In the summer of 2023, the popular cryptocurrency Litecoin will be halving. A significant event has already happened twice - in 2015 and 2019. Each time, a few months before this process, the price of LTC first went up sharply and then dropped. But in 2023, Litecoin halving could take a different path. And today we will tell you how it was before and how it may be in 2023.
Litecoin - Background Information You Should Know
Litecoin (LTC) is one of the most popular blockchain-based coins. LTC was conceived and implemented in 2011 by renowned computer science expert Charles Lee. He took the source code of Bitcoin and "lightened" it up. The new cryptocurrency became faster, more economical, and more scalable. That's why Litecoin is often called the first (spiritual) fork of Bitcoin.
Charles Lee made such major changes to the BTC code:
- Litecoin - like Bitcoin - uses the Proof of Work (PoW) consensus algorithm to generate new blocks. But the approaches to mining are very different. The most popular cryptocurrency is based on the SHA-256 hash function, and it is very demanding on the miner's hardware. Litecoin is based on the Scrypt hash function, which allows users of the most ordinary computers to mine LTC. We say in the past tense ("allowed") because this difference is practically leveled by the appearance of ASIC - devices, customized for mining a particular cryptocurrency.
- The block generation time in the Litecoin blockchain is 2.5 minutes - 4 times faster than that of bitcoin. This speed increase is due to the use of a lighter Scrypt hash function, as well as to the fact that Litecoin's average block size is 65 KB (while Bitcoin's is about 515 KB). The maximum issue of coins in Litecoin is 4 times larger than in Bitcoin (84 million vs. 21 million coins).
In addition, in the case of Bitcoin, halving occurs every 210,000 blocks, while Litecoin has halving every 840,000 blocks. If we consider the average block release time (2.5 minutes vs. 10 minutes) and the maximum coin issue (21 million vs. 84 million), we can conclude - Charles Lee intentionally programmed his cryptocurrency so that his network would repeat the historical path of Bitcoin.
Litecoin Vs Bitcoin
Litecoin has outperformed Bitcoin by +9% since the beginning of the year. This outperformance has occurred since the end of October when we see a divergence of +33%: LTC's rise coincided with the outflow of Ethereum miners, which led to an increase in the Litecoin network's hash rate. Likewise, as we are in 2023, the regulation of cryptocurrency is just around the corner. It is now conceivable that Litecoin may be one of the very few cryptocurrencies seen as a commodity, given the absence of any notable individuals associated with Litecoin since the sale of Charlie Lee.
In addition, Litecoin still relies on the Proof-of-Work consensus, which can further help provide a commodity mode. Case in point: when Ethereum moved from Proof-of-Work to Proof-of-Stake, Gary Gensler, chairman of the SEC, reminded crypto investors that all cryptocurrencies with Proof-of-Stake can be considered securities. That's because Proof-of-Stake is very similar to a company receiving dividends under the Howey test.
This is another indication that, under the Howie test, investors expect returns based on the efforts of others. As an asset, Litecoin is ahead of more than 20,000 altcoins. In addition, Litecoin has 63 times less energy per transaction than Bitcoin: 18.52 kWh versus 1,173 kWh, respectively. Given governments' penchant for "greening" and ESG's investment structure, the Litecoin network is less likely to be negatively analyzed compared to Bitcoin.
Combined with these positive factors, there is no shortage of Litecoin integration across major platforms, including regulated applications used for stock trading. Litecoin is available for trading from well-known and respected brokers. In turn, barriers to increasing Litecoin's potential user base continue to diminish. As trading becomes more popular among retail investors, thanks to easy-to-use mobile apps that facilitate stock trading, further exposure of new audiences to Litecoin can only have a positive impact on the digital asset.
