The price of Litecoin surged 300% in six months, preceding the upcoming mining reward ‘halving’ in August. Will Bitcoin be next?
According to CoinDesk data Litecoin this year enjoyed its longest winning streak since August 2017, after recording gains in each of the past four months.
Prices increased 3.8% in January, 46.3% in February, 31.15% in March and 22% in April. It pulled back slightly recently and its gains since December are now *only* around 230%. It is currently selling for AUD $104.
The price surge has been attributed to the upcoming ‘halving’ event in August.
Every four years, the reward Litecoin miners receive for each block reduces by half. In August the reward decreases from 25 coins to 12.5 coins.
Halving the reward that miners receive per block reduces the supply, which theoretically makes each coin more valuable.
What does history tell us?
Historical data shows the price of Litecoin rallied by almost 700% in the seven months leading up to its first reward halving in August 2016.
It is worth noting that the currency then lost almost half its value before the halving actually occurred in late August.
In crypto, everyone wants to buy the rumour and sell the news. LTC traded sideways for another two years before surging to new highs in 2017.
Based on that sequence of events, traders have another two months to profit from Litecoin price increases.
However, if you listen to early Bitcoin investor Mike Novogratz, he wouldn’t touch a ‘glorified Bitcoin testnet’ like Litecoin with a bargepole.
Other factors to consider
It’s worth noting there has been other bullish news surrounding Litecoin that could contribute to the price increase.
The Litecoin Foundation recently signed a deal with Travala.com that gives LTC users a 40% discount when booking one of its 600,000 properties.
And Charlie Lee’s vision for a faster, cheaper version of Bitcoin seems to be coming true, with this week’s update lowering the default transaction fee by a factor of ten.
What does this tell us about Bitcoin?
But the Litecoin halving is most interesting for what it can tell us about Bitcoin’s upcoming halving event in May next year.
Historically speaking, the halving starts getting priced in about a year in advance – which could well be a factor in BTC’s recent price spike.
In the year leading up to the first halving, Bitcoin spiked by 300%. In the year leading up to the second halving, Bitcoin shot up 178%.
Crypto analyst PlanB recently released a ‘stock to flow’ chart that models the impact on the BTC price due to increased scarcity caused by the halving.
Earlier this week he released an updated chart on Twitter that suggests the price will increase to $100,000 after next year’s halving – and an astonishing $1 million after 2024.
#bitcoin Stock-to-Flow model made with only 2009-2012 data (black):
– correctly predicted $200-800 price after 2012 halving
– predicted $6-10k price after 2016 halving
– predicts $100k after 2020 halving
– $1mln after 2024
Updating model with new data lowers the prediction a bit. pic.twitter.com/hzwEXUN7XJ
— planB (@100trillionUSD) May 7, 2019
How does the Bitcoin halving work?
Miners currently earn 12.5 Bitcoin per block, or around 1800 coins per day. Most sell the coins immediately to cover the cost of electricity and lock in profits.
After May next year though, only around 900 new Bitcoin will be coming on the market each day – thereby reducing supply dramatically.
There are currently 17.7 million bitcoins in circulation out of a total supply of 21 million. Almost 85% of the total Bitcoin that will ever be created, have already been created.
After the halving, the BTC inflation rate will fall from 3.78% to 1.8%, bringing it lower than the annual average supply increase of gold.
So is the Bitcoin halving price spike a sure thing?
Unfortunately not. The timing of the last two price spikes in the lead up to the halvings could simply be a coincidence.
And given the wide expectations of a price increase due to the halving, some suggest it may already be factored into the current price.