Litecoin inherited block reward halvings from Bitcoin but due to having no shared history, LTC halvings occur on a separate schedule. This Wednesday, Litecoin block rewards will be reduced once again.
On the day of the third Litecoin halving event, we updated our 2019 article! In it, you will find not only an explanation of what halving is and why it is significant. We are going to review the LTC price performance over the past two cycles and share some insights from crypto influencers and experts.
Key Takeaways
- Litecoin halving is a quadrennial event when the mining reward for a block is reduced in half. It is a rule hard-coded into the protocol to regulate the issuance rate of a cryptocurrency;
- The third Litecoin halving event is due on August 2, 2023. After that, the block reward will become 6.25 LTC (down from 12.5 LTC), and every day 3,600 LTC will enter circulation;
- The influence of Litecoin halving events historically has been overshadowed by the Bitcoin halving cycles. The most price action LTC halving usually causes is a “sell-the-news” event before the date of the change.
What Does Halving Mean?
In Bitcoin and cryptocurrencies that inherit some of its features, periodic block reward halving is a hard-coded rule. For every predetermined number of blocks, the mining reward is reduced, usually in half — hence the name. Halving events do not directly influence crypto in a holder’s possession: its amount or value remains intact but the issuance rate slows down.
Satoshi Nakamoto, Bitcoin’s creator, designed this measure to achieve a few goals when it comes to the issuance of new bitcoins. Firstly, in the early days of the Bitcoin protocol, miners would get up to 50 BTC for adding a block. So, early supporters, whose hash rates would be vital for securing the network, would get an advantage in comparison to miners who joined later.
Secondly, at the initial issuance rate — 50 BTC every 10 minutes — all 21 million BTC would be mined in a month. It had to get slower, so every 210 thousand blocks, the reward gets reduced. Even though more than half of the total supply had been mined before the first halving event in 2012, by now BTC is entering circulation much slower: at the rate of 900 bitcoins per day.
Thirdly, Bitcoin is getting more valuable but also, more scarce. Because it is getting harder to get and more BTC is held or lost, due to the law of supply and demand, its value increases. Due to the similarities in the supply curve, the slowing rate of issuance of Bitcoin is sometimes referred to as disinflationary. Even though Bitcoin was intended to be a “peer-to-peer digital cash”, there is more incentive to hold on to the coins rather than spend. The model was not the best for medium of exchange but it made BTC a hedge against inflation in the eyes of some investors.
How Litecoin Block Reward Is Halved
The Litecoin protocol halves the block reward every 840,000 blocks: even though this number is four times Bitcoin’s, Litecoin’s block time is also four times faster. As a result, Litecoin halvings occur at the same intervals as Bitcoin halvings.
The upcoming halving event will be the third, after the first on August 26, 2015, and the second on August 6, 2019. It is due on August 2, 2023. If you do the math, you will see that after the block height of 2,520,000, each block will yield 6.25 LTC (the current block reward is 12.5 LTC).
Therefore, the next Litecoin halving is expected to happen in August 2027. So you might not need the Litecoin halving countdown for quite a while! Before that, there is a whole cycle to go through.
There are two scenarios of how this event can unfold and what impact it will have. On the one hand, reduced block rewards can drive miners away from LTC, posing a threat to the integrity of the network. On the other hand, the LTC inflation rate will decrease. Let’s review each scenario in more detail.
The Drop Scenario
While the bullish scenario talks about probabilities and speculates on general market laws, the drop scenario is almost a certainty. At the moment, according to the CoinWarz mining calculator, with 9,500 MH/s of hashing power, the profit margin for mining LTC is $0.23 per day. Today, the revenue will noticeably decrease but the electricity costs will not. For sure, some Litecoin miners will be forced to go offline and sell their LTC.
Luckily, Litecoin inherited another feature from Bitcoin to dampen the impact of such cases. Every 2,016 blocks (roughly 3.5 days), Litecoin’s mining difficulty is adjusted to the current hash rate. If a lot of miners join the network, their computers will solve block problems faster, producing blocks at a faster pace. After the recalculation, the problem will become more difficult and time-consuming to solve, bringing the block time closer to the target of 2.5 minutes. The opposite is true: if a lot of miners leave the network, the mining rate will slow down but only until the next recalculation.
Another factor that ensures the Litecoin network will not suffer is merged mining with Dogecoin (DOGE). These two coins are mined together, so even if the reward in LTC decreases, the block yield in DOGE stays the same. Thus, the mining revenue is reduced not in half but slightly less. Moreover, DOGE is positioned well on the market in comparison to other Proof-of-work coins, making it a popular choice for mining.
The Rise Scenario
The belief that after the halving prices will increase in the long term is grounded in both the supply-demand dynamics and the history of Bitcoin halvings.
A reduction in the issuance rate makes the asset scarcer in the future. After the Litecoin halving in 2023, the annual inflation rate will become roughly 1.6%. Reduced inflation means that the future inflow of value in LTC will be spread between fewer coins, increasing the value of LTC in circulation. At least, on paper.
Bitcoin demonstrates this effect rather vividly. A market cycle of accumulation, bull run, and a bear market repeats every four years and is believed to be directly linked to halvings.
Does the same really happen in Litecoin, though? Let’s review the history of the past two halving events to find out.
