At a time when nearly every major crypto is declining in price, Litecoin (LTC 11.54%) has experienced a recent surge in value. Litecoin is up more than 30% over the past 30 days and, as a result, just became the No. 13 crypto by market capitalization. By way of comparison, Bitcoin (BTC -2.15%) is down 17% and Ethereum (ETH -0.43%) is down 15% over this same time period. Clearly, this recent price performance from Litecoin is worth a closer look.

The major impetus for this month-long surge could be related to Litecoin's upcoming "halving," which is tentatively scheduled for August 2023. With less than a year to go, investors may be positioning themselves for a huge breakout move to the upside that typically accompanies every Litecoin halving. Let's take a closer look at what this means if you are thinking about buying Litecoin.

The significance of the halving

When Litecoin was originally created in 2011, it was designed to be a form of "Bitcoin Lite," hence the name. While there are a few key differences between these two cryptocurrencies, one feature is unchanged: the halving. This refers to a change in the rate at which new coins are being added to the current circulating supply. Approximately every four years, the rate at which new coins are added drops by exactly one-half. The first halving for Litecoin took place in 2015 and the second in 2019. All of this is programmed algorithmically, and nobody can change the schedule.

Generic cryptocurrency coin.

Image source: Getty Images.

So why does all this matter to traders? First and foremost, it gives them an easy way to time the market. They know a halving occurs every 4 years, and they can prepare accordingly. Since the last Litecoin halving took place in 2019, the next one will take place in 2023, most likely in August. Secondly, the precise algorithmic nature of the halving makes it easy to model supply and demand for Litecoin.

Best of all, traders now have historical data to study. When Litecoin launched in 2011, the impact of the halving was purely theoretical. The goal was to make Litecoin deflationary over time. It sounded good on paper, but did it really work in practice? Based on evidence from Litecoin in 2015 and 2019, there is a fairly predictable pattern of what will happen: Litecoin will increase in value heading into the halving and then rapidly increase in value afterwards. 

Keep this in mind before investing

Of course, crypto markets are prone to extreme fluctuations in price, so don't expect a smooth upward curve for the price of Litecoin headed into August 2023. According to technical traders who study chart patterns to understand how a crypto might perform in the future, a key factor to keep in mind is that there appears to be a historical price relationship between Litecoin and Bitcoin. This relationship can't get too far out of alignment or the market will auto-correct. Put another way, if Litecoin starts to overheat and Bitcoin can't keep up, then there will inevitably be a price correction. 

So you have to be careful about adding Litecoin to your portfolio. Given that Litecoin appears to be overheating right now, there could be a price correction before the end of the year. The consensus price estimate for Litecoin for December is $58.36, which is about a 24% correction from the current level of $77.15. But some are warning the correction could be much stronger, as much as 50% from current levels.

Do I buy Litecoin?

In many ways, Litecoin is a sneaky crypto play. Most investors are focused on Bitcoin and may be ignoring Litecoin. Moreover, since Litecoin is a form of "Bitcoin Lite," many casual investors might assume that both coins are going to trade the same way. However, based on what we're seeing right now, Litecoin has the potential to trade completely differently from Bitcoin. Over the past month, for example, Litecoin increased in value, while Bitcoin fell in value.

Heading into 2023, Litecoin is clearly worth a watch, especially if your crypto portfolio needs just one winner right now. I'm tracking to see how Litecoin performs through year-end and then may start accumulating in early 2023, hoping to ride the surging momentum. If this trade works out, then I'm definitely jumping aboard the crypto bandwagon for the Bitcoin halving in 2024.