Litecoin’s blockchain is set to undergo a mining reward halving in August this year, as it is programmatically designed to do so after every 840,000 blocks are mined or roughly once every four years.
The process is aimed at controlling inflation by reducing the rewards for mining on the blockchain from 25 coins to 12.5 coins and seems to have put a strong bid under the cryptocurrency.
Litecoin has scored gains in each of the previous four months – its longest monthly winning streak since August 2017. Prices rallied 3.8, 46.3, 31.15 and 22 percent in January, February, March and April, respectively, according to CoinDesk data.
Why does the halving matter?
Associating litecoin’s rally with the reward halving makes sense as the process results in reduced production of the cryptocurrency’s supply. Miners will be earning 50 percent fewer coins for every block mined after August and will be adding significantly fewer litecoins to the software’s ecosystem, possibly leading to supply deficit.
Markets are always forward-looking and tend to price in such demand/supply-altering events often times several months in advance.
Backing that argument is historical data which shows the price of litecoin had rallied sharply in seven months leading up to its first reward halving, which took place on August 25, 2016.
Litecoin’s Halving and Price History
Back then, LTC had bottomed out at $1.12 in January 2015 to print a high of $8.72 in July before falling back below $4.00 ahead of Aug. 25.
This time, the cryptocurrency bottomed out $22 in December and has surged by more than 250 percent ever since. The rally may not be over yet as the halving event is still three months away and traders who missed the bus in the first quarter may enter the market in the next few weeks, creating upward pressure on prices.
Also, the implication of a “halving” and its historical impact on price will start getting more attention as the event nears, potentially inviting more buyers to the market.
All said, events that get priced into the value of a traded asset well in advance of the actual date tend to experience a “sell the news” effect once the event has in fact taken place or slightly before it.
Case in point, this is what transpired in the few weeks leading up to litecoin’s first halving in 2015.
As the date approached, investors began to lock in profits by selling the digital asset after it topped out in July 2015, one month prior to the reward halving. The month of the halving itself, in fact, closed with litecoin’s price nearly 40% lower than when it started, further confirming investors lost interest in the cryptocurrency after the highly anticipated halving event had concluded.
After the supply cut, litecoin’s price trend remained sideways for nearly two years before surging to new all-time highs in 2017, potentially laying the blueprint for what is to come after its block rewards are halved once more.
Disclosure: The authors hold no cryptocurrency assets at the time of writing.
Bitcoin’s price rose above $6,000 on most cryptocurrency exchanges for the first time today in nearly six months.
At 00:57 UTC on Thursday, the world’s largest cryptocurrency by market capitalization, which accounts for more than half of all other cryptocurrencies combined, picked up a bid and saw its price reach as high as $6,076 – its highest price since Nov. 14, 2018.
At the time of writing, bitcoin’s surge has slightly cooled off, now trading across exchanges at an average price of $6,045, according to CoinDesk’s price data.
In another first since last November, bitcoin’s market capitalization rose above $100 billion, $1.45 billion or 1.39 percent of which entered the market in the last 24 hours.
Further still, bitcoin’s dominance rate, a measure of its market share versus that of other cryptocurrencies, hit its highest point in nearly eight months at 56.8 percent – its biggest reading since Sept. 13, 2018, based on data from CoinMarketCap.
According to data from Messari.io, bitcoin’s total trading volume across exchanges today exceeded $15.5 billion, yet its “Real 10” volume – a metric that takes into account trading volume from the only 10 exchanges reporting honest volume figures as identified in a report by Bitwise Asset Management – reveals a seemingly more accurate 24-hour volume figure may be closer to $502 million.
When bitcoin’s price moves emphatically in a particular direction, the U.S. dollar value of most other cryptocurrencies tends to follow suit, and the developments today were no exception.
Other highly ranked cryptos in terms of market cap like Ether (ETH), EOS (EOS), and Cardano (ADA) are all reporting 24-hour gains above two percent, while bitcoin is leading the top 10 cryptocurrencies, currently boasting an increase of 3.64 percent.
Overall the total capitalization of the cryptocurrency market increased roughly by $5.4 billion during today’s rally to where it now stands now at a value of $189.1 billion. Indeed, the value of the broader market is making substantial progress in recouping the losses endured throughout 2018, but is still down 78.1 percent from its all-time high of $835 billion recorded on January 7, 2018.
