Litecoin: Bullish Upgrades & Halving
Litecoin (LTC-USD) is uniquely positioned to be a beneficiary of any regulatory outcome that may result. For example, Litecoin is one of the most widely accepted cryptocurrencies with one of the longest active chains with 100% uptime, which few competitors can match, including many of the top 20 coins by market capitalization.
If crypto regulations are good and the industry grows, Litecoin will benefit from its wide acceptance and speed of payment.
Suppose regulations end up being bad or even ugly. In that case, Litecoin might be one of the few crypto chains with a more valuable use case due to its newly upgraded functionality for privacy called MWEB.
On top of the recent privacy upgrade, Litecoin is about to undergo its third halving event, which reduces the inflation per block in half and has historically been a bullish catalyst leading up to the event.
What is Litecoin
Litecoin LTC is a spin-off of Bitcoin (BTC-USD) and is generally considered one of the first altcoins. The two share many similarities but also some key differences. Much like its predecessor Bitcoin, Litecoin is a decentralized virtual cryptocurrency offering instant global payments at near-zero cost. LTC enables payments anywhere in the world with no central governing authority at about $0.01 per transaction. Initially positioned as silver to Bitcoin’s gold, Litecoin is based on a modified version of Bitcoin’s code, emphasizing transaction speed and cost.
One significant difference between the two is in their mining algorithms. Bitcoin utilizes SHA-256, while Litecoin uses the less resource-intensive Scrypt. LTC mining is attached at the hip with the famous meme coin DOGECOIN (DOGE-USD), as miners can dual mine DOGE and LTC simultaneously, increasing their return on investment. In addition, Litecoin settles transactions up to 4 times faster than Bitcoin, 2.5 minutes per new block compared to Bitcoin’s 10.
Charlie Lee
Litecoin was created in 2011 by Charlie Lee, a Massachusetts Institute of Technology alumnus and former Google developer. Charlie founded the Litecoin project after being impressed with Bitcoin’s technology. Unlike Satoshi Nakamoto, the pseudonymous inventor/s (or creators) of Bitcoin, Lee’s identity is known to the public and remains active in the crypto world.
There are pros and cons to having a leader figure in crypto. Bitcoin has the legend of Satoshi but is otherwise leaderless and more decentralized due to that fact. Lederlessness also comes with a lack of coordination and agreement when making big decisions, which is why the Bitcoin chain has had many forks taking different technological paths.
In a controversial move, Charlie publicly divested his Litecoin holdings in December 2017 following conflict of interest accusations due to his social media presence. This divesting decision remains controversial as some have accused Charlie of selling the top as it was the peak of the 2017 bull market and for no longer having skin in the game to care about the project’s success despite his apparent efforts to the contrary.
Today, Charlie serves on the Litecoin Foundation, working towards broader adoption of his creation with a goal of a successful legacy of the crypto project he created. As the Litecoin inventor, Charlie also controls a large amount of respect in the community and can use his fame to help muster consensus for significant upgrades as he did for SegWit and MWEB.
The GOOD, the BAD, and the UGLY Regulations
The current regulatory environment is on the precipice of being firmed up in many jurisdictions. Additionally, several recent developments have transpired and will likely impact the crypto industry, LTC, and business models of publicly traded companies and ETFs involved in crypto like: (HOOD), (SQ), (COIN) (PYPL), (TSLA) (MSTR), (ARKK) to name a few.
The following events all occurred in the last ~ 13 months:
- White House executive order, Responsible Financial Innovation Act
- Digital Commodities Consumer Protection Act (DCCPA)
- Federal Reserve’s crypto report
- Terra Luna — UST de-peg and collapse
- Canada’s emergency powers act
- Tornado Cash US Sanctions by the Office of Foreign Asset Control (OFAC)
- Ukraine army crypto donations
- FTX exchange collapse/fraud
These all impact and evolve government policies and how the public views crypto.
We believe that regulation is the most significant risk factor for the crypto industry, but it is not all bad news as it might seem.
The Good
About 25% of U.S. households own crypto, according to a grayscale study and a Coinbase report. Arguably it would be a bad political move to regulate crypto into the ground if a large number of the voter base owns it as an asset.
