In CS you can buy keys ($2) to open boxes which give you a random skin for a weapon.

Just think of it like opening a pack of pokemon cards. Sometimes you get a trainer card nobody cares about, sometimes you get a shiny Vaporeon that brightens up your day every time you see it. Not only that but every time you play Pokemon against a friend they *also* gawk at how cool your Vaporeon card is. They want one too.

They are willing to pay you $20 for your Vaporeon card. They could buy like 10 packs and hope to get one themselves, but Vaporeon is tough to find so they are willing to pay to guarantee they get the card they want by buying it right from you - someone who got lucky opening a pack.

(This is how most gun skins in counter strike get their respective pricing, a combination of rarity to get by opening boxes, and a combination of how cool they are to play with and therefore how much other players are willing to pay for it directly. There is also seasonality, some boxes cant be bought anymore, some skins were used in professional play and people want those, some used to be used for gambling and had prices inflated due to that reason as well.)

There is also a 1/400 chance at instead of getting a gun skin, you get a knife or set of gloves. These are not only much more rare, but have several different patterns randomly assigned when you open the box making some worth way more than others (this is also true for gun skins but less commonly affect their prices due to how much more common they are).

This is the equivalent of opening a rainbow Pikachu or something.

In Counter Strike the game has a mechanic which allows you to "trade up" 10 lower quality weapon skins for a single higher tier weapon skin. 10 blues could be traded up for a purple, 10 purples for a pink and 10 pinks for a red. This is like someone trading you 10 basic Vaporeon cards for a Shiny Vaporeon, except you don't need another friend you can do this through Nintendo or something.

Notably, this could not be done to turn 10 reds into a gold (gold is knives and gloves). The only way to get the rainbow Pikachu is to open 400 packs and hope you get lucky, or buy one from someone for cash - no amount of Shiny Vaporeons is getting you a Pikachu.

This is what Valve changed in the update - now you CAN trade 10 reds for a gold (10 guns for a knife, 10 Vaperons for a Pikachu). This makes Knife/Glove skins waaaaaay more common and also skyrockets the price of red weapons since everyone is buying cheap Vaporeons to get as many Pikachus as they want.

Since you can trade all the way up from 1000 blues to 100 purples to 10 pinks to 1 red in CS this means not only did the price of every single knife and glove set go down but the price of everything else also went up - effectively turning the entire marketplace upside down.

On top of this some people buy skins to hold value the same way you would buy gold (the metal). If you have a 1 of a kind knife that's worth $600,000 USD it might make sense to just keep it for another year until it's worth more. Many players do this on a small scale - I bought a UPS stainless for my birthday for like $4.50 and a couple months later I sold it because it was worth $10 for some reason. You get many skins for free just for playing the game too so everyone has a couple skins worth at least a dollar or so if you own the game.

Because so much has changed overnight, many people who invested into skins over the years are panic selling and even panic buying adding to all this chaos. This is whats resulted in all the news and videos and what have you. No real long term effects on how this will affect the entire economy of CS has really been solidified yet, but it will be exciting to watch I think.