Disclosure: The author holds no cryptocurrency at the time of writing.
Bitcoin suffered a rising wedge breakdown, or bearish reversal, on the hourly chart earlier today. The bearish view, however, has been neutralized by the quick bounce from the key support near $5,170.
Acceptance below $5,170 would confirm a head-and-shoulders breakdown on the hourly chart and open the doors to $5,000.
A close below $4,912 on Sunday would validate the previous week’s doji candle and allow a deeper price pullback.
Bitcoin could challenge the recent high above $5,450 if sellers again fail to keep prices below $5,200.
Bitcoin’s (BTC) three-day run of slight gains is showing signs of exhaustion on the short-term technical charts, yet strong support below $5,190 has meant a pullback has remained elusive – so far.
The leading cryptocurrency is currently trading largely unchanged on the day at $5,250 on Bitstamp, having gained 3.4, 0.6 and 0.9 percent on Tuesday, Wednesday, and Thursday, respectively.
The gains invalidated Monday’s bearish outside reversal candle, which had called for a deeper drop below $4,900. Further, price closed above the stiff resistance of the 100-candle moving average (three-day chart) yesterday, signaling a continuation of the rally from April 2 lows below $4,200.
That several long-term indicators have recently turned bullish seems to have strengthened bullish expectations.
This is evident from the fact that bitcoin has established new support just below $5,200 over the last 72 hours, despite persistent price-negative developments like bearish patterns and indicator divergences on the shorter-duration charts.
On the hourly chart, BTC dived out of a rising wedge pattern at 01:00 UTC today, confirming a bearish reversal.
The follow-through to that bearish setup, however, has been bullish. As seen above, prices have bounced up from $5,180 and are currently looking to re-enter the rising wedge.
Notably, the $5,180–$5,170 range has put a floor under bitcoin’s price for the second time in the last 72 hours.
The cryptocurrency had been feeling the pull of gravity on April 17, courtesy of the bearish divergence of the relative strength index. The pullback, however, ran out of steam around $5,170 with prices rising to $5,325 yesterday.
As a result, if the bears can pull off a break below $5,170, it may invite strong selling pressure and open the doors for a deeper price pullback, possibly to $5,000.
The case for a price pullback looks stronger if we take into account the fact that acceptance below $5,170 would also confirm a head-and-shoulders breakdown – a bullish-to-bearish trend change.
Sellers, however, would need to act quickly, as another strong bounce from levels below $5,200 could entice buyers and lead to a sustained move toward the recent highs above 5,450.
BTC created a doji candle last week, signaling bullish exhaustion, as discussed earlier this week. As a result, Sunday’s (UTC) close is pivotal.
The buyer exhaustion signaled by the doji would gain credence if the price settles below the candle low of $4,912 on Sunday, possibly leading to a deeper correction next week.
A bullish close above $5,466 (doji high) would strengthen the long-term falling channel breakout seen earlier this month and open the doors to $6,000.
That looks unlikely in the short-term, though, as prices are struggling to find acceptance above a number of key moving averages (MAs) lined up in $5,200–$5,500 range.
Disclosure: The author holds no cryptocurrency assets at the time of writing.
Noelle Acheson is a veteran of company analysis and member of CoinDesk’s product team.
The following article originally appeared in Institutional Crypto by CoinDesk, a newsletter for the institutional market, with news and views on crypto infrastructure delivered every Tuesday. Sign up here.
The rally last week in cryptocurrency prices sent tremors of excitement through the mainstream press – is bitcoin “doing its thing” again? Could we be on the verge of a breakout?
These reports attract clicks and eyeballs, so I understand why they are run – but their breathless fascination with price volatility and potential profits misses the bigger impact.
While we can generally agree that investment gains are good, the broader benefit is this: cryptocurrency price increases throw into starker relief the uniqueness of the asset class.
(To avoid over-complicating the discussion, in this article I’ll focus on bitcoin – but the same or similar arguments can also be applied to other cryptocurrencies, depending on their characteristics.)
Supply and demand
First, let’s compare bitcoin to other commodities.
In practically all other instances, a price increase affects supply. When gold or oil go up in price, there is an incentive to extract even more from the ground. Previously unprofitable mines or wells become profitable, and those that were to begin with become more so. Operators will logically seek to maximize the opportunity by producing what they can while prices are good, and supply goes up.
