Litecoin Halving Shows Short-Term Speculation On The Decline

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Today’s Litecoin halving met with a muted market response, which could be a sign that the cryptocurrency market is beginning to mature.

Like Bitcoin (BTC),  Litecoin’s block rewards fall by 50% approximately every four years, thereby increasing the importance of transaction fees as a network incentive. The reduced supply increases scarcity for the token as the network matures.

At roughly 10:20 UTC this morning, Litecoin reached block 1,680,000 and the block reward subsequently went from 25 to 12.5 LTC. As the graph below highlights, there was a mild market reaction, with the price spiking up by approximately $10 before it quickly corrected.

Franklyn Richards, Founding Director of the Litecoin Foundation, is not surprised that markets stayed quiet. The market has changed considerably since 2015, Richards says, when block rewards fell for the first time.

The second halving was already “priced-in” by the market over the last seven months, Richards argues. Litecoin prices have steadily increased, thanks to buyers anticipating further gains. Since the start of the year, LTC has increased from  $20 to a high of $140 in late June.

But more importantly, no asset automatically becomes more valuable as soon as it becomes scarcer. “People realized soon after [the first halving] that the block reward halving didn’t really add anything to the network by itself,” Richards said.  Cutting block rewards might make LTC more scarce, but has little intrinsic value.

The biggest consequences of a halving are felt by miners, particularly those who accumulate block rewards rather than sell them instantly. Increased circulation outweighs the fall in block rewards, meaning most investors aren’t immediately affected by the reduced supply.

There is also is less short-term speculation that there was in 2015. The 2017 Ethereum Classic (ETC) halving, which Richards describes as a “pump and dump,” was probably the last time a halving will ever have such a profound effect on a coin’s price.

Based on current projections, the next Litecoin halving – which will take block rewards down to 6.25 LTC – will happen in August 2023. Much closer to hand is the Bitcoin halving, which is expected to take place around May 2020.

So far, most investors expect a buoyant effect on the BTC price as supply falls. Today’s halving could be “a sign of things to come,” Richards says, and it could be a test-run for next year’s Bitcoin halving.

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