In August, Litecoin (LTC) saw its latest block reward reduction — dubbed a “halving” or a “halvening”. While countless analysts were expecting for the cryptocurrency to surge in the wake of the inflation reduction, it didn’t.
In fact, Litecoin plunged, falling from a three-digit price point to a two-digit price point. As of the time of writing this, the cryptocurrency, the fifth largest by market capitalization, is trading for $64, some 40% lower than the date of the halving. Against Bitcoin, LTC has also taken a plunge, falling by 40%.
Also, the security of the network has collapsed, falling from 480 terahashes per second to 310 terahashes per second as of the time of writing this.
The price collapse directly contradicted popular sentiment, which stated that a reduction in Litecoin’s inflation would lead to an increase in upward price momentum, simply due to simple supply-demand economics.
Bad Precedent For Bitcoin?
According to trader Anondran, the LTC price collapse after the halving “is the best leading indicator for what [Bitcoin will do after the halving] next year. Considering the outlook didn’t look good for LTC after the halving, I’d expect the same to happen for Bitcoin”.
What Anondran is implying that prior to the halving, Bitcoin will rally by hundreds of percent, presumably to establish an all-time high. Then, following the block reward reduction, BTC will sink, as will the security of the network.
From an outsider’s perspective, this makes sense. Many consumers equate Bitcoin and Litecoin to each other, considering their similar names, logos, and brand recognition, so it may make sense for them to assume their price action will be identical.
But a model from PlanB shows that this is not the case. A model from the Twitter analyst shows that Bitcoin’s and Litecoin’s movements are distinct.
PlanB’s model predicts that the stock-to-flow (SF) ratio, which is an asset’s “above-ground” supply to its yearly inflation rate, of certain commodities, namely gold, silver, and Bitcoin, can predict their market capitalization. Bitcoin, over its ten-year history, has followed the model for years now, having an R2 of over 95%. It predicts that after the next halving, BTC’s fair value will reach $55,000.
However, Litecoin’s relation to the SF model is a mere 25%, implying that halvings have no substantial, long-term effect on the price of LTC. Bitcoin, on the other hand, should appreciate in the long term due to the halvings.