In the wake of the meltdown of crypto exchange FTX, Litecoin (LTC -1.85%) is one of the only top cryptos that is moving higher right now. While Litecoin is up more than 40% during the past 30 days, traditional market stalwarts like Bitcoin and Ethereum are both down about 25% over that same time period.
Litecoin is currently trading at about $78, and given its recent trajectory, some traders are already suggesting that Litecoin could hit $100 within a few months. This would imply another rise of almost 40%. That might sound overly optimistic, but there is one major catalyst coming in August 2023 that could make that lofty price target possible within the next year.
The Litecoin halving
The key driver of recent price gains is called halving, and it is one of the most interesting features of a proof-of-work cryptocurrency such as Litecoin. In a halving, there is a change in the supply of the crypto that is determined by an algorithm. This directly affects miners, because the reward for producing new coins is cut in half.
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Right now, Litecoin miners are earning 12.5 coins every time they successfully mine a new block. In August 2023, that figure will change to 6.25. And in 2027, that figure will change to 3.125. The net result is that Litecoin's supply grows more slowly over time.
Just like Bitcoin, Litecoin experiences one of these halving events every four years, and both of these events in the past (in 2015 and 2019) have triggered a rally in Litecoin. As traders point out, Litecoin has shown a similar pattern in past halving events: a market bottom, then a gradual increase in price going into the halving, followed by a rapid acceleration in price right around the time of the halving that lasts for an extended period of time.
If you think about crypto mining the same way you think about gold mining, then the impact of the halving on price becomes intuitively clear. Imagine what would happen if, every four years, the gold miners of the world announced that in the future they would only be able to extract one-half as much gold from their mines as in the past. It would tend to drive up the price of gold. In many ways, this is the same phenomenon that is happening with Litecoin right now.
Is Litecoin overheating?
The only problem, of course, is that Litecoin might be overheating. So many crypto investors are now piling into Litecoin that they are driving up the price of Litecoin too much, too fast.
During one two-week period, for example, Litecoin exploded by 75%. In one 24-hour period, $1 billion flowed into Litecoin. That's simply unsustainable for a long period of time.
On a relative basis, Litecoin is now trading at a one-year high against Bitcoin. So some traders now expect a correction by the end of the year to bring the prices of Litecoin and Bitcoin back into alignment.
Just how big will this correction be? At CoinMarketCap, crypto enthusiasts are now predicting a year-end price of $58.36, while crypto traders are now expecting a price of $55.23. Therefore, a price correction of 25% or more is possible.
When will Litecoin hit $100?
Thus, the most probable scenario is that Litecoin will lose some of its current momentum and retrace some of its recent price gains. That pretty much puts the prospect of Litecoin at $100 by the end of year out of the question: Santa will not be stuffing your stockings with Litecoin crypto gains in 2022.
But what about 2023? That is when Litecoin has the greatest chance for a long, sustained rise. This is the pattern that we have seen with two prior Litecoin halving events, and there is no reason to think that this time will be any different.
So as a long-term buy, Litecoin makes sense. There is a known catalyst in place, as well as historical evidence of prior price gains from similar events. And don't overlook the potential positive psychological impact of finally being able to say goodbye to what has been a very painful year for crypto investors.
