The Litecoin Halving: Crypto Thoughts

One of the most anticipated events of the year in the crypto community, the Litecoin halving, is due to take place on August 5th. In this article we’ll look at what this actually means, and its potential impact on the price of Litecoin.

What is the Litecoin halving?

Like other cryptocurrencies such as Bitcoin, Litecoin uses Proof-of-Work for its mining process. Miners compete against each other to add new blocks on the blockchain and get rewarded with units of the currency. A halving is when the reward for adding new blocks is cut in half. Because there is a finite supply (in Litecoin’s case, 84,000,000), halvings are a necessary occurrence.

The imminent Litecoin halving will see the reward for miners be cut from 25 to 12.5 Litecoins. This happens every 840,000 blocks. Having been launched as a cryptocurrency as a ‘lite’ Bitcoin in 2011, it was one of the first Altcoins. The first halving occurred in August 2015, when the reward for miners was cut from 50 to 25 Litecoins.

The first Litecoin halving

Before delving in to see what impact the upcoming halving will have on Litecoin, let’s take a look at what happened when the first halving occurred on August 26, 2015.

Litecoin’s price at its first halving was a mere $2.93, an increase of over 250% from its all-time low of $1.12 in January 2015, but a significant decrease from its all-time high of $8.72 (not an opening or closing price) in July 2015. As seen on the chart below, Litecoin was in a bear market until early 2015, before it started recovering and hit its peak in July. From then on, after an increase of over 800% in six months, its price witnessed a sharp decline, going from its high of $8.72 to $2.55 in just six weeks.

From then on, there was a price stagnation. Its price hovered at around the $3 mark for several months, and didn’t breach $5 until June 2016. This was a surprise to many. As supply and demand had previously had a large impact on Litecoin’s price, it was widely expected that its price would rocket after the halving. However, this didn’t happen.

Source: Coin Telegraph

The second Litecoin halving

With the second Litecoin halving just days away, let’s take a look at what has happened with its price over the same time period as we looked at prior to the first halving. On January 1, 2019, its price stood at $31. Slowly but surely, its price increased in the early months of the year, but then rocketed in the spring. By early April it stood at $90. After a very bearish 2018 (its price stood at $224 on January 1, 2018), things were finally starting to look bullish. This was in line with the price of Bitcoin, which also emerged out of its bearish sentiment in the first few months of 2019.

Litecoin’s price continued on an upward trajectory over the proceeding months and hit its year’s peak on June 21, with a closing price of $141. However, after that, it started to go on a slow downward trajectory and closed at near the $83 mark on July 16. Since then, it has recovered somewhat, and at the time of writing (August 2, 2019) its price was around the $98 mark.

blobid2.png

Source: Coin Telegraph

Price comparison

Looking at the price of Litecoin prior to the first and upcoming second halving, can any comparisons be drawn?

Looking at the price before the first halving, there was a clear upswing in the months proceeding it, but a large proportion of these gains were wiped out in the month prior to the event.

When looking at the months leading up to the second halving, something similar has happened, although not quite as dramatic. After gradually increasing from the start of year, and peaking in July, the price has pulled back. Are these similarities significant, or merely a coincidence?

When looking at insights into Litecoin, who better to turn to than creator Charlie Lee? In a recent interview, he said as the market has been aware of the halving for a significant period of time, this should have already been priced in by traders:

“In terms of the price, the halvening should be priced in because everyone knows about it since the beginning. But the thing is people kind of expect the price to go up.

 “So 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.”So, in essence, pre-halving ‘pumps’ took place in both situations, creating a temporary price bubble and an artificial inflation, before depreciating again in value.


What will happen next for Litecoin?

Of course, no-one can say for sure, but there are some indications which may give us some clues. Firstly, research has shown that there has been historically some correlation between the price of Litecoin and Bitcoin. In 2017, Coin Desk labeled the Bitcoin and Litecoin ‘birds of a feather’, and highlighted the strong positive correlation between the prices of the two coins over several years, saying this makes sense because of the strong similarities between the coins in technologies and designs. Data highlighted by Coin Desk in the article shows that between 2013 and 2017, six quarters had a positive price correlation of 0.7 (with 1 being perfect positive correlation), and three quarters had a positive correlation of 0.8. This has continued in 2019, with the positive price correlation at the time of writing being 0.75. This has been reflected in the growth spurts both Bitcoin and Litecoin experienced in the spring and early summer, for example.

That’s not to say that they are always exclusively correlated. While bullish and bearish sentiment can count for a lot, other factors can also come into play. For example, exchanges adding coins can cause growth spurts, as was the case when Coinbase added Litecoin. Also, as explored earlier in the article, some analysts say the upcoming halving has already been priced in, and according to them, this means probably no significant gains for the foreseeable future. However, there is also some optimism that there will be light at the end of the tunnel.

According to trader Benjamin Blunts, and applying Elliott’s Wave Theory, the price of Litecoin is following the structure of the wave pattern hypothesized by Elliott. He says the time of the halving may be a good time to buy (on a dip), before the price drops to around $70, and then rockets to potentially new heights.

Looking at the chart shown by the trader, and the pattern of wave theory, the correlation is clear.  Obviously this all speculation, but it certainly is interesting to read into. And with Bitcoin’s halving due to occur next year, many in the crypto community will be looking to see what happens to Litecoin in the coming months to give clues as to what might be in store for Bitcoin.