Litecoin block reward halving countdown begins! Some mining companies can finally breathe a sigh of relief

Author | Hu Chen, please indicate the source for reprinting

The block reward halving of mainstream cryptocurrencies is about to hit. The first to appear is: Litecoin.

Crypto asset data provider Coin Metrics released a report on the 2nd stating that the block reward halving planned for Litecoin in August will, on the one hand, increase the price of Litecoin due to increased scarcity, and on the other hand, will reduce the sales pressure on mining companies and increase the profit level of the entire mining industry by eliminating backward mining companies.

Litecoin block reward halving

Litecoin is an improved digital currency inspired by Bitcoin. Unlike Bitcoin, the Litecoin network can process a block every 2.5 minutes (rather than 10 minutes), thus providing faster transaction confirmation. In addition, the Litecoin network is expected to produce 84 million Litecoins, which is four times the amount of currency issued by the Bitcoin network.

Similar to Bitcoin, Litecoin is also generated by "miners mining". Starting from October 2011, if the value of "explosion" is calculated, the system will reward the mining company with 50 Litecoins at one time.

It is worth mentioning that Litecoin, like Bitcoin, also experiences a block reward halving every four years. This means that after the first halving in 2015, if the value of "explosion" is calculated, the system will only reward mining companies with 25 Litecoins at one time.

Another four years are about to pass. Litecoin is expected to undergo its second reward halving in August this year, to 12.5 Litecoins.

Since block reward halvings have occurred infrequently and at intervals of four years in the past, Litecoin’s second reward halving is a good opportunity to test the theory of whether a reduction in block rewards is truly a bullish signal.

Coin Metrics notes that the impact of the block reward reduction on prices (primarily Bitcoin) has been considerable so far. Because of this, the upcoming block reward reduction is often cited as a reason to be bullish on future price increases for the asset.

Take Litecoin as an example. In August 2015, Litecoin carried out its first block reward halving. Its price also hit bottom 7 months ago. It stopped falling immediately after the halving and recovered slightly in the following months. The highest to lowest price increase exceeded 600%, far exceeding the increase of Bitcoin and other encrypted assets.

With its second halving approaching, Litecoin is one of the best performing assets in the current market cycle, with a return of 52% over the past year and just 68% below its all-time high.

After Litecoin, many mainstream cryptocurrencies will enter the reward halving cycle one after another:

In March 2020, ETC is expected to reduce production (it has increased by 55% so far this year);

In April 2020, BCH is expected to reduce production (the increase so far this year is 178%);

In May 2020, Bitcoin is expected to reduce production (up 214% so far this year);

In May 2020, DASH is expected to reduce production (up 101% so far this year);

In October 2020, ZEC is expected to reduce production (it has increased by 84% so far this year).

The following is the change in the value of major cryptocurrencies over the past year:

It is worth noting that mainstream currencies with production cut expectations (Bitcoin, Litecoin) have performed significantly better this year than other mainstream currencies that have not had production cuts.

Mining companies can breathe a sigh of relief

In addition to having a significant impact on the market, the halving of cryptocurrency rewards is also a rare benefit to the mining industry.

Mining is generally run as a large enterprise and faces operating costs denominated in fiat currency (primarily electricity costs), so mining companies must regularly sell part of the block rewards (cryptocurrency) to cover costs.

In 2018 alone, Litecoin mining companies earned revenue of nearly 5.3 million native units, equivalent to $561 million.

Coin Metrics said that since mining companies continue to face pressure to sell the cryptocurrencies they have mined, the reduction in block rewards also means a reduction in the maximum amount of cryptocurrencies that mining companies can sell, thereby reducing the overall sales pressure on the industry in the future.

In addition, the reduction in block rewards indirectly eliminated inefficient mining companies, improving the overall efficiency and profitability of the mining industry. The increase in profits further reduced the pressure on mining companies to sell the cryptocurrencies they mined.

The current annualized inflation rate of Litecoin is 9%, which is expected to drop to 4.4% after the halving, which means that the sales pressure led by mining companies will drop significantly.

Coin Metrics added that even if market participants correctly predicted the impact of the block reward halving months ago, once the halving actually occurs, the reduced selling pressure on mining companies may still cause cryptocurrency prices to continue to rise after the halving.