After months of quiet upward momentum, many crypto traders felt the bull market was officially back in business as Bitcoin briefly broke $5,000 earlier this week. Bitcoin’s low-point of the past year’s bear market came on December 16 as it touched $3,205. Many predicted it could go as low as $2,000 before any real recovery began, but now it’s the bulls who are dominating the conversation as the prices hovers around the $5,000 mark. But while Bitcoin’s roughly 64% appreciation since December has caused excitement, it’s nothing compared to what’s been going on with Litecoin.
Litecoin was sitting at $23.56 in mid-December but has seen incredible growth in the three-and-a-half months since then. Within the past 48 hours, Litecoin hit a nine-month high of $95.20. The price dipped soon after but seems to continuing its upward trajectory. After months of a prolonged bear market, crypto bulls and Litecoin hodlers are rejoicing at a 4x increase in under 4 months.
So what’s causing the current price surge? The most popular theory is that Litecoin is following historic precedent in posting significant gains in the run-up into its next scheduled halving of the block rewards offered to miners.
From December 2017’s All-Time High to December 2018’s 17-month Low
Like the vast majority of cryptocurrencies, Litecoin had a very good 2017. After trading for the first few months of the year at around $4, it followed the general trend for insane price appreciation during crypto’s crazed bull run and had broken $100 by December 4. Over the following two weeks, the price exploded, rocketing above $366 on December 19. Litecoin followed Bitcoin in swiftly falling from its all-time high, but while the entire cryptocurrency market shed the vast majority of 2017’s gains during the bear market that followed, Litecoin’s crash was particularly brutal.
A day after hitting $366, Litecoin founder Charlie Lee took to Reddit to announce he’d sold the majority of his holdings:
“Over the past year, I try to stay away from price related tweets, but it’s hard because price is such an important aspect of Litecoin growth. And whenever I tweet about Litecoin price or even just good or bads news, I get accused of doing it for personal benefit… For this reason, in the past days, I have sold/donated all my LTC. Litecoin has been very good for me financially, so I am well off enough that I no longer need to tie my financial success to Litecoin’s success. For the first time in 6+ years, I no longer own a single LTC that’s not stored in a physical Litecoin. (I do have a few of those as collectibles.)”
The effect was immediate. Within less than a month, Litecoin shed more than 50% of its sudden gains and hit $181. The decline continued until December 2018, when Litecoin hit a low of $23.56. Interestingly, this was just a few dollars above the upcoming bear market low Charlie Lee had predicted just a week before Litecoin more than tripled to hit $366.
Ok, sorry to spoil the party, but I need to reign in the excitement a bit…
Buying LTC is extremely risky. I expect us to have a multi-year bear market like the one we just had where LTC dropped 90% in value ($48 to $4). So if you can't handle LTC dropping to $20, don't buy! 😀
— Charlie Lee [LTC⚡] (@SatoshiLite) December 11, 2017
Since December’s low-point, Litecoin has been one of the best performing cryptocurrencies. With a market cap of around $1.5 billion in mid-December, Litecoin was barely hanging onto a place in the top 10 cryptocurrencies. By the end of February, it had risen to fifth place as the market cap came close to $3 billion. On April 3, the market cap hit $5.8 billion as Litecoin’s price reached $95.20. The price dropped off soon after, hitting a $5 billion market cap and $81.73 per LTC within the next 24 hours, but Litecoin has since looked to be on a continued upward trajectory, currently trading at $87.66 with a $5.35 billion market cap.
The Halving Effect
Litecoin was one of the earliest alt-coins, being launched in 2011. As the name suggests, Litecoin was designed as a ‘light’ version of Bitcoin, with its primary technical difference being that Litecoin blocks are mined every 2.5 minutes, as opposed to every 10 minutes for Bitcoin. One similarity that Litecoin and Bitcoin share is that the block rewards allocated to miners are set to halve at regular intervals. While Bitcoin’s next halving is expected to occur in May 2020, Litecoin’s next halving is expected to happen in August.
Litecoin’s recent price surge has been complimented with a similar surge in hashrate. A minable cryptocurrency’s hashrate is determined by the amount of mining power being dedicated to mining blocks on the network. Miners typically shift their focus to whichever cryptocurrencies are proving most profitable to mine, so a higher mining hashrate means greater perceived profitably. Litecoin’s mining hashrate hit an all-time high of 342.88 TH/s in May 2018 but then feel steeply, with the price and market cap lows of mid-December being mirrored by a mining hashrate decline to 146.21 TH/s. The hashrate has exploded in-step with Litecoin’s price since then and is now coming very close to breaching May’s all-time high, being at 336.99 TH/s at the time of writing.
The run-up to block reward halving have typically created a perfect storm for cryptocurrency prices. The increased mining hashrate improves network security and makes the network more attractive to investors. Prices rise in the run-up to a halving and often continue increase for prolonged periods after. For reference, Bitcoin’s last halvings in November 2012 and July 2016 were preceded by months of steady price increases. What Coin Desk calls “a brief “sell the news” reaction” sent prices 30 to 50% lower in the weeks immediately before the halving, but exponential growth kicked in immediately after the halving had occurred, leading to the enormous year-long bull runs which propelled Bitcoin to all-time highs above $1000 in December 2013 and close to $20,000 in December 2017.
If history is any guide, Litecoin should continue its impressive performance over the next couple of months, then dip as the halving grows close, before continuing its upward ascent. At least, that’s the theory that many feel is prompting the current Litecoin bull run.
The Future Outlook
Not everyone is convinced that Litecoin’s incredible recent gains are just the beginning of a return to its previous all-time high. One person who’s voiced their doubt is Mike Novogratz of institutional crypto investment firm Galaxy Capital. Novogratz referenced Litecoin’s common tagline of being the digital silver to Bitcoin’s digital gold to point out that Litecoin’s market cap is a great deal higher than the analogy would suggest. Silver’s $17 million market cap is 0.17% of gold’s $8.7 trillion, whereas Litecoin’s recent peak market cap of $5.7 billion is a much higher of 6.4% of Bitcoin’s market cap. And in case Novogratz hadn’t made his stance on Litecoin’s future prospects clear enough, he added that it was nothing but a glorified Bitcoin testnet.
Gold has an $8.5 trillion dollar market cap. Silver is $15bn That is .17%. $BTC has a $90bn mkt cap. $ltc is $5.7bn which is 6.4% of $BTC. Silver is at least useful for industrial production. $ltc is a glorified test net for $btc. I don't get this rally. Sell $ltc buy $btc.
— Michael Novogratz (@novogratz) April 3, 2019
Others have been far more positive, such as Jason A. Williams of Morgan Creek Digital Capital Management, who tweeted a prediction of big price breakouts for the top cryptocurrencies and a Litecoin target above double the previous all-time high by May.
🔥Crypto 🐂 Break Out Predictions🔥
Ethereum – April 24, 2019 with a price target of $2090
Bitcoin – April 11, 2019 – A new all-time high of $28,100.
Litecoin – target $650 April / May
Wouldn’t this be nice 👍🏼
— Jason A. Williams 🦍 (@JWilliamsFstmed) March 22, 2019
Litecoin is following historical precedent as it marches toward its August block reward halving. Whether the predicted next bull run will follow on from it remains to be seen, but there’s a clear return of exuberance to long-term crypto bulls following Litecoin’s return to incredible month-on-month gains. With Bitcoin’s next halving coming a little over a year away, even those who aren’t backing Litecoin will be watching to see if the halving effect is still as powerful as it was before crypto’s previous bull runs.