Litecoin Halving History
Pre-halving (2013–2015)
As we mentioned, the first time the Litecoin blockchain went through halving was on August 26, 2015. At that point, the reward decreased from 50 LTC to 25 LTC.
After the 2013–2014 bull run, LTC would spend a year in a downtrend and another year in accumulation. Mid-2015 LTC price action in the wake of the first Litecoin halving is noteworthy: after spending the first half of the year accumulating in the $1.4–1.8 zone, it would pump up to $7.5 in early July. By the day of the halving, though, LTC was down again, trading for about $2.9.
The First Complete Cycle (2015–2019)
More interesting to us is the next time frame, between the first and second halving event on August 6, 2019. While the previous period was roughly four years as well, it did not include the aftermath of a halving event. In this sense, the time between August 2015 and 2019 is the first complete cycle.
Following the halving event, the LTC price did not seem to have experienced a dramatic drop. Instead, it spent 19 months in accumulation before blowing up in 2017. In March, it started climbing up before accelerating in October and skyrocketing to $315.
This dramatic rise once again would be followed by a prolonged correction, although this time around, after a year of “crypto winter”, in 2019 LTC would rise again instead of accumulating near the bottom. We can also see the same pattern as on the previous chart, when the price rose sharply and pulled back before the halving event in August 2019.
The Second (Current) Cycle (2019–2023)
By now, it is clear that Litecoin is following a cycle that can be linked with halving events. However, is this cycle occurring thanks to Litecoin halving? Let’s have a look at how it correlates with Bitcoin:
From the chart above, we can see that Litecoin follows Bitcoin almost all the time. Save for a few times that it outperformed the first cryptocurrency in 2020 and at the peak of the bull run, the two coins move almost in sync with each other. If we look at the July 2023 price action, the trends coincide but due to the upcoming Litecoin halving, LTC has lost more value.
Against Bitcoin’s 48.19% dominance of the total crypto market cap, Litecoin has only 0.57%. With this in mind, it gets obvious which one is in the lead. So, the natural conclusion is that the cycle imposed by Bitcoin halvings has more influence over the price of Litecoin than its own halving events. Of course, LTC’s halving has some influence over its price but in comparison to the overall market trend, it is not that strong.
How Do Experts Feel about the 2023 Litecoin Halving Event?
There are a few reasons why Litecoin halving is at the center of attention and is the subject of much anticipation. Historically, LTC is the first out of the major Bitcoin offshoots to undergo halving. It will be followed by BSV, BCH, and finally, BTC itself. As such, it is sometimes viewed as a preamble to the post-halving bull phase of the market.
For the Litecoin creator Charlie Lee and his brother, Ballet CEO Bobbie Lee, this is a cause for celebration. To commemorate coming this far, the Litecoin Foundation and the hardware wallet manufacturer will release cards pre-loaded with 6.25 LTC, made of 999 fine silver. Litecoin is sometimes referred to as “digital silver” (to Bitcoin’s “digital gold”) but in case 6.25 LTC won’t ever be enough to cover the $1,000 price of the card, at least there is about 50 g of silver in the card itself.
Other analysts and crypto enthusiasts are even less optimistic about the event. Analysts show a wealth of evidence that the Litecoin halving will become the “sell the news” event: particularly, whale accumulation, surge in address numbers, and the pre-halving pump.
Guest Opinion: Swapzone’s Maria on LTC’s Prospects
For even more insights about the event, we turned to our partners at Swapzone. Their Marketing Manager Maria was kind enough to satisfy our curiosity and answer a couple of questions.
CH: Did you notice a surge in demand for LTC on Swapzone, in your experience?
Yes! As you may have heard, Litecoin (LTC) is frequently referred to as the “silver” to Bitcoin’s “gold.” Thanks to its reputation and well-thought-out structure, LTC continues to be a popular asset on many crypto-related sites, including Swapzone.
We have recently noticed a major spike in LTC swaps ahead of the Litecoin halving, particularly BTC to LTC swaps. One of the most attractive features that turns Litecoin holders into Swapzone regulars is the ability to access the most affordable rates on the web simultaneously. There is no more headache of checking each exchange separately in hopes of finding the best deal. Now that all of the most recent rates are easily accessible via Swapzone, we have to say that ChangeHero has definitely become a top favorite among our users!
CH: What would the prospects of Litecoin for 2023 be, now that the halving is almost a done deal? Is it too late to buy LTC?
Previous Litecoin halvings in 2015 and 2019 had a big impact on the price of Litecoin. As a result of such supply-demand dynamics and investor sentiment around these occurrences, many analysts believe that history may repeat itself during the 2023 halving as well. If Litecoin reacts positively to the upcoming halving, there is no doubt that LTC could be attracting new investors and traders and becoming an even more valuable asset to “hodl”.
Conclusion
Is it too late to capitalize on the Litecoin halving event? In the short term, it is high time to brace for impact. However, if you get it to HODL, in a couple of years it will probably be raised by the Bitcoin bull run once again.
A friendly reminder: you can exchange LTC on ChangeHero with any of the 200+ coins we support. Through our fiat-to-crypto partner, you can also sell Litecoin and cash it out to your bank card. In any case, the article is not investment advice and we encourage you to do your own research first.
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