According to a podcast/randoms on the internet, "the video game crash of 2024" might have just started. January started off with mass layoffs. In one month the industry is at 60% of the total layoffs of 2023, and 2023 was considered a bad year. Microsoft is axing divisions like physical distribution (will likely have third parties publish for the rest of the generation), their aquired studios like Bethesda underperform again and again, and they are shutting down Xbox Live for 360. Ubisoft is toying with raising the base price of a game to 100 usd, and I think their Prince of Persia game was a flop?* Sega recently announced that New Game Plus for the next Yakuza will be locked behind the collectors edition. There's some drama with Blizzard and Riot I'm not privy to as I don't play those games.
*I don't know much about the game. People say it's good, but it's £45 for what amounts to an indie metroidvania with a license.
In short, MS going all in on digital isn't the cause of the crash, it's already here. Saying the crash is closer than we think is like driving your car into a tree at high speed, and as you're loaded into the ambulance saying "We nearly hit that tree."
Personally, I'd argue all of this is because they over hired post COVID, expecting the same massive growth they had during lockdowns, and now are going to the other extreme with cuts. But if you want a market collapse, this is it.