President Biden also issued an executive order, the Responsible Financial Innovation Act, outlining the government’s approach to addressing the risks and the potential benefits of digital/crypto assets and the underlying blockchain technology.
The order lays out a national policy for digital assets across six key priorities:
- consumer and investor protection
- financial stability
- illicit finance
- U.S. leadership in the global financial system and economic competitiveness
- financial inclusion
- responsible innovation
For once, the language seems relatively sensible, and that is why we are putting it in the “good” section, but how it will be implemented — remains to be seen. For now, we don’t see anything in the executive order’s language that is negative for LTC.
The USA and other jurisdictions are still figuring out how to regulate crypto within their borders. Unfortunately, the outcome in the US is far from certain for the crypto industry, but we think the American crypto policy has reached a turning point, and there could also be bad and ugly outcomes.
Bad
Because the misnomer “currency” is associated with crypto, many government officials often mistakenly view it as a threat to their fiat currency and, in the case of the US, as a threat to the dollar as the global reserve currency.
A heavy hand of rushed and uneducated crypto regulation from capricious governments is always a looming threat. When in actuality, growing crypto adoption would digitize the use of dollars and allow more people worldwide access to US dollars. A stable currency is what many people around the world desperately need access to, as their local currencies hyperinflate due to the nature of the fiat system or conflict.
Crypto assets like LTC are still very volatile, which makes them somewhat of a bad day-to-day currency, and that is why I refer to them more often as just crypto or crypto-assets than currency.
Crypto is not great as a currency in the same way Amazon (AMZN) shares would be a bad currency due to the inherent volatility of tech stocks. But, when looking backward, Amazon shares or leading crypto assets have been a great store of value (SoV) or appreciating assets vs. fiat.
INFLATION vs. STORE of VALUE
Looking at Argentina, Turkey, and Hungary, we’ve noticed something that these countries have in common. The people who reside in the three countries above are losing their wealth at a staggering pace. People in these countries are being robbed via high inflation by incompetent or corrupt governments. Argentina’s inflation is 94%, and it should be no surprise that crypto assets are gaining rapid adoption there.
As you can see on the map below, very few countries are experiencing low (blue on the map) inflation. People in the countries in red, i.e., over 25% inflation, are desperate for a way to save their life savings before they evaporate before their eyes.
Why crypto and LTC are the answer
Because it is the best answer available; it is a life raft for people on sinking ships, and they will grab anything rather than drown. That “raft” analogy was borrowed from Michael Saylor, the CEO of MicroStrategy Incorporated (MSTR), a tech company that now has 132,500 BTC on its balance sheet. Saylor did not want to lose his company’s cash to inflation, so after much deliberation, the only sensible answer was to purchase Bitcoin.
Citizens in the red countries you see in the IMF graphic above have few options other than crypto to help them combat inflation above 25%. As a result of the considerable currency depreciation experienced by many emerging nations, locals purchase crypto on peer-to-peer (P2P) networks like Litecoin to protect their savings. Others in these regions utilize crypto to conduct cross-border transactions such as remittances.
According to IMP: For many countries, money transfers from citizens working abroad are a lifeline for development.
There are often limits on the local currency citizens may export in most emerging markets. Additionally, money transmitters charge a relatively high fee from 7–20% on amounts smaller than $200, which disproportionally hurts the very poor. As a result, these citizens now have a mechanism to get around limiting restrictions and high fees to satisfy their basic financial demands thanks to crypto assets like Litecoin and dollar-pegged stablecoins.
The Ugly
In 2022 Canada’s PM, Justin Trudeau, used the emergency powers act against protesting truckers and anyone who supported them financially last year. The Emergencies Act is a law that gives the federal government power to take extraordinary measures in response to “an urgent and critical situation of a temporary nature.” Emergencies Act.
The majority of Canadian financial institutions, including banks, credit card companies, crowdfunding platforms, centralized and decentralized cryptocurrency service providers, etc., were required by the Canadian government to freeze the accounts and assets of people directly or indirectly associated with the protests.
