- Cutting block subsidies had an impact on miners’ profitability.
- Contrary to the hype, LTC has seen some bearish price action over the past few days.
The Litecoin [LTC] ecosystem recently witnessed it biggest event from 2023 when the block subsidy for miners was reduced from 12.5 LTC to 6.25 LTC. Since then, experts have been busy examining the after-effects of the crucial halving process that brought Litecoin one step closer to scarcity.
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A major source of debate is the noticeable drop in the network’s hash rate.
Have Miners Abandoned Litecoin?
According to CoinWarz, the hash rate went down after a temporary increase on the day of the halving. At the time of writing, the network’s computing power was 746 TeraHashes per second (TH/s), down 11% from a week to date (WTD).
Source: CoinWarz
The decline can be explained from the perspective of miner profitability. People participate in mining activities because of the incentives they get after making a certain block. Now that these incentives, i.e. mined Bitcoins, have been reduced to half, miners’ earnings have taken a hit.
Moreover, contrary to the hype, LTC has seen some bearish price action over the past few days. At the time of publication, “Digital Silver” changed hands for $82.51, a significant drop of 11% since the halving event, per CoinMarketCap.
Miners need cash and regularly liquidate their crypto holdings to cover their mining and infrastructure costs. In the absence of strong returns, less inefficient miners are forced out of the market, causing the hash rate to drop.
Lukewarm network activity since halving
The drop in hash rate can also be interpreted as weak network activity on the network. When LTC collapsed, users shied away from using it in transactions. This was evidenced by the drop in transaction fees collected by miners.
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Mining machines were not operating at full capacity due to reduced network traffic, resulting in a drop in hash rate.
Source: Glassnode
Decline to continue?
LTC’s bearish price action changed the dynamics in the derivatives market. The number of short positions taken exceeded the number of long positions, indicating that investors expected prices to be bearish in the near term. According to Coinglass, the Longs/Shorts Ratio was below 1 at the time of writing.
Source: Coinglass