The next Litecoin Halving is only two weeks away and the price is showing signs that this highly-anticipated block rewards reduction event could be already priced in. But… is it really?
As most digital currencies out there, Litecoin started 2019 with a renewed optimism that quickly pushed the price from $29 on December 31, 2018 to a yearly high of $147 on June 22. If you are familiar with the dynamics of the crypto market, you wouldn’t be surprised by the fact that the Litecoin rally didn’t last long and it currently struggles to hold near the $100 mark.
At the time of this writing Litecoin was trading at $98 per unit. Since its 2019 peak, the world’s fourth-largest largest cryptocurrency has pulled back by 50 percent following a major correction.
The upcoming halving event is due on August 5th, which is about 20 days earlier than the previous one registered at block 840,000 on August 25, 2015. This time, the reward for miners will be reduced by half at block 1,680,000.
Sounds Good, But What The Heck Is Litecoin Halving?
Have you ever heard of the Bitcoin Halving event? If you did, then just think of the Litecoin Halving as a similar thing for another network. If you’re not following with anything written above, this is what you need to know:
Halving is when the network’s issuance rate is reduced by 50 percent. In other words, it reduces the reward for Litecoin miners and therefore the amount of new Litecoin going into circulation every day. Logically, as block rewards continue to decline, Litecoin’s fixed supply should increase in value as the cost of mining one LTC rises with each halving.
Before 2015 the incentive for successfully verifying a block was set at 50 LTC. Following the first halvening event, the reward was reduced to 25 LTC and it will soon turn into 12.5 LTC. The halving will continue to repeat every 840,000 blocks mined until the 84,000,000th litecoin is mined.
History Isn’t Repeating Itself
There is a common belief that halving events boost cryptocurrency prices. Why? Well… let’s just say because it happened many times in the past. While LTC is up for its second halving event only, Bitcoin is already going for its third one in 2020.
Historically, Bitcoin and Litecoin halvings have unleashed an extremely positive price action. If history repeats itself, Litcoin holders could expect a pronounced growth in LTC price in the pre-halving weeks. Four years ago, Litecoin price added 400 percent in the month leading up to the halving. Yet, this chart clearly shows us this isn’t the case now…
In the month before Litecoin’s first halving, the digital currency jumped a mind-blowing 400 percent from $1.70 to $8.50. Traders and holders are asking themselves whether this time LTC will grow in a similar way.
Charlie Lee, the creator of Litecoin, has recently said that the price of Litecoin is expected to fall sharply following the upcoming halving as plenty of miners might not find mining profitable anymore. Yet, he insisted that miners paying under $0.10/kWh will survive the halving.
“When the mining rewards get cut in half, some miners will not be profitable and they will shut off their machine. If a big percentage does that, then blocks will slow down for some time,” said Lee in an interview with a cryptocurrency blogger.
Speaking about the impact of the next halving on LTC price, Lee explains that the halvening is likely to be fully priced already as “everyone knows about it since the beginning.” However, he points out that the price might still continue to rise due to market speculation.
“A lot of people are buying in because they expect the price to go up and that’s kind of a self-fulfilling prophecy. So, because they’re buying in, the price does actually go up.”
New Research Suggest Halvings Do Not Impact Crypto Prices
A new study by Strix Leviathan, a Seattle-based firm focused on developing and operating trading algorithms, questions the widespread belief that network halvings have a positive impact on cryptocurrency prices.
Researchers monitored price behavior before and after 32 halvings across 24 cryptocurrencies and compared to currencies not going through halving periods. Overall, they found that cryptocurrencies undergoing a halving event didn’t experience outstanding volatility nor returns.
“What we find is that the return distribution of an asset’s halving periods versus the return distribution outside of its halving periods reveals that they are statistically the same at a 99 percent confidence level. In other words, we did not find evidence that a halving event results in abnormal pricing action and we are dealing with a circumstantial illusion.”
The Bottom Line
The cryptocurrency market has changed radically since 2015, with financial institutions and even corporations like Facebook joining the space and regulators taking a more proactive approach to establishing a healthy industry framework. Despite it all, the market remains highly volatile and price movement continues to be dictated by sentiment rather than fundamentals. A post-halving scenario similar to 2015 could see this cryptocurrency drop up 30 percent.