Yassine Elmandjra of ARK Invest asserts that the Canadian government’s actions have weaponized the financial system, setting a dangerous and Ugly precedent in its struggle to resolve domestic unrest. This event in Canada highlights the need for crypto as a politically neutral, global, un-censorable, and transparent monetary system. Instead of centralized intermediaries, cryptos like Bitcoin and Litecoin depend on a distributed network of computers to enforce their rules. This architecture functions externally to the legacy systems. It protects individuals from centralized intermediaries who can change rules unpredictably and, in the worst case, seize personal assets as the Canadian government did without due process.
Because we live in a digital age, we need digital solutions to protect people from authoritarian governments and even benign and yet capricious governments that may misstep because the legacy system allows them to do so.
Enter LTC with Mimble Wimble — MWEB
alexrockwell.com/ltcmweb/
One of the reasons we are more bullish on privacy-preserving digital assets and crypto is the bad and ugly recent events and regulations, which have either shown the need for privacy-preserving crypto or will likely result in heavy-handed regulation that will make privacy a necessity. In this cohort of privacy-centric crypto, there are three good choices, in our opinion: Zcash (ZEC-USD), Monero (XMR-USD), and as of May 19, 2022, Litecoin — LTC.
Litecoin Improvement Proposal (LIP 003) introduced an opt-in option Mimble Wimble Extension Blocks (MW /MWEB), as a new transaction option through something called the extension blocks (EB). This long-awaited MWEB upgrade has occurred without a hitch and is now available for Litecoin users.
Fun Fact: Mimblewimble is well-known among Harry Potter fans. It is a spell that binds the target’s tongue to prevent them from revealing knowledge on a specific subject. A very cool name for a privacy feature if you ask us!
Users can now opt-in to using MW by moving or “pegging” their coins in and out of the EB through an integrating transaction. All this means is that Litecoin users can now use private transactions, which hide who the sender and receiver are and the transaction amounts.
Due to the nature of a transparent ledger, transaction history can be easily traced, making crypto a terrible tool for illicit activity despite what your uneducated local politician says on CNN. The public nature and traceability also make using crypto while having opposing political views to the ruling party a severe danger, as the Canadian government has demonstrated.
The solution to this problem is to create private transactions, i.e., hiding the amount sent within a transaction and obfuscating the user’s identity. Of course, one doesn’t always need to use private transactions, but having the option to do so is essential to preserving freedoms in the face of political opposition or oppressive governments.
With this privacy upgrade, LTC is now the most widely accepted cryptocurrency that offers privacy should the users need or want to use it.
As more people use the MWEB, the more anonymized everyone becomes. In the near future, we can envision MWEB being the default and not just the other option.
For example, this is my LTC wallet address where you can test sending LTC if you like what we do here at cryptonomics :)
MAoZrMUAzfRLFv9rRTSPSRvi6toSWkViYc
author’s LTC address (Author)
If it was an MWEB address, it would have “mwebltc” in the front part of the address and would be much longer. Making our MWEB address public would defeat the purpose of the privacy part ;)
MWEB has more extensive implications for Bitcoin as well because Litecoin, as a derivative of Bitcoin code, has many similarities making them compatible in most ways. Upgrades that first are proven successful on Litecoin often make their way to Bitcoin after a while. Features like SegWit and the Lightning Network were first implemented on Litecoin before making their way to Bitcoin. SegWit, for example, allows for more transactions to fit into each block, cutting transaction fees. By transferring transactions off the main blockchain and onto a parallel chain, known as a layer-2, Lightning Network enables faster, cheaper payments, something Bitcoin desperately needs to stay competitive.
This willingness to upgrade and push the technology forward makes LTC a riskier investment than BTC because critical mistakes can be made when dealing with software. But innovation and its associated costs also make the reward of innovation a possibility.
Privacy may be a prerequisite to fulfill Satoshi’s vision in our currently constricting regulatory environment. The Bitcoin community might be too rigid in its “move slow and don’t change things” ethos, where coins like LTC will benefit from faster adaptability to the changing world and take market share from BTC.
HALVING
What is a block-halving event?
Every time a Litecoin block is created using powerful machines, the miners get a fixed number of Litecoins as part of the coin issuance (approximately every 2.5 minutes). This miner reward, in addition to transaction fees, pays for the security of the Litecoin blockchain by the miners. The halving event in Litecoin is a pre-programmed reduction in the rate at which new Litecoin coins are created via mining and released into circulation. Fifty litecoins were awarded to miners for each block when Litecoin initially began in 2011. The block reward is reduced once every 840,000 blocks are mined (about every four years) and will continue until it reaches zero (in over a hundred years) and all 84M coins are mined.
