expected prices for hardware that they were using to make a profit, but gamers looking simply for entertainment were not, there was a rise of discontent among the gaming enthusiasts that AMD and NVIDIA were not looking out for their interests.

I also warned of a potential backfire for both AMD and NVIDIA based on overextended inventories back in June, but with demand still riding a consistent wave, it hasn’t come to fruition.

Over the last two months, product availability had settled down and pricing had returned to nearly-normal states. But the surging price of Bitcoin has once again brought attention to the mainstream in regards to cryptocurrency mining.

A current check of the market shows increases in graphics processor pricing and availability of key products dwindling. All signs are pointing to another period of high GPU demand, though we will likely not see one as extreme as the one that occurred this summer.

I expect AMD and NVIDIA to be much better prepared this time to take advantage of any rise in graphics processor demand. During the summer spike both companies struggled to find a way to significantly profit from the market shift as the additional money was being absorbed the resellers and channel partners. New programs and policies have been put into place at both GPU vendors to accommodate for spikes in demand that should translate into better margins as graphics card prices increase.