The recent Bitcoin halving has sparked widespread discussion about its impact on the crypto ecosystem. During the 2024 Hong Kong Web3 Festival, Shenyu, co-founder and CEO of Cobo, shared his expert insights on mining industry dynamics, market cycles, and emerging trends like AI and the metaverse.
How Bitcoin Halving Impacts Mining Companies
The Bitcoin mining industry consists of three primary types of enterprises, each with distinct strategies for navigating market challenges.
North American mining firms, often publicly traded, leverage affordable energy resources from oil and gas fields. Many of these companies faced bankruptcy during the last bear market due to high leverage but have since recovered through debt restructuring. With the recent surge in crypto-related stocks, these firms have strengthened their cash reserves through financing and are expanding into Bitcoin Layer 2 solutions and NFTs.
In regions like South America and Africa, private mining companies focus on low-cost operations. These firms rely on traditional return-on-investment models rather than external financing. Over the past six months, low-cost mining farms have expanded rapidly in Africa, with operating costs approximately half those in North America. Post-halving, these companies are expected to grow quickly due to their ability to operate high-efficiency machines.
Why an Altcoin Season May Not Happen
Bitcoin’s daily emission pre-halving was around $60–70 million. The halving reduces block rewards by half, but Shenyu suggests this may not trigger a typical "altseason."
Market dynamics have shifted since Bitcoin spot ETFs were approved on January 10. Miners hedged their risks months in advance, and many publicly listed companies capitalized on the ETF news to raise substantial fiat capital. Some miners relocated to lower-cost regions like South America and Africa, reducing cost sensitivity and enabling them to maintain 10–20% gross margins even with older hardware.
Given Bitcoin’s pre-halving price surge, the economic impact on miners has been milder than in previous cycles. For investors, capital has largely flowed into Bitcoin via ETFs, with limited movement into altcoins. It remains unclear when—or if—funds will rotate into other cryptocurrencies.
AI Chip Demand and Its Impact on Bitcoin Mining
The demand for advanced semiconductor technology (e.g., 3nm and 4nm chips) used in Bitmain’s latest S21 miners now competes directly with AI industry needs. However, Shenyu sees synergy rather than pure competition.
Bitcoin mining chips are designed for extreme power efficiency, driving rapid innovation in semiconductor technology. As early as 2018–2019, mining chip manufacturers began developing AI-oriented chips due to similarities in computational and power management requirements.
The full-custom design methodology pioneered in Bitcoin mining is now being applied to AI chips, improving performance and power efficiency. Companies like Bitmain and MicroBT have already shipped AI chips in significant volumes.
Looking ahead, mining and AI chip development may continue to converge. While mining remains a lucrative market, the future growth of the semiconductor industry lies in AI. Crypto mining’s technical advances could significantly benefit AI development.
The Need for Bitcoin Ecosystem Scaling
Bitcoin’s base layer serves primarily as a store of value, with limited capacity for major upgrades. This has led to growing innovation in Layer 2 solutions, sidechains, and rollups.
Over the past year, economic incentives have attracted real users to Bitcoin’s Layer 2 ecosystems, addressing earlier challenges related to adoption and usability. Technologies like the Lightning Network are gaining traction, though development is still in early stages.
With significant value stored on Bitcoin, there is growing demand for yield-generating opportunities similar to those available in the Ethereum ecosystem. New protocols and platforms are emerging to meet this need, though the long-term structure of Bitcoin’s ecosystem remains uncertain.
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Shenyu emphasizes the importance of experimentation. Early attempts may seem粗糙, but they are essential for long-term innovation—much like the early days of Ethereum.
Decentralization and the Role of Bitcoin Core Developers
Bitcoin’s governance involves a tripartite balance of power: core developers propose changes, miners vote with hash rate, and users ultimately decide which upgrades to adopt. This decentralized structure ensures that no single entity can unilaterally control the network’s evolution.