As supply goes up, however, demand generally comes down as consumption budgets are reallocated and substitutes are sought. As demand comes down, the price comes down again, which lowers the incentive to produce, which eventually lowers supply. And so on and so on.
Comparing bitcoin to fiat currencies displays a similar dynamic. An increase in demand for a currency relative to another one will eventually make goods denominated in that currency expensive compared to alternatives denominated in different ones.
With bitcoin, the price does not affect supply. At all. An increase in demand will lead to an increase in price which – without the “correcting mechanism” of a potential increase in supply and/or reallocation of demand – could continue indefinitely.
However, all markets need self-correcting mechanisms. One of bitcoin’s is transaction fees – a sharp increase in demand will most likely boost the fees the miners can charge when processing transactions, which could dampen the upswing in volumes.
This highlights the second significant differentiating factor, which is bitcoin’s ingenious incentive scheme. As the price goes up, the network becomes more secure.
Miners process blocks of transactions and, in compensation, are rewarded with a set number of bitcoins. As the price of bitcoin goes up, so does the value of the reward. More miners will be attracted by the potential profits from both the earned bitcoin and transaction fees. A greater number of miners results in better distributed network maintenance, which enhances the cryptocurrency’s resistance to bad actors.
This, in turn, should bolster confidence and demand, which should both increase the price and the network’s resilience even further.
This does not mean that a price bump will continue into the stratosphere indefinitely.
External factors such as regulation, the emergence of alternatives or even macroeconomic mood could have a significant dampening effect on demand. Internal factors such as forks and governance debates could also have an impact.
But one of the overlooked features of bitcoin is that, all other things being equal, it does not have a fundamental self-correcting mechanism like most other assets. Not only will a price increase not trigger a supply/demand rebalancing, it actually enhances the network’s strength and potential demand.
“All other things” are rarely equal, however. Sentiment plays a powerful role in all markets, but especially in one such as bitcoin where widely accepted valuation methods don’t yet exist. As we saw in 2017-18, the “reflexivity” (in which perceptions affect the market which affects perceptions) that pushed the market up can bring it back down fast.
This, in a sense, is bitcoin’s main self-correcting mechanism: market skittishness. Given the relatively low liquidity and overall lack of transparency, traders and investors seem to follow the well-worn principle: “If you must panic, panic first.”
Yet even this is likely to be mitigated over time.
The crypto winter was not just about the building of a more robust (and regulated) market infrastructure; it was also about the education of institutional investors, who will no doubt bring more sophisticated trading strategies to the market.
While many institutions will probably take positions with a long-term view, we won’t be hearing them cry “To the moon!” There will come a time when their strategy indicates a lock-in of profits, and even a hint of volume selling could be enough to trigger a sharp correction.
But the same level of sophistication will also set floors for any correction, and as volumes grow, infrastructure continues to improve and valuation techniques develop, volatility will smooth as will the tendency for large market participants to react blindly to perceived shifts.
With this, the cryptocurrency’s fundamental characteristics will increasingly predominate investment decisions. And bitcoin and its peers will continue to show us that cryptocurrencies are, indeed, a different type of asset class.
Mainstream news coverage of cryptocurrency is often disingenuous or factually incorrect – that’s certainly no surprise given the nascent technology is widely misunderstood.
But if one would have thought that recent milestones – bitcoin’s 10th anniversary, the arrival of crypto projects from the likes of JP Morgan and Facebook – would have encouraged the media to get smarter, this week’s news shows attitudes at major publishers haven’t changed much.
This is especially true during times of heavy market activity like that of bitcoin’s April 2 breakout, which saw its price rise 17 percent over a 30-minute period.
As CoinDesk readers know, the move was foreshadowed by changes in market data and sentiment. With volatility hitting multi-year lows, multiple technical indicators flashings signs of a bottom and fundamental catalysts (the upcoming halving) combining, there were plenty of developments that signaled a change might be on its way.
Still, far from examining developments (or asking serious questions), much of the mainstream media’s coverage devolved into outright theory and speculation.
Here’s the worst of what was a genuinely bad bunch.
While articles like these from Gizmodo are useful in gauging retail sentiment – ie, determining where the average Joe sits in terms of understanding and valuing cryptocurrency – they, unfortunately aren’t useful for anyone who wants to be informed.
