The debate of cryptocurrency halving and the impact on its price has been a long-standing one. The virtual assets’ industry is still in its formative years. Even as there are many speculations regarding the halving event and its impact on the price of the digital asset, facts provided to back up those speculations are not concrete enough.
With Litecoin [LTC] halving is right around the corner, let’s try to connect some dots. But before proceeding any further, it is important to know what halving is and what prompted the Bitcoin creator to build this system.
Satoshi Nakamoto created Bitcoin to function in ways that would imitate the process of gold mining. A system that would be self-sustaining. In the mining process, BTC miners race against other miners by running huge mining equipment to solve a cryptographic puzzle. The first miner to solve the algorithm validates the transaction which results in a block formation in the transactional ledger. The miner is rewarded with newly minted Bitcoins and this is how fresh Bitcoins are introduced into the system. Currently, following the two subsequent Bitcoin Halving, the miner receives a reward of 12.5 BTC.
Bitcoin Halving takes place every four years.
The total number of Bitcoin is limited to 21 million, hence, it can be stated that Bitcoin works on a system of controlled supply. With every 210,000 blocks creation, the mining reward is cut into half. During the first 210k blocks in 2012, the mining reward reduced from 50 BTC to 25 BTC. Currently, the reward stands at 12.5 after the second halving in 2016.
Satoshi Nakamoto explained:
“The fact that new coins are produced means the money supply increases by a planned amount, but this does not necessarily result in inflation. If the supply of money increases at the same rate that the number of people using it increases, prices remain stable. If it does not increase as fast as demand, there will be deflation and early holders of money will see its value increase. Coins have to get initially distributed somehow, and a constant rate seems like the best formula.”
Why is Halving important?
The idea behind its introduction was to keep inflation in check. The traditional fiat currency has many drawbacks. One of the most significant is that these are controlled by central banking establishments which can print as many new currencies as they want.
Bitcoin is called the “Digital Gold” because the virtual currency is intended to imitate the commodity. Gold has a limited supply in the world. Extracting the remaining gold becomes more difficult after every gram of gold that is mined. This limited supply of the commodity has been able to maintain its demand and store of value for over 6000 years.
PlanB Holdlonaut predicted:
Bitcoin was trading around $13 throughout the latter part of November 2012 when the first Halving was scheduled. The price surge to $230 shortly after the event, was speculated to be fueled by the post-Cyprus bailout.
By the second halving event, the king coin was trading above $650. Historical patterns are yet to paint a conclusive picture.
Below are some of the PoW-based altcoins hatched after Bitcoin, which underwent halving.
First halving in December 2014.
During the one-year analysis for NMC’s, which is one of the oldest coins, prices soared exactly one year before the scheduled halving date and continued to post gains, although not significantly. However, the prices fell shortly after and continued to decline even as the halving approached.
Second halving in October 2018.
According to the above chart, exhibited a steady increase in its price, after October 2017 [one year before the scheduled halving]. The price gradually increased but peaked to a three-year high only in January 2018. The chart showed considerable fluctuations as the halving event approached nearer but fell flat right after October 2018 [the scheduled halving date].
First halving in February 2015:
Prices shot up exactly one year before the scheduled halving but failed to maintain the upward momentum and tanked after the event.
First halving May 2018:
Verge or XVG went on a historic bull run along with its crypto peers. However, XVG declined even as the highly anticipated halving approached. Right after the event, XVG, crippled with security and privacy issues, losing 95% of its value.
A similar pattern can be noticed in both the altcoins DOGE and NMC, which exhibited a surge but failed to project any impressive rallies post halving. Unlike the above altcoins, BTC and LTC have witnessed significant surges after the event.
Litecoin is a fork of the Bitcoin core client, hence, the two virtual currencies share several notable similarities.
The Relative Strength Index [RSI] is used as the indicator measures the speed and price movement trends of a chart.
According to the above chart, between the time period of 2012-2015 and 2015 – 2019, each cycle hit its bottom before the two scheduled halvings. Bitcoin peaked only after the fact. It can also be inferred that the time span from the bottom to halving was equivalent from the event to the time taken by the coin to reach its peak.
Another notable pattern that can be drawn from the chart is that the time taken by the crypto-asset trading at the bottom to hit the high was longer in the second cycle.
If the coin continues to follow the trait, then the next high will be attained by Bitcoin only after its third halving. The bottom for the cycle post, second halving, was found between Dec 2018-Jan 2019.
After speculating on the limited data available, a similar pattern was observed for the first halving of its silver counterpart. The coin hit its lowest right before the first halving then gradually climbed back to the highest point of the cycle after a period of low volatility.
The Litecoin Reward-Drop ETA is scheduled for 6 Aug 2019.
After the first halving event on Aug 25, 2015, LTC topped after nearly two years after posting steady gains. Another significant factor for the cycle 2015 to 2019 observed is an increase in the lengths of the bull runs, i.e., longer time taken to hit the high for both the BTC charts. This was also observed in the LTC chart where the subsequent bear markets were longer. Hence, a longer length in the bull run, than the first cycle, can be safely expected for LTC’s second halving.
From the above data, it can be assumed that Litecoin price starts to gallop higher, months before the halving. It’s safe to conclude that the fifth largest cryptocurrency has a probability that it might peak only after 2021 while maintaining a steady course in its valuation. In addition, halving acts as a midpoint for BTC’s bullish trendlines which implies that the halving takes place at the midpoint of the ongoing trend. However, in the case of LTC, the halving happens at the one-third point of the on-going trend.
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