Even when core developers express opposition to certain innovations—such as inscriptions or Ordinals—the community can still push forward through miner and user support. This resilience is one of Bitcoin’s key advantages over more centralized alternatives.
The Evolution of Crypto Custody and Wallet Technology
As traditional finance institutions enter crypto through ETFs and compliant exchanges, the role of specialized custody providers is evolving. This is a positive development for broader adoption.
Historically, new users struggled with securely storing cryptocurrencies. Advances in wallet technology—such as MPC wallets, smart contract wallets, and account abstraction—are making self-custody more accessible and user-friendly.
In the future, blockchain technology may operate seamlessly in the background, with users interacting through intuitive applications rather than complex key management systems.
Modular Blockchains and the Future of Scaling
Shenyu is particularly interested in modular blockchain architectures, which he believes represent the next major evolution in scaling solutions.
After years of experimentation, the industry is converging on modular designs that split execution, data availability, and consensus across specialized layers. This approach balances security, decentralization, and scalability, making blockchain technology more practical for mass adoption.
While certain high-value applications may continue to use Layer 1 chains, many everyday use cases will migrate to more efficient Layer 2 or modular networks. This flexibility allows developers to choose the right trade-offs for their specific needs.
Managing Investment Psychology in Crypto Markets
Shenyu acknowledges that FOMO (fear of missing out) is a natural human tendency, especially in volatile markets. However, he emphasizes the importance of disciplined investing.
In 2023, he focused on reflection and learning from past mistakes, reducing impulsive decision-making. He recommends conducting "thought experiments" before investing: if an opportunity still seems compelling after a few days of reflection, it may be worth pursuing.
It’s crucial to understand what type of returns you are chasing—whether from market sentiment, technological innovation, or cyclical trends—and align your strategy accordingly.
Newer investors, particularly those from Generation Z, often have better intuition for short-term market sentiment due to their digital nativity. Older investors may benefit from focusing on longer-term trends and avoiding emotional reactions.
AI, Metaverse, and the Future of Crypto
We are at the convergence of several transformative technologies: blockchain, AI, and augmented/virtual reality. Shenyu believes the integration of these fields will unlock new possibilities.
In the future, AI agents and IoT devices may interact directly with blockchains, using smart wallets to autonomously execute transactions within predefined parameters. This will require improvements in encryption, AI accuracy, and infrastructure.
The metaverse, often overhyped during bull markets, will likely evolve differently than initially imagined. Rather than starting with speculative assets, future metaverse applications may begin with mature user experiences and gradually migrate high-value digital assets onto the blockchain.
As blockchain performance improves and storage costs decline, games and virtual worlds will seamlessly incorporate true digital ownership. DeFi and AMM mechanisms will enable organic value discovery and enhance financial utility.
Frequently Asked Questions
What is the Bitcoin halving?
The Bitcoin halving is a pre-programmed event that reduces the block reward for miners by 50%. It occurs approximately every four years and is designed to control Bitcoin’s supply and inflation rate.
How does the halving affect miners?
Miners face reduced revenue immediately after the halving. Efficient miners with low operating costs are better positioned to survive, while less efficient operators may be forced to shut down or upgrade their equipment.
Will the halving cause Bitcoin’s price to rise?
Historically, halvings have been followed by bull markets, but past performance is not a guarantee of future results. Market conditions, institutional adoption, and macroeconomic factors also play significant roles.
What is an altcoin season?
An "altcoin season" refers to a period when alternative cryptocurrencies significantly outperform Bitcoin. This cycle may differ due to institutional capital flowing primarily into Bitcoin via ETFs.
How can I invest responsibly in crypto?
Diversify your investments, avoid emotional decision-making, and only allocate capital you can afford to lose. Consider long-term trends rather than short-term hype.
What are modular blockchains?
Modular blockchains split core functions—like execution, consensus, and data availability—across specialized layers. This design improves scalability and allows for greater flexibility than monolithic architectures.