03 Aug What bitcoin investors can learn from Litecoin’s halving this week
Traders have been looking to next spring’s Bitcoin halving as a beacon of hope while regulatory uncertainty weighs on the industry and trading volumes remain suppressed. The halving is a market moving event that typically happens every four years when the reward for mining bitcoin is cut in half, as designed in the Bitcoin code, to reduce the supply of the cryptocurrency. Historically, it has set the stage for new bull runs, and the next one is expected to come in May 2024. Meanwhile, Litecoin – an offshoot of Bitcoin that launched in 2011 and some refer to as “digital silver” to bitcoin’s digital gold – had its own halving, which took place Wednesday. The cryptocurrency’s performance around this year’s event bears some similarities to previous halvings but has also showed new behaviors that investors might consider as they look toward the spring, Greg Cipolaro, head of research at NYDIG, the crypto subsidiary of Stone Ridge Asset Management, told CNBC. “The Litecoin halving has a bit of a price cyclicality associated with it as well, and those patterns seem to be repeating,” he told CNBC. “The amplitude and the drawdown magnitude seem to be muted with each cycle – that’s something that we’re seeing with bitcoin as well,” Cipolaro added. “When it falls from its high, with each successive cycle it falls a little bit less, and with the amplitude of the cycle from bottoms to the peaks, there’s also less, which speaks to the maturity of the industry, the asset and the investors.” This was the third halving for Litecoin, whose cycle is shorter than Bitcoin’s four-year arc. The token typically finds its trough and then its peak ahead of the halving, whereas bitcoin tends to peak well after its halving. The most recent cycle has been more muted, however, Cipolaro said. “Looking at the data behind Litecoin’s halving cycles, there are two important takeaways – the duration of the cycles remains consistent, but the amplitude of the peaks has declined with each successive cycle,” he wrote in a recent note. “If we look at the returns for the halving cycle, the trough price to the peak price, we notice a consistent trend, one of declining returns.” Litecoin’s trough to peak returns fell from 550% in its first halving cycle in 2015 to 504.8% in its second halving cycle three years later. This year’s trough-to-peak return stands at just 74.7%. So far, the same trend can be traced in bitcoin’s performance. “The Litecoin halving hasn’t had as much of a pre-event momentum build like, say, a Bitcoin halving or Ethereum upgrade,” said Michael Safai, managing partner at the crypto trading firm Dexterity Capital. “So the markets haven’t really taken positions for or against, which has translated into muted activity around the halving itself.” “Conversely, having more of a buildup probably isn’t going to translate [into] an immediate boost for bitcoin on its next halving,” he added. “With the rate of innovation and change, the crypto ecosystem looks vastly different every four years. Traders are getting smarter, and the use cases evolve. Events like this are increasingly priced in and their immediate impact on prices are going to diminish even more.”