Litecoin Halving As A Final Push
After the fall of FTX, crypto investors were looking for safer returns, with many traders and investors being particularly cautious. Although Litecoin is not as decentralized as Bitcoin, it has limited total reserve, less energy consumption, and better transaction performance than Bitcoin. Moreover, Litecoin has yet to have media coverage. Litecoin has grown more than +2000% since 2011. Like Bitcoin, Litecoin has a halving mechanism to reduce supply to stabilize the price, acting as an inflation-controlling force.
The last halving of Litecoin occurred on August 5, 2019, when the reward per block of Litecoin miners was reduced from 25 to 12.5 LTC. The next halving will reduce it from 12.5 to 6.25 LTC, which is exactly the same reward per block that Bitcoin miners receive now. In other words, the amount of LTC going into circulation is cut by half with each halving.
As inflation decreases, the level of supply relative to demand decreases. Accordingly, this disinflationary effect estimated LTC during the last halving. However, this only occurred in the run-up to the Litecoin halving, which hit a one-year high of $136 on June 20, 2019. Given that the crypto market is now much larger and the percentage of LTC supply turnover is approaching 90%, due to the aforementioned factors we are now seeing an earlier halving. Nevertheless, since LTC halving on August 23, 2023, is still a long way off, we are likely to see more ups and downs in a much harsher macroeconomic environment.
What Will Happen To The LTC Price In 2023?
Litecoin's halving has happened twice since its launch. The first one took place in August 2015. At that time, the reward for mining a new block decreased from 50 LTC to 25 LTC. The second halving is dated August 2019. It reduced the reward for mining a block to 12.5 LTC. Notably, both Litecoin halvings were accompanied by clearly visible price patterns: a price jump three months before the halving, followed by an equally large-scale correction, then a bottom, and at the end - another rally to levels above the local maximum.
Many experts are already noting - the LTC price is now moving along the same trajectory as it did before the events of 2015 and 2019. According to analysts, the market is in a bottom position. If it's true, then the LTC price is waiting next:
- Local Top. The movement to the local maximum will finish somewhere in June 2023. This trend should lift the price up to $180-220 approximately;
- Halving correction. Fast and deep correction to the local bottom: that is, to the index of 10-20% higher than the current value of the cryptocurrency - $100-120;
- Post halving pump. The price of LTC will be at the bottom till the end of 2024 approximately, and then the next growth phase will begin, reaching levels much higher than the local maximum - from $270 and higher, maybe even to $1,000.
But this is a linear forecast (that is, its authors assume everything will be as it was before). This approach turns out to be correct in most cases, but not always. For example, some analysts warn that this time halving Litecoin may not raise, but collapse the price of LTC. The reason for this possible fall is the influence of halving on miners: if LTC will be below $140, the reward of 6.25 LTC per mining block will not be enough for Litecoin mining to remain profitable.
The crux of the problem is that Litecoin miners' profitability - unlike Bitcoin miners - depends solely on the price of the cryptocurrency. This is because digital silver has no liquid futures markets that allow miners to hedge large positions in the face of market uncertainty. And the income of LTC miners due to fees has always been insignificant: now it is only 0.12% of their earnings (or 6% at the peak). Bitcoin is at 1.7% and rarely falls below 1%. So, if the experts' warnings turn out to be true and Litecoin's price won't rise above $140 after halving in 2023, this situation may prompt miners to give up mining this cryptocurrency. That, in turn, will lead to a drop in the Litecoin hash rate and a further decline in the LTC price.
However, this is only one of the options. Another is that a reduction in the number of LTC mined could lead to a shortage of cryptocurrency, which could result in Litecoin's equilibrium price being higher than it was before the halving.
Conclusion
If analysts' linear forecasts hold, Litecoin price movement in 2023 will be quite predictable: before the halving - growth to a local high ($180-220), then a deep correction to a local bottom (up to $100). This will be followed by a long plateau and another growth phase (to $220-1,000). The accuracy of this forecast will be easy enough to check because growth to the local maximum should start in the nearest time, be stable, and be rather long.
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