Litecoin Halving Is Driving The Price Of LTC Higher

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Litecoin Halving Is Driving The Price Of LTC Higher

Litecoin, still leading the market higher

Litecoin led the cryptocurrency market rebound earlier this year and it looks like it is going to lead the second leg of the rally too. The price of LTC versus the dollar has spiked more than 12% in the last 24 hours and confirmed a key support. Support is at the short-term moving average and looks strong in light of the up trend.

The next key technical level is the $107.50 level, the most recent high, and what may become resistance. A move above $107.50 will be very bullish and likely lead the token even higher. Once the $107.50 level is broken the next targets will be $175 and $250. The indicators are bullish and confirm today’s bounce. This adds additional upward pressure to momentum and increases the likelihood prices will break out.

So, what could be driving such a strong move in LTC? In all probability it is the upcoming halving. Scheduled to happen in about two months the halving is going to seriously reduce the amount of available LTC’s. The halving is a naturally scheduled event. It happens every 840,000 blocks and intended to accomplish a number of purposes. One is to reduce the amount of LTC inflation. LTC inflation, the devaluation of the token long-term associated with over-mining, now stands just over 8.0%. Another purpose of the halving is to ensure a long-life for the network.

At the next halving the LTC reward for mining a block will be cut in half. The current rate is 25 new LTC’s for every block mined, the new rate will be 12.5 LTC’s. Considering that about 75% of all LTCs have been mined this is a good thing. At current rates about 14,400 LTC’s are mined each day, after the halving there will be about 7,200 new LTCs each day.

Anticipation for the halving and the run up in prices associated with such events has led to an increase in mining difficulty. The hash rate for LTC has been steadily creeping up since the beginning of the year and is now at a new all-time high. This fact is putting additional upward pressure on LTC prices because it takes longer and costs more to mine a new LTC.

The bottom line is simple. LTC is a digital commodity facing a supply challenge. Not only is the number of LTC up for grabs going to decrease the difficulty in find them is going up. This is resulting in a serious supply imbalance and that is what we are seeing in the market. Once prices regain the upper side of $107.50 and I think it will be soon, I think LTC prices will continue to surge.

Bitcoin Price: How Will Halving, Coronavirus Affect BTC?

BITCOIN HAVLING, BTC/USD, BITCOIN 21 MILLION CAP, CORONAVIRUS, BITCOIN PRICE CHART – TALKING POINTS

  • What will happen to the price of Bitcoin after halving?
  • Bitcoin price chart indicates volatility could be ahead
  • Coronavirus outbreak may disrupt mining operations

WHAT IS BITCOIN HALVING?

Bitcoin halving is the process in which so-called “miners” – covered in the section below – are rewarded 50% fewer BTC for verifying transactions in the blockchain network . This is scheduled to occur every 210,000 blocks and is designed to help preserve Bitcoin’s allure as a store of value. The cap for Bitcoin is set at 21 million, thereby keeping the supply finite. There is no Bitcoin central bank that can simply print more BTC.

In fact, the guiding purpose of the cryptocurrency and the very thing underpinning its broad appeal is that it operates on a decentralized network that cannot be controlled by a single person or institution. Halving is written into the Bitcoin algorithmic protocol, designed by the enigmatic person or group known only as Satoshi Nakamoto during the 2008 global financial crisis.

BITCOIN MINING EXPLAINED

In short: Bitcoin mining is a series of operations performed by a computer to solve math problems. These are programmed to become progressively more difficult with every verified transaction in the blockchain. As a reward for solving these mathematical puzzles – with a probability of 1 in 13 trillion of getting it right – Bitcoin miners are awarded an amount of BTC.

WHAT WILL HAPPEN TO THE BITCOIN PRICE AFTER HALVING?

The next halving – the third since Bitcoin’s inception – is scheduled to occur on May 18, 2020. Miners will start to receive 6.25 BTC per block transaction, 50 percent less than the prior 12.50 BTC compensation (hence, “halving”). Traders will keep a close eye on how prices respond. Assuming supply stays constant and demand increases, scarcity will drive Bitcoin higher.

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However, the infamous economics tagline “ ceteris paribus ” has proven to be an unreliable assumption enough times before, and the macro context in which prior halvings occurred varied. Consequently, Bitcoin’s price change in each of these events was not the result of a rigid formula but a circumstantial reaction to the environment in which the halving occurred.

HOW TO TRADE 2020 BITCOIN HALVING

Leading up to and following a Bitcoin halving, markets frequently witnessed high periods of volatility. However, price swings may be tamed by traders who have priced in the anticipated change and positioned themselves ahead of it. Since Bitcoin’s inception in 2009, there have been two halvings occurring at four-year intervals – on November 28, 2020 and July 9, 2020.

Bitcoin prices rose approximately 18 percent in the month before the halvings of 2020 and 2020. They added an additional 8 percent after the first instance but fell 16 percent following the second one. Volatility this year may be particularly difficult to gauge because of two opposing forces that could amplify or dampen high-magnitude price swings.

