Litecoin patterns Bitcoin halving: Bitcoin’s blockchain design contains several basic rules that affect the pricing of the first cryptocurrency. One of them is the consensus algorithm – Proof-of-work. It involves the production of registry blocks by solving complex mathematical calculations on computers.
In the process of mining, by selecting a hash (key) at a given interval (10 minutes), a block is produced that contains information about new transactions and all previous ones. With each mined block, the complexity of the calculations increases, therefore, more and more sophisticated equipment is required to continue mining. The total utilized power of all miners is called the hash rate. Its importance is growing almost constantly.
So that Bitcoin, unlike fiat money, does not lose value due to the growing emission, every 210 thousand mined blocks, the mining reward is halved. This phenomenon is called “halving”. Halving leads to a decrease in emissions, therefore, it is a mechanism to reduce inflation. The halving mechanism is provided in every PoW cryptocurrency.
Halving and the cost of cryptocurrency
As noted by Binance in its study of the economic effects of halving, the price of Bitcoin in 2012 increased both before and after the halving, while after the next halving in 2016, the price of BTC has already decreased due to increased competition among miners.
Litecoin had only one halving – in August 2015. In front of him, the price of the asset increased, then fell from the highest value and was fixed at a level that exceeded the price before the event. Since there have been few halvings in both Bitcoin and Litecoin so far, the exact degree of correlation between this event and price is still unknown.
But in the case of Litecoin, there are differences:
ü Firstly, there are much fewer transfers in the Litecoin network compared to Bitcoin, so LTC miners have a much lower share of fees from transfers.
ü Secondly, Litecoin does not have derivatives markets, in particular, futures, with which miners could hedge volatility risks.
To convert ltc to btc became very popular.
Two scenarios
If there is no doubt about the short-term rally of Litecoin before the halving, then what the price behavior will be after is unclear. Binance analysts came up with two scenarios:
- Growth and stabilization of prices at a new height. Since the beginning of this year, Litecoin has already shown higher growth than other altcoins, and on the eve of the halving, miners are looking to earn as many coins as possible. The positive sentiment is indicated by the fact that the hash rate (that is, the activity of miners) in the Litecoin network has grown quite quickly – twice in the last 4 months.
- Litecoin price will not rise enough. This will lead to a consistent drop in mining profitability. Since block rewards are the main source of income for LTC miners, they will need more efficient hardware that is more powerful and energy efficient. The withdrawal of some LTC miners from the market will have a positive impact, as it will reduce competition for block mining. It will also reduce the rate at which coins are issued, which will have a positive impact on the price.
Charlie Lee himself in a recent interview stated that Litecoin halving will lead to an outflow of miners. This will cause a short-term shock, followed by a decrease in network speed, but within a week the computational complexity will be corrected and the network will return to its previous indicators. He believes that halving should be reflected in the price of a cryptoasset, since this mechanism leads to an increase in market demand for cryptocurrency.