You’ve probably heard about halving of different coins, but do you understand this process right? Today, we will talk about what halving is, how it looks like in the Bitcoin and Litecoin ecosystems, and how it affects the cryptocurrency price.
Definition of Halving
In the cryptocurrency space, the term halving refers to a process that reduces the issuance rate of new coins. More precisely, halving is the periodical reduction in the cost of cryptocurrency mining and block subsidy provided to miners. Yes, the reward for adding a new block after a halving is halved.
Halving ensures that a cryptocurrency will follow a steady issuance rate until its maximum supply is eventually reached. This mechanism is necessary to control inflation and support liquidity and value.
Satoshi Nakamoto designed the mechanism of Bitcoin halving and set it as an important part of its protocol. Halving in the Bitcoin network is performed every four years, or every 210,000 blocks. During each cycle, the number of coins remaining in reserve is halved, and so are miners’ rewards.
The original block subsidy was equal to 50 BTC. So far, Bitcoin has already had 3 halvings: in 2012, 2016 and 2020, so the mining reward has dwindled to current 6.25 BTC. As of today, over 90% of all BTC supply has already been mined.
Next halving is expected to take place in March of 2024, while the last is predicted for the year 2136. Soon after it, in 2140, the last BTC will be mined, reaching the total supply of 21 million coins.
It’s difficult to give an exact date as it depends on the network speed. The last, 32nd halving will occur in 2136, and the last coin will be mined in 2140. However, by 2031, the reward for mining blocks will no longer play a significant role as an incentive for miners, and transaction fees will take its place.
Just as in the Bitcoin network, block halving event happens every 4 years on Litecoin blockchain. Litecoin has already had two halvings: in 2015 and 2019, so the initial block reward of 50 LTC dropped to the current 12,5 LTC.
In 2023, the third Litecoin halving will take place, and the block subsidy will decrease to 6.25 LTC. Litecoin’s halving will end approximately by the year 2142. After the last cycle, the coin supply will reach its maximum of 84,000,000 LTC. There are currently more than 72 million LTC in circulation, which is over 85%.
Though halving in these two networks is carried out in the same way, Litecoin halving correlates with the coin price differently in comparison with Bitcoin.
How does halving affect the price?
In the long-term perspective, halving was conceived as a way of deterring inflation. It’s the opposite of money printing, when newly printed (mined) coins lose their value and suffer inflation. So, if the demand for LTC or BTC will rise, their prices will go up rapidly.
Each halving event is preceded or followed by price changes, depending on the cryptocurrency network.
In the past, each halving was accompanied by a slight rise in BTC after the event. Even during pre-halving, the price of Bitcoin was on the rise. However, each peak was followed by a decrease in BTC value.
An interesting fact is that BTC reached its first all-time high of $20,000 in 2017, a year after the second halving. In 2021, Bitcoin’s price gained a record $64,000 mark, and it also happened a year after the third halving.
Though it’s not a proven theory, we may see the same tendency during Bitcoin’s next halving. Another factor that speaks for this theory is that the coin’s price is quite low today ($18,000), probably waiting for the next peak.
As a usual, the maximum price is reached a few months before the halving, and after the event, Litecoin’s value drops rapidly.
In 2015, the price increased by 312% in the 203 days before the halving. However, it dropped considerably afterward, entering a period of long consolidation.
The same occurred in 2019, when Litecoin’s price surged by 312% — 245 days before the second halving. Then came an even sharper downward movement, but the price rose to new highs during the next bull run.
So, what should I do with this information?
Now, when you know how halving works in the Bitcoin and Litecoin networks, you can predict your possible earnings as a miner in these blockchains. Also, you can choose the right time to buy BTC or LTC cheaper, and then sell for a higher price, depending on the halving schedule.