The first is the coronavirus outbreak, which has catalyzed a selloff in global equities and exposed the fragilities of an already-weak global economy. Volatility linked to this exogenous shock may distort the price response from Bitcoin halving. During this time, BTC may also reveal what could be an intrinsically speculative nature, thereby undermining its claim to be a stable medium of exchange.

The second has to do with the considerably more up-to-date Bitcoin infrastructure now compared with prior halvings, which may mitigate volatility. Even as recently as 2020, exchanges were experiencing a slew of technical issues including losing client funds, subsequently leading to surges in volatility as liquidity dried up.

It was not until around 2020 that reputable exchanges and custodians began to appear and helped to fortify the operational integrity of the cryptocurrency market. With these upgrades and a more efficient market structure in place, scope for significant halving-induced volatility may be reduced. That is, violent price swings set off by the split itself may be more subdued than in prior years.

WHAT WILL HAPPEN WHEN ALL 21 BITCOINS HAVE BEEN MINED?

When all 21 million Bitcoins have been mined – with an estimated end date at 2140 – BTC supply increases will end, and the price of the digital token will be fully at the mercy of what prevailing demand is at that time. Furthermore, the cost of generating new Bitcoin every year grows while the reward diminishes as every halving reduces the number of digital tokens awarded to its excavators.

The algorithm is written in such a way that over time, fewer miners will be able to continue their operations and will be forced to shut down. As the blockchain puzzles become more difficult to solve, input costs like electricity and hardware replacement will rise, while their revenue – i.e. Bitcoins generated – will dwindle. The result will be fewer miners spawning fewer BTC, thereby encouraging scarcity.

Unlike a fiat currency – say, the US Dollar – the supply of Bitcoin is limited. While there has been speculation that it may become a global currency, BTC proponents must first reconcile a plethora of dilemmas. One of the biggest of these will be shedding Bitcoin’s reputation as a speculative instrument and rebranding it as a reliable medium of exchange by taming violent volatility.

This helps to differentiate widely-used fiat currency like the US Dollar from a digital token like Bitcoin. There is no halving equivalent for currencies. The closest comparison may be hawkish monetary policy, where the raising of interest rates aims to reduce lending and constrict the money supply. That is an incomplete analogy however since a central bank can choose to loosen credit conditions as well as tighten them.

LITECOIN HALVING

Much like Bitcoin, Litecoin – a descendent of the original cryptocurrency – also undergoes a halving period every four years. The last to occur was on August 5, 2020 and saw the number of digital tokens awarded to miners reduced to 12.5 LTC per block. The next split is expected to take place on August 6, 2023 where the compensation for digital excavators will be down to 6.25 Litecoins.

WILL CORONAVIRUS IMPACT BITCOIN HALVING?

The coronavirus may also play a role in driving up the price of Bitcoin. The global pandemic emanating from China has spread throughout the world and disrupted global supply chains, hitting the tech sector particularly hard. Consequently, so-called “mining farms” – which are typically giant warehouses filled with computers running on electricity 24/7 solving blockchain-related math puzzles – may face supply shortages.

Governments across the world have initiated lockdown procedures and mandated for their citizens to self-quarantine to mitigate Covid-19 contagion. However, delayed orders and congested ports mean miners may not get access to hardware they require to keep verifying transactions and producing more Bitcoin. BTC scarcity linked to the virus and to halving could thus constrict supply and drive prices higher.

BITCOIN TRADING RESOURCES

— Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitri on Twitter

Bitcoin Price: How Will Halving, Coronavirus Affect BTC?

BITCOIN HAVLING, BTC/USD, BITCOIN 21 MILLION CAP, CORONAVIRUS, BITCOIN PRICE CHART – TALKING POINTS

  • What will happen to the price of Bitcoin after halving?
  • Bitcoin price chart indicates volatility could be ahead
  • Coronavirus outbreak may disrupt mining operations

WHAT IS BITCOIN HALVING?

Bitcoin halving is the process in which so-called “miners” – covered in the section below – are rewarded 50% fewer BTC for verifying transactions in the blockchain network . This is scheduled to occur every 210,000 blocks and is designed to help preserve Bitcoin’s allure as a store of value. The cap for Bitcoin is set at 21 million, thereby keeping the supply finite. There is no Bitcoin central bank that can simply print more BTC.

In fact, the guiding purpose of the cryptocurrency and the very thing underpinning its broad appeal is that it operates on a decentralized network that cannot be controlled by a single person or institution. Halving is written into the Bitcoin algorithmic protocol, designed by the enigmatic person or group known only as Satoshi Nakamoto during the 2008 global financial crisis.

BITCOIN MINING EXPLAINED

In short: Bitcoin mining is a series of operations performed by a computer to solve math problems. These are programmed to become progressively more difficult with every verified transaction in the blockchain. As a reward for solving these mathematical puzzles – with a probability of 1 in 13 trillion of getting it right – Bitcoin miners are awarded an amount of BTC.

