Seemingly out of nowhere, Litecoin (CRYPTO: LTC) is on the move again. The coin is up 13% over the past seven days after significantly underperforming the market for much of the year. Over that same period, both Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH) are basically flat.
Why the sudden price action in Litecoin? There appear to be several different factors at work here, including a potentially significant catalyst coming in early August. As a result, some analysts are now suggesting that Litecoin could soar as much as 200% over the next three months.
The Litecoin halving
The "Litecoin could soon go parabolic" narrative is based around an upcoming event known as the halving, which is now scheduled for August 3. In a halving event, the reward paid to crypto miners for mining a new block on the blockchain falls by one-half. So, for example, Litecoin miners are currently rewarded with 12.5 Litecoin every time they mine a new block. On August 3, that reward will fall to 6.25 Litecoin.
This halving is generally viewed as being very bullish for the future price of Litecoin due to the impact that it has on the circulating supply of the coin. There have been two previous halving events, for example, and each time, Litecoin has seen a huge bump ahead of the actual halving date. Taking an optimistic view of things, there could be as much as a 200% upside involved here. This figure is derived from analyzing the two previous halving events and studying the price action both before and after the actual event.
Image source: Getty Images.
The problem is that there is quite a bit of controversy in the crypto world about how long such a rally lasts, when it actually starts, and how big of a price bump there will be. For example, when Litecoin saw a rally at the end of 2022, many people thought that was the start of the 2023 halving rally. But it turned out to be a head fake. That being said, the current consensus thinking is that a Litecoin halving rally will start approximately 100 days before the actual halving date. If you check your nearest calendar, it's easy to see that the rally should have already started, and that might explain why Litecoin has surged over the past week.
The problem with market timing
However, as can be seen, getting the Litecoin halving right takes a considerable amount of market timing. If you get in too early or too late, your returns might vary widely. For example, the peak of any Litecoin halving rally appears to occur 50 days away from the halving date, so there seems to be a very limited amount of time to fully profit from any Litecoin rally. By my calculations, if you're not holding Litecoin by mid-June, you might end up being very disappointed in what you get versus what was promised. Some are even suggesting the rally might not even take place.
As a long-term investor, you should ideally not focus too much on such short-term trade setups. Instead, you should look for long-term catalysts that are likely to result in future price gains. Thus, even if you miss out on a fleeting halving rally, there are still plenty of other possible ways you might walk away with a winning investment.
Are there other Litecoin catalysts?
And that's why I'm particularly concerned -- I just don't think Litecoin has the right types of long-term catalysts in place. For example, some investors think that the recent introduction of the new LTC-20 token standard could lead to a rally in Litecoin. But, from my perspective, this seems to be a last-minute attempt to cash in on the buzz around the BRC-20 token standard for Bitcoin. In case you haven't heard, the BRC-20 token protocol has sparked a meme coin frenzy around Bitcoin. So are we really saying that the future of Litecoin lies with the meme coins?
Granted, there has been some improvement in underlying Litecoin metrics, and this is very encouraging. For example, the number of daily active addresses on the Litecoin blockchain recently reached an all-time high. And the number of daily active transactions is also at an all-time high. However, this could be the result of recent congestion on Bitcoin, which has seen its transaction fees spike. People might just be migrating to Litecoin for the short term until Bitcoin figures things out. So, again, I don't think we have the makings of a long-term catalyst here, just a short-term market anomaly.
Should you buy Litecoin?
If, after having read all this, you're still convinced that you need to get in on the Litecoin summer rally, I have five words to say to you: "Bitcoin also has a halving coming up soon." Yes, as a proof-of-work cryptocurrency, Bitcoin also has a halving event every four years, and the next one is scheduled for April 2024.
So forget about the Litecoin halving in 2023, and wait for the Bitcoin halving in 2024. Bitcoin is a much better long-term investment than Litecoin. Even if a big halving rally doesn't materialize for Bitcoin, you won't regret it. Bitcoin has plenty of other long-term catalysts to propel it higher.
