Instead, what currently seems to be playing out is the Positive Feedback Loop theory put forward by Marco Streng of Genesis Mining, in a conversation with Coindesk back in 2016. If a Positive Feedback Loop is in play, then the price rally that preceded Litecoin’s halving event is largely due to the influence miners, who are solely responsible for generating all newly-minted Litecoin, have on the market.

In theory, market demand for a digital asset rises prior to the halving event (the supply of tokens mined per block, gets cut in half after a predetermined number of blocks as a built-in deflationary measure) in anticipation of the decay in coin supply. This pushes up asset prices. Following the rally, miners – who now mint fewer coins – take advantage of market price and sell fewer coins to fund their operations. Which then affects market supply, leaving an opening for a post-halving rally.

Creator of Litecoin, Charlie Lee, was of the opinion that miners may exit the ecosystem following the rally, however, hash rate was chugging along at well above 400 T/h’s at time of writing.

“When the mining rewards get cut in half, some miners will not be profitable and they will shut off their machine. If a big percentage does that, then blocks will slow down for some time. For Litecoin it’s three and a half days before the next change, so possibly like seven days of slower blocks, and then after that, the difficulty will readjust and everything will be fine.” – Charlie Lee in an intervew with Australian news portal, Mickey – July 2019

Contrary to his prediction a month ahead of the halving event, Litecoin’s hash rate remains high. Indicating continued mining support for the network. Lee took to twitter on August 5th, some 22 hours after the Litecoin halving had taken place and announced:

“504 blocks have been mined since the halving. This is 1/4 of the way to the next diff change. 21.65 hrs has elapsed since the halving. Normally on average it takes 21 hrs for 504 blocks. This means 97% of pre-halving hashrate still mining LTC.” – Lee

The shock hashing exodus event that coincided with Litecoin’s last halving event appears not to have taken place. Seeing as the section on halving events in the crypto textbook is still in draft, one can’t help but wonder if the phenomenon will be a factor in Litecoin’s next halving

Price Rally?

In the 24 hours before the rally, the average price of Litecoin gained about 13% in value. Going from dawdling in the $80 – $90 price range, Litecoin gave an impressive showing, even going as far as crossing the $100 mark before settling in the mid-$90 range. Analyst postulated that most of the digital asset’s bullish energy was being syphoned from Bitcoin’s bullish attempt at retaking the $12,000 price point on it’s Moon campaign.

It’s red across the board at the time of writing, and Litecoin’s price is sitting at around $92. Litecoin may be either experiencing a temporary pullback prior to a bullish uptick, or is establishing a historical trend, as the last halving event was followed by a protracted dip in prices. Either way, chances are that the bullish momentum experienced by Bitcoin ahead of it’s 2020 halving event will likely buoy Litecoin prices to higher price levels.

Charlie Lees is of the sentiment that the market rallies that halving events are becoming known for, are more based on hype than they are on actual economic theory. He dismisses the phenomenon saying:

“In terms of the price, the halvening should be priced in because everyone knows about it since the beginning. But the thing is people kind of expect the price to go up. So a lot of people are buying in because they expect the price to go up and that’s kind of a self-fulfilling prophecy. So, because they’re buying in, the price does actually go up.”

The post Litecoin Post-Halving: Hashrate remains intact, Will Price Rally? appeared first on Bizznerd.

The 2011 brainchild of former Google employee, Charlie Lee, Litecoin derives most of its source code from Bitcoin’s Github repository, though It sports a Scrypt hashing algorithm as opposed to Bitcoin’s SHA-256 as well as a block production time of 2.5 minutes instead of 10 (as with Bitcoin). The digital asset’s rate of issuance is designed to decay by half, every 840,000 blocks (about 4 years or so), implying the digital currency’s finite supply.

Factors To Consider

With the block generation reward for Litecoin set to drop from 25 LTC to 12.5 LTC on August 6th, 2019. The event carries with it a number of implications. The fact that mining rewards are cut in half possibly means that the network could see fewer miners supporting it, opening it up to a potential 51% Attack.

Litecoin currently carries an inflation rate of around 8,4% per year, which is projected to drop to around 4% following the halving event. Other factors to consider, concerning Litecoin’s halving event are: owing to the lack of Litecoin based hedging markets (Litecoin futures markets) profitability is dependent on price.

One must also consider that Litecoin has a far lower on-chain transaction rate than Bitcoin so a greater proportion of miners’ revenue comes from block rewards as opposed to transaction fees (0.12% of Litecoin’s block reward constitute transaction fees, whereas transaction fees on bitcoin make up 6%-8% of mining the mining reward.

Past Halving Events

Since inception, Litecoin has only had one halting event (August 26th, 2015), which saw Litecoin leap from $1.5 in the 3 months prior to the halving event, to $3 post having (having experienced a $7 peak pre-halving, in mid-July of that year). Litecoin’s hashrate however, only experienced a 15% drop around the halving event before recovering in the two weeks following the previous halving event. Indicating that miners had opted to support the network, contrary to predictions. The pre-halving rally had in fact compensated for the drop in mining reward.

“As a result, post-halving mining profitability was only inferior by a few percent to the long-term median profitability (around 38 USD/day per GH/sec).” – Binance Research

Bitcoin Halving Events

Bitcoin, which has been around longer than Litecoin, has experienced two halving events since inception. On November 28th 2012, Bitcoin’s block reward went from 50 BTC to 25 BTC, and on July 9th of 2016, it experienced it’s second halving event – with the reward going from 25 BTC to 12.5 BTC per block.

Bitcoin’s first post-halving rally saw the crypto asset’s price movements compensate for the drop in mining profitability. The second halving event, however, played out differently. The ballooning competition in the mining industry, as well as an increase in mining difficulty, saw block profitability drop significantly both before and after that particular halving event.

Possible Halving Scenarios

Bullish Price Movements Before Finding Stability At New High

This scenario is probably the most likely, as Litecoin has been rallying since the opening of this year and has gone on to log a 200% return Year-on-Year while the rest of the crypto market is up over 40%

An Increase In Litecoin Hashrate Prior To Halving Event

More miners may opt to mine Litecoin before the halving event in anticipation of the impending drop in mining rewards. This may lead to a rise in the crypto asset’s hashrate – and by virtue of that – the mining difficulty. According to BitInfoCharts’ comparison tool, Litecoin’s hashrate has been rising since the beginning of the year.

Mining Profitability Adjusts To Compensate For Miners Exiting The Network

In the event that miners opt to switch to supporting more profitable cryptocurrency networks (unlikely, given the spike in hashrate), Litecoin’s hashrate would fall leading to the drop in competition compensating for the decrease in block rewards.

A drop in Litecoin’s hashrate, resulting from a drop in the number of miners supporting the network could leave it vulnerable to a 51% Attack, thus making it more centralized, as one group would control majority voting power and would more than likely voting in favour of their own update proposals.

Mining Profitability Drops Permanently

If Litecoin’s price fails to stabilize at a higher price point than before the halting event (In the 90 days post halving event) then mining Litecoin may become unprofitable. Seeing as profitability wasn’t affected in the last halving event, it is difficult to determine how miners might react to a drop in mining profitability from supporting the Litecoin network.

Conclusion

It seems that the next Litecoin halving will mark a chapter in the cryptocurrency halving events textbook. As it appears, an increase in prices resulting from the reduction in Litecoin supply as well as an increase in use tie heavily into Litecoin’s future profitability, as far as mining is concerned.

The post The Litecoin Halving: Possible Scenarios appeared first on Bizznerd.