Is the Litecoin Halving a Buying Signal?

A Litecoin halving is coming soon, within 2 months. Should you care? Is it a buying signal? Selling signal? Let's take a look at what this means for Litecoin.

Halving=Cut in Coin Supply

A halving is when a block reward is cut in half. That means the number of Bitcoin (or Litecoin) released to the market drops. For both Bitcoin and Litecoin, that is every 4 years although at different times. When Bitcoin halves in May of next year, the block reward will drop from 12.5 BTC issued every 10 minutes down to 6.25 BTC every 10 minutes.

For Litecoin, the block reward will drop from 25 LTC to 12.5 LTC every 2.5 minutes and will do so in 53 days, according to the Litecoin Block Halving Countdown. Nearly everyone believes that the halving of Bitcoin is bullish for Bitcoin and for cryptocurrencies in general. But is the same true for Litecoin? It is the 4th highest valued crypto but does its halving carry weight for the market?

To review, Litecoin forked off the main Bitcoin blockchain and believes in the power of 4. They issue 4x as many LTC as BTC and 4x as fast, every 2.5 minutes instead of every 10 minutes. The idea behind this is to be the medium of exchange for cryptocurrencies while Bitcoin is the store of value long term.

Will the simple economics of supply and demand hold where the same demand but a lesser supply means an increase in LTC's price? Some think so and some don't, which you'll see below.

Recent Price Activity

Litecoin has been one of the leading cryptocurrency gainers since the bear market lows of the winter. Here's the chart from the last 12 months with a low of $22.93 on Dec 14th.

Courtesy of Messari.io

From $22.93 in December to the current price of $133 is a 480% gain in just over 6 months.

Litecoin is benefitting from improved fundamentals for cryptocurrency across the board. I dove deeper into market fundamentals in this CryptoNewsOverNonsense newsletter where I said fear of missing out (FOMO) seems to be less of a factor than stronger fundamentals like:

  • Oversold markets. A market is oversold when selling takes over for an extended period of time and finally, there are no more sellers left. This is usually when a market reversal takes place
  • Better fundamentals like Layer 2 solutions (lightning) for Bitcoin, stablecoins, and more products like Decentralized Finance tools Maker and Augur
  • Growing institutional adoption

But even if you are tremendously bullish on these or other developments in cryptocurrencies, we still have bull and bear markets since markets are made up of people and people make weird decisions sometimes.....

Here are some other theories.

Buy & HODL Theory

I looked at an interesting theory that was floating around crypto twitter a while ago about Bitcoin. This theory, which I outline and go into more detail as the 3rd story in this CryptoNewsOverNonsense newsletter says that everyone that holds their Bitcoin for 210,000 blocks has made money.

What's significant about 210,000 blocks? Well, that's ~4 years and it means that you've held your Bitcoin through a halving period since they are every 4 years too. Check out the article for the backtesting and other information behind this theory, which I found super interesting.

But does the same hold for Litecoin?

Litecoin has only had 1 halving since its creation before this upcoming one. The last one was in August of 2015. Cryptobriefing, which measures the LTC performance after halving against BTC notes that the price actually went down after the halving. In August 2015, LTC was trading at ~$3. In USD terms, LTC didn't do much after the halving took place although the low of $2.63 a week before the halving seems to have set a floor price and LTC hasn't been that low since. This is a chart of LTC from April 2015 (4 months before the halving) through June 2016 to give some perspective on price in USD.

Remember, the halving was in August and you see the price dropped from almost $8 in late June to $2.63 in August just before the halving takes place.

Obviously, if you bought 4 years ago you are in the money now but with a sample size of just 1, you can't apply this 4-year hold theory to Litecoin.

Best Trade Long BEFORE the Half

Another crypto trader, again with only a sample size of one, but who trades on technical analysis (looking at the charts) thinks the best trade for Litecoin is to be long now before the halving takes place. He advocates closing your position before the halving takes place too.

This is like the crypto version of 'buy the rumor and sell the news'. This trader, according to NewsBTC, believes the best trade is to be long until about a month or two from the halving (or in other words right around now). He also thinks big dumping of LTC will follow taking away many holders' profits.

While technically true that the dump took place last time and we can see it on our chart of a drop from almost $8 to $2.63, now we can have move of more than $5 in the LTC price in just one day. So does this really apply to today's market? I'm not so sure.

I don't trade in technicals so I don't know what to think but you should look at this piece even if you don't believe it all just to see that some don't think this is a multi-year long bull market with no end in sight. It's always good to get some perspective.

Conclusion

Litecoin has been on a tear the last couple months and the Litecoin halving is one of the things fueling the story. But is the event of the halving itself a driver for future profits? We haven't revisited the prices of the last halving but that doesn't mean LTC is only going up from here. We looked at a couple of interesting theories but with Litecoin we've only seen one halving and that is just not enough information to get a feel for what might happen.

I'm long LTC and have been for a couple of years. I'm not sure if the halving will increase the price due to a lesser supply or not but I like where the project is and where it is going at the moment so I'm going to sit tight.

What are your thoughts on LTC?

Disclosure: Like I said in the post, I'm long Litecoin

About the author

Stu Stu Lustman, the author of this post, is a Credit Analyst by trade trying to bring Commercial Credit Analysis techniques to the world of Peer to Peer Lending. Check me out on Twitter, LinkedIn and Google+

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