Two Litecoin halving events have already taken place, the first in 2015 and the second in 2019. The Litecoin halving in 2015 reduced the Litecoin block reward from 50 LTC each block to 25 LTC each block. The last Litecoin halving event occurred in 2019, dropping the block reward in half from 25 LTC to 12.5 LTC per block. The current block reward of 12.5 LTC for each block will decrease to 6.25 LTC per block, with the subsequent halving on August 3, 2023.
Past halving price performance
A halving of issuance supply should produce a price gain if demand for LTC is equal to or higher than before the halving event. The miners that produce the newly created LTC are forced to sell some portion to recoup their hard costs (hardware, rent, electricity). Miner sell pressure can be considered a daily constant, so if their supply is decreased, but their costs remain the same, then they won’t sell the new coins unless the price per coin is higher than before the halving.
Smaller Sell Pressure
Currently, there is 7,200 LTC of mining reward daily sell pressure that the market is absorbing. Once the daily reward is cut in half to 3,600 LTC if the demand holds at 7,200 per day, it implies an inevitable price appreciation as the supply of 3,600 LTC is then lower than the demand of 7,200 LTC.
Below is a chart showing the past price performance of the two halving events. Historically, the price has followed a buy-the-rumor and sell-the-news pattern within the more significant crypto winter macro environment.
The last two halving events, in 2015 and 2019, resulted in a significant increase in the price of Litecoin in the months before and following the event, with a period of post-halving correction. The anticipation of the halving event can drive buying activity as investors expect the price to increase in a self-fulfilling prophetic way in expectation of the supply and demand dynamics. Given this historical precedent, it is likely that the upcoming halving event in August 2023 could have a similar bullish effect on the price of Litecoin.
It’s worth noting that the cryptocurrency market is highly volatile and subject to various factors that can affect the price. The halving event is one of many factors that can influence the price of Litecoin, and it just happens that the LTC halving happens a year before BTC halving, which has historically been a crypto winter year. So, even though fundamentally, LTC should appreciate, the crypto macro factors seem to play a more significant role.
The effect of each halving event can vary, and the overall impact of halvings on the value of the LTC can diminish over time. This is because the initial reduction in the supply of new coins has a more significant impact on the price than subsequent reductions. For example, the first Bitcoin halving in November 2012 resulted in a substantial increase in the price of Bitcoin. However, subsequent halvings have had a diminishing impact on the price, with the most recent halving in May 2020 having a relatively smaller effect on the price than the previous two events.
In the case of Litecoin, the impact of the first halving in August 2015 was more than the second halving in August 2019. This suggests that the diminishing impact of halvings is not unique to Bitcoin and can also be observed in Litecoin and perhaps expected for the upcoming halving. We will take the diminishing effect into account when making our projections.
A Bit of Technical Analysis
Historically, the bottom came in January-April for LTC during the halving years and reached a new all-time-high by July, leading into the August halving event, after which the price tends to correct in a genuine fashion of buy the rumor and sell the news.
- During the first halving, LTC price appreciated ~800%, leading into the 2015 halving.
- The second LTC halving came in the 2019 bear market, and still, the price appreciated ~600%, leading into the halving and followed by a sharp correction with the March 2020 crash along with all other crypto and risk assets.
- The LTC price reached a new all-time high of ~$370 about a year later, in May of 2021.
Looking at the BTC Halving pattern
As we can see in the chart above by Michael_Wang_Official, the Bitcoin returns diminish each time it halves, but the overall trend is upward. Avert your eyes if you are primarily a stocks or bond investor because these returns will crush your traditional investment spirit.
- In the first cycle, BTC had ~ 43,000% returns from the lows to the new all-time-high
- In the second cycle, four years later, BTC returned ~9,000%, which is ~78% less than the previous cycle.
- BTC returned ~2,000% in the third cycle, which is ~ 77% less than the previous cycle.
- If the pattern holds for the current cycle, the ~77% lower return than the previous cycle would add ~ 500% gains from the low and would put BTC at $105k as the new all-time high.
