Investors can expect another shake-up in cryptocurrency prices soon: Here's why
Upcoming ‘Halving’ events to create opportunities to profitably invest in crypto again?
Dubai: The recent developments in the cryptocurrency industry are quite intriguing and require constant monitoring if you have invested in digital currencies.
If we examine the changes that have occurred thus far, we can see that technological advancements, regulatory changes, and market sentiments are influencing and propelling the cryptocurrency market, particularly its prices.
The prices of cryptocurrencies may continue to fluctuate, particularly in light of two significant events that will take place in a few days and over the coming months. Here, I will discuss these two events which will help determine your next crypto investment step.
The two significant events that investors should keep a watch on are the ‘Halving’ of one of the most popular ‘Altcoins’, Litecoin (LTC), on August 2, 2023, and the ‘Halving’ of Bitcoin, which will occur on April 21, 2024.
‘Crypto Halving’, or ‘Halvening’, is an event that reduces the number of new coins or tokens being generated by the network. It happens every four years and is crucial for traders because limiting supply of new coins could potentially raise crypto prices if demand for the coin remains strong.
This pre-programmed change to the underlying blockchain technology, primarily affects crypto ‘miners’, who are awarded crypto to solve complex math problems on high-powered computers to validate each crypto transaction. Such ‘block’ rewards are halved every four years to curb inflation.
‘Halving’ events captivate investors, buyers
The ‘Halving’ of a cryptocurrency reduces the quantity of rewards paid to miners by half. Historically, ‘Halving’ events have captivated investors and buyers, resulting in increased market activity.
It is anticipated that the ‘Halving’ of Litecoin and Bitcoin will influence the entire cryptocurrency market this year. Any trend impacting these cryptocurrencies can spill over to the prices of other cryptocurrencies, boosting (or hindering) market confidence as a whole.
Litecoin is scheduled to have its third ‘Halving’ event, which occurs every 840,000 blocks, every four years approximately, and reduces its reward per block to 6.25 LTC from 12.5 LTC per block. (‘Blocks’, individual units making up blockchains, are where crypto transactions are stored.)
The halving of Litecoin can significantly affect its price due to the changes it will bring to LTC's supply and demand. As a consequence of the reduction in the block reward, the supply and issuance of new Litecoin in the market will be reduced or constrained.
If demand remains constant or increases, the scarcity of Litecoin could lead to speculative buying, which would drive the prices up. (‘Speculative buying’ is buying an asset that can earn you gains quickly. However, with ‘speculative buying’, there is an increased chance of big losses as well.)
How Litecoin ‘Halving’ can affect Altcoin prices
This potentially positive trend in Litecoin can also influence the Altcoin market as a whole, increasing interest and investment in all Altcoins. Separately, it may also contribute to a positive trend in Bitcoin, given that both currencies share technological similarities, thereby strengthening other cryptocurrencies and the market as a whole.
The second comparable event is the ‘Halving’ of Bitcoin rewards next year, which will reduce miner rewards from 6.25 BTC to 3.125 BTC.
In particular, Bitcoin rose to $30,000 (Dh110,191) by mid-April this year, fluctuating throughout May and June, and reaching $31,474.72 (Dh115,608) on July 14 - its highest value since the beginning of the year. As of the time of this writing, Bitcoin is worth $29,407.12 (Dh108,014.26).
Bitcoin ‘Halving’ events boosted prices in the past
However, the current price trajectory of Bitcoin could see a further positive jump, especially while anticipating the upcoming Bitcoin ‘Halving’. Historically, Bitcoin's ‘Halving’ has had a significant effect on its price.
For instance, the previous ‘Halving’ of Bitcoin in 2020 triggered a considerable gain, that drove its price to $64,900 (Dh238,381.92) in the following months. Hence, observing past patterns, we can anticipate a looming boom for Bitcoin.
Bottom line?
In a nutshell, the cryptocurrency market is making a comeback. Many are anticipating how the Litecoin and Bitcoin ‘Halving’ events will shake-up markets, while speculating on the effects they will have on the prices of these currencies and their performance.
Ultimately, whether the impact of ‘Halving’ will bring a surge and new highs or a decline, it will take time to play out. So as an investor, you will need to undertake additional analysis and keep an eye on such trends that could affect the cryptocurrency market in the near future.