WHAT WILL HAPPEN TO THE BITCOIN PRICE AFTER HALVING?

The next halving – the third since Bitcoin’s inception – is scheduled to occur on May 18, 2020. Miners will start to receive 6.25 BTC per block transaction, 50 percent less than the prior 12.50 BTC compensation (hence, “halving”). Traders will keep a close eye on how prices respond. Assuming supply stays constant and demand increases, scarcity will drive Bitcoin higher.

However, the infamous economics tagline “ ceteris paribus ” has proven to be an unreliable assumption enough times before, and the macro context in which prior halvings occurred varied. Consequently, Bitcoin’s price change in each of these events was not the result of a rigid formula but a circumstantial reaction to the environment in which the halving occurred.

HOW TO TRADE 2020 BITCOIN HALVING

Leading up to and following a Bitcoin halving, markets frequently witnessed high periods of volatility. However, price swings may be tamed by traders who have priced in the anticipated change and positioned themselves ahead of it. Since Bitcoin’s inception in 2009, there have been two halvings occurring at four-year intervals – on November 28, 2020 and July 9, 2020.

Bitcoin prices rose approximately 18 percent in the month before the halvings of 2020 and 2020. They added an additional 8 percent after the first instance but fell 16 percent following the second one. Volatility this year may be particularly difficult to gauge because of two opposing forces that could amplify or dampen high-magnitude price swings.

The first is the coronavirus outbreak, which has catalyzed a selloff in global equities and exposed the fragilities of an already-weak global economy. Volatility linked to this exogenous shock may distort the price response from Bitcoin halving. During this time, BTC may also reveal what could be an intrinsically speculative nature, thereby undermining its claim to be a stable medium of exchange.

The second has to do with the considerably more up-to-date Bitcoin infrastructure now compared with prior halvings, which may mitigate volatility. Even as recently as 2020, exchanges were experiencing a slew of technical issues including losing client funds, subsequently leading to surges in volatility as liquidity dried up.

It was not until around 2020 that reputable exchanges and custodians began to appear and helped to fortify the operational integrity of the cryptocurrency market. With these upgrades and a more efficient market structure in place, scope for significant halving-induced volatility may be reduced. That is, violent price swings set off by the split itself may be more subdued than in prior years.

WHAT WILL HAPPEN WHEN ALL 21 MILLION BITCOINS HAVE BEEN MINED?

When all 21 million Bitcoins have been mined – with an estimated end date at 2140 – BTC supply increases will end, and the price of the digital token will be fully at the mercy of what prevailing demand is at that time. Furthermore, the cost of generating new Bitcoin every year grows while the reward diminishes as every halving reduces the number of digital tokens awarded to its excavators.

The algorithm is written in such a way that over time, fewer miners will be able to continue their operations and will be forced to shut down. As the blockchain puzzles become more difficult to solve, input costs like electricity and hardware replacement will rise, while their revenue – i.e. Bitcoins generated – will dwindle. The result will be fewer miners spawning fewer BTC, thereby encouraging scarcity.

Unlike a fiat currency – say, the US Dollar – the supply of Bitcoin is limited. While there has been speculation that it may become a global currency, BTC proponents must first reconcile a plethora of dilemmas. One of the biggest of these will be shedding Bitcoin’s reputation as a speculative instrument and rebranding it as a reliable medium of exchange by taming violent volatility.

This helps to differentiate widely-used fiat currency like the US Dollar from a digital token like Bitcoin. There is no halving equivalent for currencies. The closest comparison may be hawkish monetary policy, where the raising of interest rates aims to reduce lending and constrict the money supply. That is an incomplete analogy however since a central bank can choose to loosen credit conditions as well as tighten them.

LITECOIN HALVING

Much like Bitcoin, Litecoin – a descendent of the original cryptocurrency – also undergoes a halving period every four years. The last to occur was on August 5, 2020 and saw the number of digital tokens awarded to miners reduced to 12.5 LTC per block. The next split is expected to take place on August 6, 2023 where the compensation for digital excavators will be down to 6.25 Litecoins.

WILL CORONAVIRUS IMPACT BITCOIN HALVING?

The coronavirus may also play a role in driving up the price of Bitcoin. The global pandemic emanating from China has spread throughout the world and disrupted global supply chains, hitting the tech sector particularly hard. Consequently, so-called “mining farms” – which are typically giant warehouses filled with computers running on electricity 24/7 solving blockchain-related math puzzles – may face supply shortages.

Governments across the world have initiated lockdown procedures and mandated for their citizens to self-quarantine to mitigate Covid-19 contagion. However, delayed orders and congested ports mean miners may not get access to hardware they require to keep verifying transactions and producing more Bitcoin. BTC scarcity linked to the virus and to halving could thus constrict supply and drive prices higher.

BITCOIN TRADING RESOURCES

  • Tune into Dimitri Zabelin’s webinar outlining geopolitical risks affecting markets in the week ahead !
  • New to trading? See our free trading guides here !
  • Get more trading resources by DailyFX !

— Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitri on Twitter

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