Morgan Stanley: GPU Demand Likely to Slow if Ethereum Moves to Proof-of-Stake

If Ethereum moves to a proof-of-stake (PoS) method of maintaining its network, as planned, it will remove the need for miners, slow demand for graphics processing units (GPUs) and dramatically reduce energy requirements, Morgan Stanley said in a report Monday.

Ethereum developers are hoping that the Merge will happen by September and potentially as early as August, but given previous delays, it wouldn't be surprising if the move from proof-of-work were pushed out to early next year, the report said.

Crypto mining has had a massive impact on the gaming graphics market in the past 18 months, the bank said, driving an estimated 14% of revenue in 2021, while at the same time “substantially contributing to a major graphic shortage, which boosted overall mix and pricing.”

GPU demand should slow, but chip maker Nvidia is less exposed to cryptocurrency mining demand than it was in 2017-19, the note said.

In addition, demand from crypto mining, which contributed to a shortage of graphics cards, started winding down in the first half of the year, the bank noted.

Both Nvidia and AMD, another chip maker, have argued that they have minimized the downside scenarios from crypto, but Morgan Stanley foresees a correction lower in gaming GPU in the first quarter of next year, because in part of lower demand due to a reduction in working from home, cryptocurrency migration to PoS and “tough sequential comps after channel inventory rebuild in 2022."

Ethereum miners will most likely sell their used GPU equipment after the Merge because it's not profitable for all of those computers to mine other cryptocurrencies, the bank said, adding that net ether (ETH) supply is expected to fall after the Merge, and may even turn contractionary, and so it is unlikely that all the miners become stakers.

Moving to PoS won't solve Ethereum’s scaling problems such as the number of transactions per second or result in lower transaction fees, the report added.

PoW protocols are known to be resource-intensive because of they way in which nodes validate network activity. Proof of stake needs less computing power, and possibly uses 90% less energy, MS said in the note.

Read more: Morgan Stanley Says Ether Underperformance Echoes Crypto Downturn of 2018

UPDATE (June 28, 08:39 UTC): Adds energy use comparison in last paragraph.