Litecoin’s price, hashrate, and mining difficulty have fallen by a third since the halving. What can we learn from it ahead of the Bitcoin halving?
On August 5, the block reward for Litecoin decreased from 25 coins to 12.5 coins. Since then the network hash rate and mining difficulty have dropped almost a third – or 40% if you go by this guy on Twitter.
Litecoin hash rate since the halvening has dropped 40%.
This is what happens when you have a halvening but no price rise. pic.twitter.com/YDWp1EvEQ0
— Eric Conner (@econoar) August 25, 2019
The lower hash rate and mining difficulty impacts on the network’s security and vulnerability to attack.
Drop in price and rewards leads to fewer miners
Most hodlers are probably more concerned with the price, which peaked at $105.59 on August 5 and has since fallen below $75 today – a drop of almost 30%.
Miners have been hit hard on both fronts – they’re getting half as many coins as they were in July and each coin is worth a third less.
Despite the fact Litecoin is still up by more than 140% from its January 1 price of around $30, the halving has apparently convinced around 30% of miners to switch from mining Litecoin.
This was foretold by SatoshiLite
Now it’s not entirely unexpected this might happen: Micky reported in July that @SatoshiLite himself, Charlie Lee said it was likely.
“The halvening is always kind of a shock to the system,” he said.
“When the mining rewards get cut in half, some miners will not be profitable and they will shut off their machine … so possibly like seven days of slower blocks, and then after that, the difficulty will readjust and everything will be fine.”
Litecoin has been struggling
Litecoin is having trouble justifying its $4.6 billion market cap lately anyway following revelations it essentially has one core dev and a couple of helpers, who mostly just merge in changes to Bitcoin’s code.
At the end of quarter one, it had $96,000 in the bank for operational expenses, the community was donating an average of just $1000 a month.
81% of all funds ever donated to the Litecoin Foundation came from founder Charlie Lee.
Litecoin is not a great analogy for Bitcoin
Litecoin’s struggles mean that it’s not a great analogy for what may or may not happen after the Bitcoin halving in May next year.
Bitcoin has been going from strength to strength, hitting new all-time highs in mining difficulty and hash rate.
Institutional investors – who mainly buy Bitcoin – are getting on board, pumping a couple of hundred million a week into Coinbase Custody.
Physically delivered Bitcoin futures arrive next month thanks to Bakkt and the latest figures suggest Bitcoin’s dominance is closer to 90% than the 69% the CMC figures suggest.
In short, there’s a lot more demand for Bitcoin than Litecoin, and if the demand keeps pushing up the price, we probably won’t see the same proportion of miners dropping out.
But will the price spike due to the halving?
But the much-anticipated halving spike has been shown to be unreliable at best, and fictional at worst.
Researchers from algorithmic trading software company Strix Leviathan analyzed the history of 32 halving events and concluded the widely believed halving price spike narrative is “a myth”.
Notably, they found that Litecoin and Bitcoin behaved totally differently before and after halving events: Essentially LTC outperformed the market in the lead up to the halving and then tanked, while BTC lagged the markets leading up to the halving and then took off like a rocket.
But as Moe Adham wrote in Forbes in May this year, that only tells part of the story.
Looking at the last two BTC halving events, a considerable period of volatility occurred a year to 18 months afterwards.
“The first time, BTC went from around $11 to around $1,100 and back down to $220. The second time, BTC went from around $230 to around $20,000 and back down to around $4,000,” he wrote.
So if history repeats, it’ll be worth picking your exit price carefully.
If you prefer blind optimism about the BTC price (and a lot of people do) then Plan B released a ‘stock to flow’ chart that suggests the price will increase to $100,000 after next year’s halving – and an astonishing $1 million after 2024.
#bitcoin 2012 Stock-to-flow model still works!
S2F model made with 2009-2012 data (only 4 data points, before any halving – green line) correctly predicted 2013-2019 (7 out-of-sample data points + blue line) with 99.5% R2. Current prediction: 2021 $100K, 2025 $1M???? pic.twitter.com/NX8djTxrA1
— PlanB (@100trillionUSD) July 18, 2019