I’ll be honest, I found it surprising that many of you were writing to us about Litecoin. Of course, I have known about Litecoin for several years, since it was introduced in 2011, but it is not a common topic of discussion on the crypto forums I frequent, which tend to cover the newest coins to hit the market. The more I researched though, the more I realized that Litecoin still carries a huge edge in name recognition and functions well as a transactable, albeit dated coin. It is obvious that there is a lot of demand out there for Litecoin, so it is the topic of this week’s Coin Spotlight.
For much of its history, Litecoin has been (a distant) second to Bitcoin (COIN, OTCQX:GBTC) in terms of market cap and name recognition. It is a credit to Litecoin and its following that Litecoin is still around and prospering as a top 10 coin.
(Snapshot of top coins in 2013. Other than BTC and LTC, I have heard of Peercoin in passing, but the rest seem to be buried in obscurity. Source: Coinmarketcap.com)
Entering 2018, Litecoin has struggled in the first 15 days after posting a huge run in December. The most important things going for it are that it has an excellent track record and a large, dedicated contingent in its corner. On the other hand, a new generation of coins with superior technology threaten to usurp its position as a transactable, and truly ‘Lite’ Bitcoin alternative. In this article, we will lay out some arguments for and against Litecoin in 2018 and beyond. We will not go too much into the technical details (Cryptodoc’s excellent article covers this in depth). Rather, we will examine trends and metrics that lead us to our conclusion.
As you can see from the above chart, Litecoin is a clone of Bitcoin that is almost identical in technical implementation with the key difference being the speed and lower transaction costs. The fast transactions combined with the lower price per coin, drew people who wanted a BTC alternative. Anyone who has ever transacted with Bitcoin quickly realizes the impracticability of using Bitcoin for day-to-day transactions.
(The man, the myth, the legend. Source: Cointelegraph.com)
Charlie Lee, the creator of Litecoin, designed it with speed in mind, by reducing the block time to 1/4 the time and upping the total supply of coins to four times the amount of Bitcoin. Charlie designed the coin not as a competitor to Bitcoin, but to complement it. In addition, Charlie has been a vocal advocate of cryptocurrency and Litecoin, particularly on social media. Contrast this with the pseudonymous Satoshi Nakamoto of Bitcoin. Although Bitcoin has managed to thrive without people knowing the creator, the respect that Charlie has earned in the crypto community has allowed people to put a face to the coin and his association with the project continues to add value.
The low price per coin is important because of the ability to be able to own more whole coins and the perceived greater upside that this entailed. As the price of Bitcoin grew, people started to only be able to afford fractions of a coin. For many, owning a whole bunch of coins for a certain dollar amount is more appealing than having a tiny fraction of one coin, which is another reason why Litecoin has thrived.
Due to these factors, Litecoin quickly carved out a niche for itself as a viable coin in the market and happily coexisting and benefitting from the rapid rise of Bitcoin. Litecoin is one of only four coins listed on Coinbase, putting it in reach for the casual crypto investor, who relies on the user-friendly interface of Coinbase. As Coinbase is still the main portal for US investors to enter the crypto market, this provides a tremendous advantage for Litecoin over other cryptocurrencies, as investors do not have to transfer coins to dodgy exchanges in faraway countries to purchase Litecoin, but can instead simply push a button on their phones to purchase Litecoin.
(The elite four coins on Coinbase. Source: Coinbase.com)
By now, Litecoin is an established brand in the cryptocurrency industry. As you can see from the search interest chart below, Litecoin has not merely benefitted from the boom, but has flourished- receiving a spike in interest in December, due to its incredible run in which it tripled in price. The chart below compares search interest in Litecoin (orange) vs. a newer generation cryptocurrency called Raiblocks (blue). Even though there has been a fair amount of hype surrounding Raiblocks, we can see the advantage that Litecoin holds in name recognition and mind share. In this way, Litecoin displays a ‘Lite’ version of the first-mover effect that Bitcoin holds, having an elevated status in the crypto world due to its association with Bitcoin.
(Search interest for Litecoin (red) vs. Raiblocks (blue) source: Google Trends)
The biggest advantage for Litecoin, being closely associated with Bitcoin, is also its biggest downfall. Since it is almost a clone of Bitcoin, but faster, Litecoin is still a very useful coin, however it does not present the latest and greatest technology. Many coins nowadays are not merely methods of exchange, but seek to be entire ecosystems upon which apps can be built and other tokens can be hosted. Ethereum is one example- there are now thousands of ERC20 tokens, which use Ethereum’s infrastructure and network. Some of these tokens are huge cryptocurrencies in their own right, with market caps in the billions. See our previous articles for information about Ethereum and other altcoins. In addition, Chinese cryptocurrencies such as NEO and the up-and-coming VeChain, itself an ERC20 token, are being set up as ecosystems as well and boast some impressive corporate partnerships.
Other cryptocurrencies offer a higher throughput network than Litecoin and faster transaction speeds. Raiblocks, from the search interest example above, offers almost instant transaction speeds and no transaction fees. If Raiblocks were to hit the mainstream, it could seriously disrupt Litecoin’s market share.
(Is Litecoin outdated tech? Source: Reddit.com/user/AlfirkEngineer)
We realize that there are plans in the works for Lightning Network, which would bundle transactions for faster processing, and SegWit, which would increase information stored on each block. These ideas, once implemented, could give a boost for Bitcoin and Litecoin. On the other hand, a faster Bitcoin might obviate the need for Litecoin altogether. Since there are no dates set for either of these implementations yet, it could take a year or more for us to see these benefits or downsides.
Our last concern for Litecoin deals with the creator, Charlie Lee, who sold all of his Litecoin at almost the peak price per coin. Although he is still working on Litecoin, the fact that his interests are not financially aligned with the coin value leads to some concern. In an increasingly competitive industry where leaders of cryptocurrencies must not only be implementers but marketers as well, this potentially does not bode well for Litecoin.
We recommend Litecoin as a hold, and will continue to do so in our portfolio. We won’t be buying any more, but also won’t be selling in the short term. If you are willing to take on additional risk, we think there may be more upside in some other altcoins (we’ll present some picks in future articles). However, we think Litecoin is a fairly safe bet which should trend with Bitcoin and the rest of the market.
If you are new to crypto, Litecoin is an excellent first step into the market, as it is available on Coinbase and is fast and inexpensive to transfer from there. For more experienced traders, this could be a good time to buy in to Litecoin, as it is down 33% from ATHs. Expect to see Litecoin surge with the next Bitcoin rally.
As always, do your own research, enjoy the process, and remember to HODL! Leave a comment below if you questions or suggestions for future articles!