Litecoin- the crypto ‘silver’ to Bitcoin’s ‘gold’. So far, 2019 has been financially rewarding for holders of Litecoin (LTC), with a whopping 384.69% gain from the beginning of 2019 to the highs of 2019. This is an impressive feat! Its ‘Big Brother’ Bitcoin (BTC) managed a 146.22% gain during the same period, which isn’t too shabby either.
Still, stats don’t lie; Litecoin has surpassed Bitcoin in performance the whole of 2019.
These 2 charts below simply show the percentage gain from the opening candle of 2019 to the highest price of 2019
Well, I think that this is no coincidence. I believe that the rally in Litecoin thus far can be ascertained to a fundamental reason, and that is the Litecoin Halving.
What is Litecoin Halving?
To get Litecoin, one can either purchase Litecoin like most of the population does on an exchange, or mine it. The halving process directly affects the miners in particular as it literally halves the block rewards that miners receive when they successfully mine a block.
Currently, miners are rewarded with 25 coins per block, but after the halving event, miners will be rewarded with only 12.5 coins per block. Thus, simple logic will tell you that miners are rewarded less than before (should price stay the same).
For example, lets fix the price of Litecoin at $100.
- At the current reward, miners are rewarded $100*25= $2500 (exclusive of electricity cost etc.)
- After the halving, miners are rewarded $100*12.5= $1250 (exclusive of electricity cost etc.)
- To get a $2500 reward AFTER THE HALVING EVENT, $2500/12.5= $200. Thus, the price of Litecoin must be $200 and above for miners to make what they made previously before the halving.
To simplify everything, miners basically have their revenue cut in half. There are a couple of scenarios that could play out after the halving event.
1. Miners find it too expensive/ not profitable to mine LTC, and quit mining LTC. Hashrate drops, and difficulty drops to balance it out. Miners with cheaper costs stand to profit eventually.
2. Price of LTC increases, which makes the effect on halving less harsh. Because of the increase in price, the miners who once quit are attracted to mine LTC again as they deem it to be profitable.
What does this mean for the rest of us?
Well, it means that the inflation rate per annum of Litecoin is decreased. In the screenshot below, we can see that the inflation rate for LTC after the halving will be 4.26%, compared to 8.81% currently. There are many other interesting stats as well in the screenshot, so check that out as well.
In a sense, Litecoin will experience a metaphorical “decrease in supply”; although the total hard supply of Litecoin will not change, it is now harder to mine as less Litecoin is rewarded per block. This in turn, contributes to the idea of being more ‘rare’.
Basic economics will then tell you that if supply decrease with demand remaining the same, the price will increase.
(Again, the supply I am talking about here is not referring to the hard supply, but more of the rarity factor.)
Perhaps its because of the anticipation for the Litecoin Halving event that the price of LTC has been outperforming BTC. Market participants anticipate that LTC will get ‘rarer’ and thus, are speculating that LTC will go higher, which it has done. Another possibility is that market participants expect the price of LTC to follow what BTC has done after its own halving.
Below is a brief timeline of price during the BTC halving events to date. Thus, we can conclude that every halving event in Bitcoin’s history has been positive for price. For Litecoin, this may very well be the case!
Price Analysis of Litecoin
The price action on LTC/USD is displaying a strong and healthy uptrend. What I meant by healthy was that it goes up slowly and gives nice retraces into areas that we can BUY! The red arrows depict how I think LTC will move; in a stair-stepping motion that flips resistance to support. This movement can be seen when price broke through the blue lines/rectangle and found support on it. (Break of resistance =Bullish! )
For now, I would not worry about price heading lower to the $118-$122, since that area was last resistance flipped to support now. A realistic target would be $182, then $209. Beyond that, we would re-assess again.
Area to buy: $111–$128
Stop Loss: $109
Target 1: $182
Target 2: $209
NOTE: When price action is bullish, we must assume the bullish case. If Bitcoin dumps here, it could potentially turn everything bearish, in which case we will re-assess and adapt to the situation. That’s what technical analysis is- giving you the best odds to make the right decision!
*Did you know that you can trade LTC/BTC and LTC/USDT on the Blue Helix Exchange (BHEX)? Head over now to trade on BHEX!
To end off, halving events have historically been bullish for the coin itself. This fundamental reason alone has a 100% strike rate (if I am not wrong) of sending price higher in the longer-term future. Personally, I wouldn’t want to bet on the other side of history.
We only have until 6 August 2019 (52 days away) to potentially build up a Litecoin position as a longer-term bag, (For more information, head over here.) and we still have ample time to make a decision.
I hope this article can help you make an informed decision, but do note that this is not financial advise, and it is just my opinion. Do not invest recklessly.