Halving Appears to Affect Bitcoin and Litecoin in Distinct Ways

Author: DAVID CANELLIS, Blockworks Compiler: Shan Ouba, Jinse Finance

Litecoin is silver, Bitcoin is gold, except their issuance slows dramatically every four years due to halving

For superstitious Bitcoin fans, there is optimism about the halving, which historically has often marked the start of a major price increase. So what about the Litecoin halving?

Bitcoin’s fourth halving will again cut Bitcoin’s issuance by 50%. Litecoin (LTC), a blockchain project derived from Bitcoin, will usher in a halving in the near future.

The halving means that every 210,000 blocks are mined for Bitcoin, and every 840,000 blocks for Litecoin are mined, and its circulation will be halved once. Bitcoin’s mining rewards will be reduced from 6.25 BTC per block (worth about $171,000) to 3.125 BTC (worth about $85,400), while Litecoin’s mining rewards will be reduced from 12.5 LTC per block (worth about $1,100) ) to 6.25 LTC (worth about $550).

All Bitcoin and Litecoin halving events coincide with historical bull markets. After comparing the price data from six months before each halving to one year after the halving, it can be seen that the price increases of Bitcoin are as follows:

• During the halving period in 2012, the increase reached 20,000%;
• During the 2016 halving period, the increase was 560%;
• During the 2020 halving period, the increase was as high as 780%.

Litecoin’s halving event was accompanied by similar bullish sentiment, but with a very different pattern. Unlike Bitcoin’s post-halving rally, Litecoin saw its biggest gains in the six months leading up to the halving. Litecoin’s gains peaked at about 320% about 45 days after each halving occurred. Over the next month, most of the returns were abandoned. Litecoin rallied between 80% and 110% within a year of each event. Overall, halvings appear to have no discernible pattern for Litecoin’s price performance, but the six months leading up to both halvings are surprisingly similar.

Bitcoin and Litecoin share source code (and halving mechanism)

Kaiko research analyst Riyad Carey told Blockworks that halvings have historically been a bullish catalyst for Bitcoin and Litecoin.

“The timing of these halvings is very interesting: Ethereum’s abandonment of proof-of-work has helped push Bitcoin and Litecoin’s hash rates to new all-time highs as miners look for alternatives,” Carey said.

There are other concerns: Bitcoin mining profitability tends to decline after each block reward reduction, as miners increasingly rely on transaction fees for revenue while they wait for speculative market prices to catch up to profitability.

Carey continued: "Litecoin has been a top five coin for many years, but has since been replaced by newer, mainly Layer-1 coins. The price increase before the halving may cause Some excitement, which could attract miners if they look for alternatives to bitcoin."

The halving is really just one of the factors affecting the price, along with the macroeconomic environment, correlation with tech stocks, trends in investor adoption, and the business acumen (or lack thereof) of a growing number of major cryptocurrency companies.

It’s also worth emphasizing that the sample sizes for Bitcoin and Litecoin halvings are very small, making realistic conclusions difficult to draw.

Litecoin was launched in 2011, not by hard forking the Bitcoin blockchain (like Bitcoin Cash, etc.), but by creating a direct fork of its source code.

Litecoin developers, led by founder Charlie Lee, made some small changes to Bitcoin's original codebase. Namely faster block times (every 2.5 minutes on average compared to 10 minutes for Bitcoin) and higher supply caps (84 million for Bitcoin compared to 21 million for Bitcoin).

The value proposition of Litecoin used to be that, in a sense, it could act as a spiritual sister network, processing smaller transactions faster and cheaper than Bitcoin, while also acting as a store of value.

The advent of the Lightning Network has somewhat changed that narrative. Litecoin ended up being a major testing ground for potential upgrades to Bitcoin — privacy-focused technology MimbleWimble is one example.

While there are differences, the general concept is the same: cryptocurrency is distributed to proof-of-work miners as payment for validating transactions and protecting the network from 51% attacks.

Different cryptocurrencies, different investors

Kaiko research analyst Riyad Carey told Blockworks that halvings have historically been a bullish catalyst for Bitcoin and Litecoin.

"The timing of these halvings is very interesting: Ethereum's recent abandonment of proof-of-work has helped push bitcoin and litecoin hash rates to new all-time highs as miners look for alternatives," Carey said.

There are other concerns: Bitcoin mining profitability tends to decline after each block reward reduction, as miners increasingly rely on transaction fees for revenue while they wait for speculative market prices to catch up to profitability.

Carey continued: "Litecoin has been a top five coin for many years, but has since been replaced by newer, mainly Layer-1 coins. The price increase before the halving may cause Some excitement, which could attract miners if they look for alternatives to bitcoin."

The halving is really just one of the factors affecting the price, along with the macroeconomic environment, correlation with tech stocks, trends in investor adoption, and the business acumen (or lack thereof) of a growing number of major cryptocurrency companies.

It’s also worth emphasizing that the sample sizes for Bitcoin and Litecoin halvings are very small, making realistic conclusions difficult to draw. Litecoin was launched in 2011, not by hard forking the Bitcoin blockchain (like Bitcoin Cash, etc.), but by creating a direct fork of its source code. Litecoin developers, led by founder Charlie Lee, made some small changes to Bitcoin's original codebase. Namely faster block times (every 2.5 minutes on average compared to 10 minutes for Bitcoin) and higher supply caps (84 million for Bitcoin compared to 21 million for Bitcoin).

The value proposition of Litecoin used to be that, in a sense, it could act as a spiritual sister network, processing smaller transactions faster and cheaper than Bitcoin, while also acting as a store of value.

The advent of the Lightning Network has somewhat changed that narrative. Litecoin ended up being a major testing ground for potential upgrades to Bitcoin — privacy-focused technology MimbleWimble is one example.