LTC Halving Pattern
We often use BTC as a leading indicator of what newer or smaller cap blockchains might do if they were to follow the BTC pattern. Using similar diminishing returns logic for LTC as the BTC above since the halving for both is a four-year cycle.
- We will project diminishing volatility or price appreciation leading into the event as we compare BTC halving to LTC.
- We will consider the 2017 and 2021 highs a resistance point at the ~$350–370 range.
- The chart below shows + 837% gain leading into the first year of 2015, halving.
- We can see + 575% gain leading into the second 2019 halving, or a 31% diminished return compared to 2015.
- We can expect a +395% gain leading into the 2023 halving and up to 422% if LTC goes back to an all-time high.
- From January 2023 lows of $70/LTC 395% implies $276
- Arguably LTC price sees better appreciation following BTC halving as that is historically well into the crypto bull cycle. LTC typically hits new all-time highs 360–524 days after BTC halving.
Worth noting that LTC went up 1562% on the chart below, from the March 2020 lows to May 2021 highs. May 2021 is precisely 1-year post-BTC 2020 halving.
According to trading view performance indicators and technicals at the time of writing 2/3/2023, LTC is a BUY with positive momentum. LTC is up 45% in the last three months and 33% in the previous month alone. But, it is still down ~77% from its 2021 high.
Making the Case
- Bear Case — $140 by halving with a pullback to $70–80, a 50% retracement
- Base Case — $276 by halving with a retreat to $135–150, a ~50% retracement
- Bull Case — Revisit ATH resistance levels 350–400, and if it shoots past, we are looking for $500 near term and ~ $1000 by mid of 2025 if a BTC halving bull market kicks off on schedule.
Catharsis
Refugees using crypto are the reason I am involved in this industry. Being a refugee myself, I know how important this technology can be to those in need. I am hopeful that over time more people in conflict areas like Ukraine, Syria, and Türkiye will be able to have the life raft that is crypto to escape their unfortunate situations. Escape with their life savings so they can start a new life somewhere with less than ZERO. Writing this article was a cathartic experience for me. Often I have doubts about crypto but, remembering the reasons I was drawn to it serves as a north star. Often I am forced to defend crypto’s value in the face of meme coins, $500K jpegs, and countless scams. Having a solid project like Litecoin to research and test my doubts against is a validating and conviction-forging shiny beacon in what at times seems like a dark place filled with scams and vaporware.
BTC and LTC having events present a historic lookback price action through the lens of those macro events, but LTC is not the same coin it was back then. Arguably LTC is a different category altogether now, as both one of the longest-running chains and a privacy-enabled top blockchain project.
Likely there will be price appreciation going into LTC halving, but if history rhymes, there might be a sharp correction as well right afterward. With the same breath, that implies the second half of 2024 and the first half of 2025 might be the new top for LTC as it benefits from the BTC halving cycle.
Regardless of the short-term volatility, we believe that LTC is an asset worth HODLING for the long term due to its strong technical development, adoption, and brand recognition. And the fact that it solves real-world problems.
According to Coinbase one of the critical use cases for crypto is getting capital out of China, Russia, Venezuela, Iran, and other financially repressive countries, as well as aiding people in mismanaged countries like Argentina and Turkey, where inflation is rampant. Those reasons are enough for the US to support rather than undercut the current crypto ecosystem with burdensome regulations. More draconian laws will lead to more underground technology in order to avoid them and will force crypto innovation and economic benefits to happen outside of US borders.
Privacy-enabled crypto like LTC will be a valuable tool in undermining authoritarian and financially repressive countries the US views as adversaries. Therefore the US has its incentives aligned with crypto and Litecoin and should provide a friendly environment in which crypto can thrive.
One major impediment to the US becoming a blockchain powerhouse is the unelected SEC chair Gary Gensler, who is a former Goldman Sachs investment banker ( conflict of interest much?) who’s personal legacy interests are not aligned with that of the American people and US economy.
Privacy will be an ever more critical variable in today’s digital age — with or without stringent regulation and clowns like Gensler. We believe Litecoin will thrive through good, bad, and ugly regulation by being one of the best decentralized privacy-enabled cryptos.
Privacy isn’t important until it is!
If you like our work and would like to support us there are crypto addresses in the about section where you can send donations. #WAGMI
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