The Litecoin block reward halving is a matter of hours away and volatility around the cryptocurrency could ignite as a result. Some believe that the halving is already priced in, while some believe it isn’t possible for it to reflect on the market price so early. BTCManager discuses how the halving could play out, August 5, 2019.
All Down to Supply and Demand
The original Bitcoin code executes an automatic block reward halving every 210,000 blocks. A disinflationary supply schedule means that demand for Bitcoin exceeds supply by a larger degree with each subsequent halving.
Since Litecoin is a fork of Bitcoin, it adopted the initial economic framework set in code by Satoshi. However, Litecoin and Bitcoin behave like polar opposites when it comes to a halving.
A time series based analysis revealed that Litecoin tends to burst before it’s halving while Bitcoin price skyrockets after the halving. The story behind an exponential increase in price during a halving is that supply in the market suddenly reduces, making it more difficult to buy a Bitcoin by manipulating the demand-supply equilibrium.
This means that Litecoin has historically had halvings priced in from months before the actual event. A key inference from this data is that Litecoin’s value during a halving isn’t caused because of supply shock; it’s driven by artificial demand from speculators who want exposure to LTC before the halving occurs.
That being said, the market is less than 10 years old and the dynamics can change considerably as more investors enter the market. It wouldn’t be surprising in the least if Litecoin suddenly staged a parabolic rise owing to a real supply shock in the market.
Litecoin Grown Considerably Since Last Halving
The reason that market dynamics can change so fast is because fundamentals have grown and developed a strong investment thesis’ for many cryptocurrencies.
Litecoin has seen a lot of adoption as a micropayment network and has ramped up marketing efforts to get the brand name in the public domain. These changes together mean that more people know about Litecoin and more people can use Litecoin.
Often referred to as the original fork, Litecoin community members tend to believe it is the optimal scaling solution for micropayments while Bitcoin pursues its store of value narrative.
That being said, the market is still incredibly irrational and the next few days may see a large amount of volatility. Traders are recommended to optimize their exposure to Litecoin in the short term and pay heed to the warning of the founder himself.