(Bloomberg Opinion) -- Bitcoin investors are benefiting from a rise in the smaller Litecoin token over the past year that has outperformed the broader crypto market.
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This is because one of the drivers of Litecoin's nearly 90% rise over the period was the so-called halving, or halving, which will curb supply of the token, a process that is also looming for Bitcoin. in the coming months.
“Litecoin often served as a sentiment metric in the Bitcoin halving, as it was timed ahead of time compared to it,” Matteo Greco, a crypto-research analyst at Fineqia, wrote in a note.
Litecoin was created in 2011 and aims for faster transactions than Bitcoin. Both blockchains use the "proof-of-work" mechanism, whereby power-hungry computing platforms, known as miners, solve complex puzzles to secure digital ledgers.
A halving halves the number of tokens miners receive as a reward for their work. The quadrennial event, due to take place next month for Litecoin and around April 2024 for Bitcoin, is part of the process of capping token supply at 84 million and 21 million, respectively.
Litecoin's performance over the past 12 months outpaced Bitcoin's advance of around 39%, as well as the 22% rise in a gauge of the top 100 tokens. But Litecoin has moderated of late, pulling back a bit from an early July peak.
The halving is among a confluence of variables contributing to Bitcoin's partial rebound this year from a 2022 crypto rout sparked by monetary policy tightening and exacerbated by blowouts like the FTX exchange implosion.
tailwinds
Other tailwinds for the token include optimism about increased demand if BlackRock Inc., Fidelity Investments, and others are successful in their efforts to start spotting Bitcoin ETFs in the US.
An institutional-only crypto exchange, EDX Markets, also recently went live with backing from billionaire Ken Griffin's Citadel Securities, as well as Fidelity and Charles Schwab Corp. It offers trading in just four cryptocurrencies: Bitcoin, Ether, Litecoin, and Bitcoin. Cash.
While Bitcoin hit records after each of its last three halvings, the current outlook for cryptocurrencies is clouded by the prospect of more central bank interest rate hikes to squeeze liquidity and curb inflation.
'Risk-free state of mind'
Investments such as stocks have already begun to falter after a strong first half, with sentiment affected by a jump in government bond yields.
Traditional markets “seem to be entering a risk-off mood – we can't yet assume that Bitcoin will simply shrug it off,” wrote Noelle Acheson, author of the Crypto Is Macro Now newsletter.
“The especially interesting story will be how Bitcoin behaves when the stock market correction finally hits in earnest,” he added.
Bitcoin and Litecoin remain well below the record highs reached in 2021. Litecoin was trading around $98 on Friday afternoon in New York, compared with $413 during a pandemic-era bull market. Bitcoin traded at approximately $30,000, some $39,000 below its all-time high.
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