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Litecoin's Strong Performance Before 'Halvening' Fuels Optimism for Bitcoin Rally
Litecoin's Strong Performance Before 'Halvening' Fuels Optimism for Bitcoin Rally
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Litecoin. Source: Adobe
Bitcoin (BTC) investors are closely watching the performance of Litecoin (LTC), another proof-of-work token, as the flagship cryptocurrency gears up for its upcoming “halvening” event.
The term “halvening” refers to the protocol-backed reduction in rewards for miners who successfully solve puzzles and add blocks to proof-of-work tokens like Litecoin and Bitcoin.
The Litecoin blockchain is poised to go through the halvening process in another 21 days, which is scheduled for August 1, 2023.
This reduction is designed to limit the number of tokens issued and has already caused a surge in Litecoin’s price.
Over the past month, the price of Litecoin has risen by 22%, while its 12-month performance shows an impressive 81% increase.
This performance has bolstered the confidence of Bitcoin investors who believe that the upcoming halvening event for Bitcoin, scheduled for April 2024, will have a similarly positive impact on the price of the leading cryptocurrency.
Bitcoin Price has Historically Reacted Positively to Halvenings
Bitcoin has historically experienced price increases following its halvenings, which occur every four years.
The reason for this trend lies in the fundamental principles of supply and demand.
With fewer new coins being minted, the existing supply becomes scarce. And as demand from investors and users continues to grow, this scarcity drives the price higher.
The first halvening in 2012 saw Bitcoin’s price rise from around $12 to over $260 within a year.
Similarly, the second halvening in 2016 witnessed a surge from $650 to almost $20,000 by the end of 2017.
The most recent halvening occurred in May 2020 when the reward per block was reduced from 12.5 to 6.25 Bitcoins. While the immediate impact on the price was not as dramatic as previous halvenings, Bitcoin started an upward trend shortly after, reaching new all-time highs in 2021.
Bitcoin has also performed well since the start of the year.
At the beginning of this year, Bitcoin was trading at around $16,000. It has nearly doubled since then, recently hovering around $30,000.
The cryptocurrency hit a 52-week high last month after BlackRock, the world’s largest asset manager, filed an application to create a spot Bitcoin ETF.
The filing by the world’s largest asset manager also spurred a surge in ETF applications, with other firms, such as Fidelity, Valkyrie, and Invesco, submitting applications.
Both Bitcoin and Litecoin received a significant boost when EDX Markets, a new crypto exchange backed by Citadel Securities, Fidelity, and Charles Schwab, announced that it would include them among the four tokens available to its customers at launch.
Nevertheless, as the countdown to Bitcoin’s halvening in 2024 begins, industry watchers will be closely monitoring Litecoin as an indicator of what may lie ahead for the world’s most popular cryptocurrency.
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Litecoin's MVRV Has Surged, Why This Is Bearish
Litecoin's MVRV Has Surged, Why This Is Bearish
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On-chain data shows the Litecoin MVRV has been at relatively high levels recently, something that could be bearish for the cryptocurrency.
Both 30-Day & 365-Day Litecoin MVRV Ratios Are High Currently
According to data from the on-chain analytics firm Santiment, LTC traders are well above water at the moment. The “MVRV ratio” is an indicator that measures the ratio between the two main capitalization models for Litecoin: the market cap and the realized cap.
The market cap here is the usual cap that calculates the total value of the asset by simply taking the value of each coin in the circulating supply the same as the current spot price.
The realized cap, however, is a more special model as it assumes that the actual value of any coin in circulation is the price at which it was last transacted on the blockchain.
Since this model aims to estimate a sort of “true value” for Litecoin, its comparison with the market cap (that is, the spot price) in the MVRV can tell us whether the asset’s price is fair or not right now.
When the MVRV has a value greater than 1, it means the market cap is above the realized cap currently. During such times, the average investor is in a state of profit, so the incentive to sell for them increases. As such, the cryptocurrency could be considered overpriced in these conditions.
On the other hand, the indicator having a value lower than this threshold implies the average holder is in a loss, and hence, the asset may be undervalued currently.
Now, here is a chart that shows the trend in the 30-day and 365-day moving averages (MAs) of the Litecoin MVRV ratio over the last few months:
Looks like the values of the metrics have been high in recent days | Source: Santiment
As displayed in the above graph, both the 30-day and 365-day MAs of Litecoin MVRV have risen above the baseline with the recent surge in the price beyond the $90 level. This may mean that the cryptocurrency could have become slightly overpriced.
Prior to this surge, when LTC had been visiting some lows, the 30-day version of the indicator had temporarily entered into the undervalued region. Coinciding with these values of the metric, the price formed its bottom and eventually built up towards the current surge.
Back in April, the MVRV MAs showed a similar behavior as right now, as they touched relatively high values when the asset had rallied above the $100 mark. The rally stopped before long in those overvalued conditions, and the asset took a plunge.
If a similar pattern as back then also follows with the current overpriced values of the indicator, then Litecoin may go on to observe a correction in the near future.
In the long term, however, the outlook of the asset could still remain bullish, as the much-awaited halving event, where the cryptocurrency’s block rewards will be permanently cut in half, will take place in August, which is just around the corner now.
LTC Price
At the time of writing, Litecoin is trading around $91, up 1% in the last week.
LTC has seen some surge in the last few days | Source: LTCUSD on TradingView
Featured image from iStock.com, charts from TradingView.com, Santiment.net
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