Litecoin is expected to undergo its block reward halving later today, which has historically been a tumultuous time for cryptoassets and their investors.
On Monday, Aug. 5, the fifth-largest cryptocurrency by market capitalization Litecoin is expected to have its block reward reduced by half, an event that is referred to as a coin ‘halving.’
Cryptocurrency miners receive a set amount of coins for every block they successfully mine, which involves contributing computer resources to the network to validate transactions and maintain the integrity of the overall blockchain. LTC blocks typically take 2.5 minutes to mine, which is a function of the difficulty and hashrate power being applied by the aggregate pool of miners.
Litecoin miners currently receive a block reward of 25 LTC when they successfully mine a block. However, that amount is set to be reduced by half, as a part of the ongoing process of block reward reduction. Litecoin coin halvings occur every 840,000 blocks mined, which is why the timing of the block reduction is somewhat variable.
Coin halvings play an integral role in the limited supply of cryptocurrencies like litecoin and bitcoin. BTC is expected to undergo its own halving in May 2020, when the block reward will drop from 12.5 to 6.25 BTC.
Rather than flooding the market with new coins and introducing sudden inflation, Litecoin is designed to slowly reduce the amount of LTC being released to the market. Halvings ensure that cryptocurrency becomes more scarce over time, assuming that the demand and use for the coin increases. The max supply for Litecoin is set at 84 million LTC, with just over 21 million coins left to be mined.
Unlike fiat currencies, the total supply of LTC is a hard cap which cannot be increased according to the cryptocurrency’s code.
Investors have historically taken a great interest in halving events as they signal increased exposure for coins in addition to dwindling supply. Google Trends data shows that searches for ‘litecoin halving’ are at their all-time high, eclipsing previous search volume in the early days of June. Interest in ‘Litecoin’ has also seen an uptick in search volume throughout the last 90 days, but saw its peak in June.
Google search volume for 'litecoin halving' over the last 12 months | Source: Google Trends
In the case of litecoin, the price has appreciated throughout most of 2019 and outpaced the market in terms of gains. However, LTC has dropped more than 35% since reaching a relative 2019 price high of $141 on June 21.
Mati Greenspan, senior market analyst for eToro, told CoinTelegraph that halving events are usually priced before they happen,
It seems to be the case here as well. Litecoin has outperformed the rest of the market during this year's rally and some say that it was a root cause of the upward momentum in the first half of this year. It's difficult to say how or even if the price will react to the event in the short term. In the long term, reduced supply supports higher prices all else being equal.
While investors may have anticipated a price increase for LTC throughout 2019 as a result of August’s halving, the short-term decrease appears to be in profit-taking. Investors know years in advance when a supply reduction will occur, which makes it no surprise that the price of LTC is not increasing in the weeks and days leading up to the halving.