Writers like Matt Novak have a point – novice retail investors were given a bitter taste in 2018, when the market for cryptocurrencies took a turn for the worse. Still, that’s no excuse for not educating yourself or your readers, who, without such learning, may repeat mistakes.
The article reads:
“To be clear, bitcoin is absolutely worthless by any real measure. It’s fake money that’s about as practical to use in the real world as Monopoly bills. Bitcoin is backed by nothing and requires tremendous amounts of energy to mine using computers.”
Without spending too much time on this statement, there are a few incorrect passages, that in particular, don’t ring true. For one, bitcoin definitely can act as a medium of exchange. It can be, and today is used to facilitate the commerce and trade of goods between parties, a core fundamental function of modern money.
Next, it’s backed by the computer operators that mine the network itself, all of whom invest real dollars, manpower and equipment in ensuring the network is functional.
Finally, while the cost of mining bitcoin remains high thanks to its large energy consumption, this does not mean it cannot run off renewable energy and take advantage of natural events that reduce the cost and lessen the impact to the environment.
It seems mainstream media tends to forget that the cost of mining bitcoin’s physical competitor, gold, is perhaps even more guilty of harming the earth’s environment as its miners regularly tear apart massive landscapes and leave behind loads of toxic waste.
To state that this will forever be bitcoin’s final form borders on ignorance as well, as we have seen time and time again that the evolution of technologies usually comes from a solution to fix a specific problem.
One of the least offensive of the bunch, a Reuter’s report that cited a solo “mystery” buy order as the main cause for a huge price spike still offered a confused take by focusing in on a sole market irregularity.
In particular, it highlights a claim made by the chief executive of cryptocurrency firm BCB Group, Oliver von Landsberg-Sadie, who argued the case that the move was the responsibility of a single buyer.
The article reads:
“Today’s gain (April 2) was probably triggered by an order worth about $100 million spread across U.S.-based exchanges Coinbase and Kraken and Luxembourg’s Bitstamp. There has been a single order that has been algorithmically-managed across these three venues, of around 20,000 BTC.”
This is hard to corroborate with independent analysis as the article did not provide evidence of the orders, merely statements that negate other factors.
As the price climbed higher, this resulted in a snowball effect of buying as shorts were closed and limit buy orders were triggered, causing its price to rise faster and higher.
Using an hourly view of bitcoin’s price we can see just how much volume was recorded during a single trading period by looking at the volume bars and order books and then noting their readings. At 4:00 UTC on April 2, Coinbase recorded a total of 6,889 units in a single hour and Bitstamp handled close to 3,798 units while Kraken had the least at 4,121 bitcoin units traded in the same hour.
This created a total of 14,808 units traded in the hour of the surge, yet Reuters and CNBC claimed 7,000 units were purchased on each of the three different exchanges in tandem by a single entity at the time of the suge.
Needless to say the numbers don’t quite add up.
Also of note, data shows that growing buy volume began to increase substantially across most major exchanges, not just the three highlighted in the article.
Then there is the “Fast Money,” notorious amongst the crypto trading community for getting things so wrong they act as a counter-indicator.
Indeed, a mere 38 seconds into this CNBC Fast Money video an analyst makes a comment regarding bitcoin’s movement above the 200-daily moving average occurring for the first time since May when in fact it was March 2018, leaving room for speculation about what else they could be misleading.
Throughout 2018, CNBC and its subsequent panel show Fast Money made some outrageous comments regarding the direction of bitcoin’s price and advice to investors.
Comments such as “don’t fear the dip, bitcoin will more than double in 2018” and “what will hit 25k first, bitcoin or the DOW,” it’s no wonder they have claimed such a bad reputation for calling a correct directional bias and sticking to it.
What’s more, another CNBC analyst Andrew Sorkin suggested on SquakBox the rally was a product of a harmless April fools joke published by a news outlet the day prior, that facetiously stated:
“In a shockingly sudden April fools 1st decision, the United States Securities and Exchange Commission has made the decision to approve not one, but two applications for Bitcoin-based exchange traded funds (ETFs.)”
The word “overstated” comes to mind when you look at the numbers – that would imply the market capitalization of all cryptocurrencies could increase nearly $40 billion on that back of a harmless prank, and that an entire body of global traders would price in such an event.
The market for crypto may be small… but that small? We doubt it.
Disclosure: The author holds no cryptocurrency at time of writing.