Most encoders are open-collector, so try changing
pinMode(ChannelA_LEFT, INPUT);
pinMode(ChannelB_LEFT, INPUT);
pinMode(ChannelA_RIGHT, INPUT);
pinMode(ChannelB_RIGHT, INPUT);
to
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You don't want sharp edges with a graphic equalizer normally, you want smooth transitions. The Q of the individual stages needs to match their geometric spacing. Sounds like you have one control per octave, and a Q of...
Well it appears to be a variable low pass filter and a power amp output. The LM386 hasn't been made for years, doubt you'll find one that's not a fake, perhaps a small class-D chip would be a suitable replacement?
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The fast I2S signals (especially MCLK) might not be reliable with long jumpers like this, especially with all that loop area - bundle them all together if you can to improve signal quality. A large loop is an antenna,...