Like most cryptocurrencies, Litecoin (LTC -0.25%) took some drastic price cuts in the first half of 2022. As investors and regulators struggled to manage an inflation-soaked global economy, the Litecoin token fell 64% between the New Year and the end of June. That correction was a bit sharper than Bitcoin‘s (BTC -0.52%) 57% price drop and far behind TRON, which only fell 17% lower in that period.
But it was too early to count Litecoin out in the middle of summer. The cryptocurrency has staged an impressive comeback in the second half of 2022, gaining 18% since June 30 while Bitcoin, TRON, and Solana (SOL -1.98%) saw additional price cuts instead, ranging from 17% to 65%.
Here’s how Litecoin pulled off its recent rejuvenation while the crypto market as a whole continued to struggle. This performance also holds some clues about where Litecoin might go in 2023.
What is Litecoin?
Litecoin started life in 2011 as a tweaked clone of the Bitcoin platform. The code changes created a lighter version of Bitcoin in many ways. Litecoin is the “silver to Bitcoin’s gold,” supported by thousands of retail stores and e-commerce services.
- Litecoin generates a new block of data every two and a half minutes while Bitcoin takes about ten minutes to create a new block.
- Bitcoin is famously capped at a lifetime supply limit of 21 million coins. Litecoin held on to the concept of a lifetime limit, but raised its ceiling to 84 million coins.
- Both Litecoin and Bitcoin are Proof-of-Work systems that generate new data blocks by mining operations. However, they use radically different mining algorithms. Bitcoin’s SHA-256 encryption is best suited for mining by special-purpose chips, while Litecoin’s Scrypt algorithm requires a lot of memory and is more amenable to mining by AMD and Nvidia graphics cards.
- The Litecoin network also supports smart contracts since the fall of 2021, ripping a page from the Ethereum (ETH -0.38%) playbook.
- Furthermore, the MimbleWimble code update of January 2021 added confidentiality features to the Litecoin system. That’s a valuable upgrade since it adds a feature that Bitcoin can’t match, but also a controversial one because many law enforcement agencies presume that confidential transactions will result in illegal activities such as digital payment fraud, payments for stolen goods, and straight-up money laundering.
So Litecoin processes transactions faster than Bitcoin, supports enthusiast-grade hardware for mining operations, and strives to include features that are missing from the Bitcoin system. Otherwise, the two cryptocurrencies work in similar ways and their developer communities share similar goals.
What happened in November 2022?
Two events moved Litecoin’s needle in recent weeks. First, global payments specialist MoneyGram (MGI) announced a crypto-based transfer service with support for three cryptocurrencies at launch. As you might have guessed, Litecoin was rubbing shoulders with Bitcoin and Ethereum on that exclusive list. As the smallest name in the shadow of two giants, Litecoin saw prices rise by 8% on that fine Wednesday and 22% by the end of the week.
Three weeks later, the FTX meltdown worked in Litecoin’s favor. Many cryptocurrencies crashed hard during that crisis, but Sam Bankman-Fried’s companies reported no material position in Litecoin. Therefore, Litecoin investors drew a huge sigh of relief and boosted the digital coin’s price by 29% in two days.
Both of these jumps highlight Litecoin’s unique value proposition as a smaller and faster version of Bitcoin. Bigger isn’t always better.
Image source: Litecoin.com.
Does the Litecoin community have any big plans for 2023?
Litecoin follows a strictly planned inflation schedule. At first, the Litecoin network issued 50 new coin every time a fresh data block is produced. The reward was halved to 25 coins after block number 840,000 was mined. Since the rewards are spaced approximately 2.5 minutes apart, that took almost exactly four years.
The so-called halving of 2015 was followed by another in 2019, and now the clock is ticking down to Litecoin’s third halving in August of 2023. This tick-tock schedule will continue until the mining reward rounds off to zero coins. In one fell swoop, that will be the end of Litecoin mining and inflation. You don’t have to plan for it yet, though. The last Litecoin block will be mined somewhere around the year 2142, with the final Litecoin supply reaching 84 million coins.
These halvings are a big deal for any Proof-of-Work cryptocurrency. Cutting the mining reward in half increases the amount of cryptographic computing required to earn the next handful of coins. The idea is to establish a rock-solid system of steady but limited inflation. Each halving should be followed by the cryptocurrency’s price doubling, or the miners would lose their incentive to keep the machines running.
In practice, that price doubling doesn’t happen right away. For example, Bitcoin has halved its rewards three times so far, in 2012, 2016, and 2020. Skyrocketing price increases have followed roughly a year later in each case. In Litecoin’s case, coin prices fell in the months before each halving and surged a few months after. According to that historical pattern, Litecoin is in the low-priced preparation phase right now.
Is it time to buy Litecoin today, then?
So Litecoin investors can expect a major tailwind in 2023, regardless of where the rest of the crypto industry is headed — but not right away. The post-halving boom should start to gain momentum in the second half of next year and reach a peak in the first half of 2024, assuming that no external event turns the crypto market upside down in the meantime.
Past performance is no guarantee of future market behavior, of course, but these halving cycles bake some cold, hard math into the effects of investors’ mass psychology. So I wouldn’t bet the farm on Litecoin ahead of next year’s rewards halving. Still, it may make sense to accumulate a few of these digital coins on the cheap, as your personal budget and Litecoin’s fluctuating market prices dictate.
Anders Bylund has positions in Bitcoin, Ethereum, Litecoin, Nvidia, and Solana. The Motley Fool has positions in and recommends Advanced Micro Devices, Bitcoin, Ethereum, Nvidia, and Solana. The Motley Fool has a disclosure policy.