Litecoin was created to compete against Bitcoin as a store of value, mirroring many of bitcoin’s features and improving on others such as higher transactions per second. Litecoin’s halving strategy is one of the features inherited from Bitcoin. So, let’s see what is it, and its implications for the valuation of this cryptocurrency.
Litecoin has been designed so that only 84 million units will ever be in existence, four times the quantity of Bitcoins. Litecoins are mined the same way too. A Halving event occurs every 840,000 blocks mined. After the event, which will take place every four years, miners’ reward will be cut by half. On this case, the halving is scheduled to happen on August the 5th 2019, and miners who now are being rewarded with 25 Litecoins - $2,940 at its current price - after that date they will only receive 12,5 Litecoins.
Effects of Litecoin halving
The biggest impact will be supply and miners’ profitability, which is cut in half. In 2015, the price of Litecoin went from about $1.3 in the previous months to around $3.3 after the event. This time, if history repeats itself, it can be expected that the price would settle at about $90. That may change if other circumstances vary, such as if the current bullishness of the cryptocurrencies markets pushes prices higher.
Pre-halving speculation has been affecting Litecoin price. Many crypto speculators have been accumulating Litecoins expecting a price increase since the halving event means that the new future supply will be cut in half.
The combination of the halving event approaching and the bullishness of the Bitcoin has carried Litecoin price from about $22 on mid-December 2018 up to its peak at $145.7, a 6X jump in value.
Chart 1- Litecoin weekly chart in log Scale
The chart above shows two facts, Litecoin moves linearly in a log-scale, meaning the slope of the per cent drop and gain of Litecoin prices are similar on average. The other fact is that the price topped at the 38% Fibonacci retracement.
Looking at history
As the event approaches, though, The selloff risk grows. Let’s see what has happened in the previous period before halving event, o August 26, 2015.
Chart 2- Litecoin daily chart in log Scale at the time of the 2015 Halving Event
On this chart, we see that Litecoin price grew 7x from may till the beginning of July 2015, to drop 78% from its peak to the date of the event. That would imply, a drop to $56 from the current levels, although later it would recover and move to about $90.
That is not written in stone, so the sensible thing is not to be greedy and have a plan. If your plan is long-term stick to it. If it is short-term apply your stops and trade using your rational mind.
Link to the Halving Clock: https://www.coingecko.com/en/explain/litecoin_halving