Litecoin [LTC] halving is only 56 days away from today. The mining rewards will be reduced by half after the event. Hence, economically, there is a couple of essential questions that arise from the situation.
How does it affect the price?
The price of any commodity is primarily determined by the difference between the marginal cost and the marginal profit. Hence, ideally, the Litecoin users would be willing to pay more than the actual price to the miners so that the miners do not run out of business. However, this situation corresponds to a position where the miners are running at par or a no-loss-no-profit situation.
However, in the world prices are being driven by the speculation before halving along with the positive effect of the bull market in Bitcoin. The price of Litecoin has increased by 11% since the beginning of the week to reach a high of $130. The price of Litecoin [LTC] at 3: 20 Hours UTC on 11th May 2019 is $127.6; w.r.t to Bitcoin, it is 0.0160 BTC.
Will the Miners Shut Down After the event?
Miners or ‘nodes that validate the transactions’ are essential to the operation of the system. Now, if post halving the process starts incurring a loss, the miners might be motivated to switch off their systems. Charlie Lee, the Creator of Litecoin [LTC], has put such apprehensions to rest with the profitability estimate of mining after the event. He said,
“Here are some stats on mining profitability. After halving, miners are still profitable with electricity under 10¢. Many are paying only 5¢ and therefore should keep mining LTC post-halving.”
The mining profitability is expected to be reduced by somewhere between 60-70%. However, the rise in Litecoin [LTC] can be attributed to the same reason. At the current mining situation, even after the halving event, the break-even cost of 2.52 would be met by LTC @ $65. Nevertheless, some also miner incurred losses during the 2018 bear market.
Furthermore, the increase in price can be sustained if the number of miners increases with an increase in profitability. Due to the fluctuation in prices, people refrain from making capital investments in mining farms. The Hash Rate of Litecoin [LTC] is evidently on the rise.
In 2019, due to the halving speculation and end of the bear market, the process has yielded handsome profits in Bitcoin and Litecoin.
Do think that the price will grow further? Please share your views with us.
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Nivesh from Engineering Background is a full-time Crypto Analyst at Coingape. He is an atheist who believes in love and cultural diversity. He believes that Cryptocurrency is a necessity to deter corruption. He holds small amounts of cryptocurrencies. Faith and fear are two sides of the same coin. Follow him on Twitter at @nivishoes or mail him at nivesh(at)coingape.com