LTC it is a peer-to-peer internet currency based on open-source cryptographic software “built on the premise of quick confirmation times and low transaction fees. Litecoin is an open-source, global payment network that is fully decentralized without any central authorities”.
Litecoin is designed to perform the same functions as Bitcoin except much faster and cheaper: LTC blocks are generated every 2.5 minutes compared to Bitcoin’s 10 minutes. Today, LTC boasts a market capitalization of more than 5 billion USD which makes it the 4th largest cryptocurrency.
Only 84 million LTC will ever be created and 63 million of those coins have already been mined.
LTC halvings occur every four years after 840,000 blocks are hashed and the next one is less than two weeks away. Block rewards, the amount of LTC issued to miners who forge new blocks through proof of work, will decrease from 25 LTC to 12.5 LTC per block.
What were the effects of the previous BTC and LTC halvings?
What generally happens when the supply of something decreases? If demand remains constant, price increase and if demand increases, prices increase significantly. However, if demand declines so do prices. In crypto, supply is important but demand is key.
In the collective mind, halvings cause a price pump because everyone is reminded of how scarce supply really is. But what happened during previous halvings?
The first BTC halving occurred on November 28th, 2012 when 1 BTC cost approximately 11 USD. BTC price really took off after the halving and jumped to almost 1,100 USD in 2013. The price then fell to a low of 220-240 USD and stayed there for the next few years.
BTC’s second halving ocurred on July 9th, 2016 and the price started increasing several weeks prior. A minor selloff occurred on the day of the halving but BTC quickly recovered and by late 2018 it reached and all time high (ATH) of almost 20.000 USD. The price then plummeted to reach a low of 3-4.000 USD but rose again mid 2019 to reach a brief high of 14.000 USD. BTC price has since slipped and is now trading in the 10-11K USD zones.
The lesson here is that the halving did not really hurt long term investors who chose to HODL. Despite the huge drop from the ATH, those who HEDL since the first halving are still up 2000% . The next BTC halving will occur in 2020 and we expect it to cause another bull run. Once again, HODLing may be the best strategy.
LTC’s first halving took place on August 26th, 2015. The price shot up from $1.12 in January 2015 to $8.72 in July but dropped back to under $4.00 just before August 25th. After the halving the price stabilized and traded sideways for over a year until the famous BTC bull run of 2017 lifted LTC along with it. During this crazy time LTC reached a high of roughly $320 before plummeting back to $27. However, if you HEDL your LTC long-term you would still be in the green.
This time the situation is slightly different: LTC’s price rose from its low of $23 in December 2018 and reached a peak of just under 140 USD in June 2019 but a minor sell off is taking place and LTC is now trading in the 90-100 USD range. The halving is in approximately ten days and nobody knows what to expect.
If history is any indication, the price will not recover unless BTC goes on another massive bull run. However, history is not always the best indicator of what will happen next in the cryptosphere and we have some reason to remain optimistic about LTC’s long-term future. In any case, HODLing has proven to be the best strategy for long-term BTC and LTC investors.
Will history repeat itself?
Charlie Lee, recently issued a nuanced short-term prediction: “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. For Litecoin it’s three and a half days before the next change, so possibly like seven days of slower blocks, and then after that, the difficulty will readjust and everything will be fine”.
Lee tried to reassure investors that everything will be fine by stating that “a lot of people are buying in because they expect the price to go up and that’s kind of a self-fulfilling prophecy”. Investors sure hope so but LTC has been trading sideways between 90 and 100 USD for the past two weeks and FUD is slowly creeping in.
However, the strength of LTC’s network provides reasons to remain bullish.
How strong is the LTC network?
The first indicator of a network’s strength is the hash rate, or mining difficulty: The higher the mining difficulty, the higher the network security. Presently, there are even more miners (and more hash rate) than before LTC peak in 2017.
The security of the LTC network is at an all time high. Unless hundreds of miners cease their mining activities LTC’s network security will remain high. LTC’s network security is much higher than some of the other major cryptos composing the top 10 market cap.
Although hash rate will not automatically lead to higher prices, this data may be an indication that miners have faith in LTC and believe that their mining operations will become even more lucrative in the future.
The second main indicator of the strength of a cryptocurrency network is how many Nodes are running: Nodes validate transactions and increase the Blockchain’s decentralization. The more decentralized the network, the greater its security and the more confidence investors have in that particular asset.
The last indicator of a network’s strength is adoption of the cryptocurrency in real world use cases and LTC is making great strides in this domain. In fact, Weiss Ratings currently ranks LTC as “excellent” in regards to investment rewards and adoption.
Indeed, LTC recently announced the following partnerships:
- Official cryptocurrency of the Miami Dolphins;
- TravelbyBit, a cryptocurrency travel booking platform that will make it “possible to pay with Litecoin for more than one million flights and hotels worldwide”; and
- Flexa, a payment eco system platform which will allow clients to use LTC to purchase goods in over 39,250 stores.
Ultimately, we can only speculate as to what effect the halving will have on LTC but we can be certain it will be unpredictable and exciting.
Strap on your seat belt and enjoy the turbulence!!
P.S. Don’t forget to HODL!
This is not investment advice. Always practice due diligence and do your own research before you invest in any financial instrument. Keep in mind that cryptocurrency markets are highly volatile and can lead you to lose part or all of your investments. Beware of scammers and never give your wallet seed words to anyone under any circumstances.