A Deep Dive Into Litecoin (LTC)

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Called "digital silver" by GEMINI, Litecoin is the brainchild of MIT alumni Charlie Lee. Released in October 2011 as a Bitcoin fork, it is always in the shadow of its big brother. However, it is not a competitor. Instead, it is for smaller transactions and faster settlements.

TNW (formerly The Next Web) reports, "the top 10 Bitcoin addresses house 5.2 percent of the total supply, the top 100 14.7 percent, and the top 1000 35.0 percent." Illustrating the original need for Litecoin-a cryptocurrency that is more decentralized.

A few critical features of Litecoin are:
  1. A much higher supply than Bitcoin with an 84 million coin ceiling. A 4x increase from Bitcoin.
  2. A blockchain capable of supporting higher transaction volumes than Bitcoin. How fast? 2.5 minutes. Compared to 10 minutes for Bitcoin.
  3. Wallet Encryption that requires a password to spend Litecoins.
  4. A memory-intensive over processor-intensive mining hash. Allowing a more significant number of people to own the currency since no specialized hardware is required.

These all point to a coin designed to function as currency. A means to buy and sell everyday purchases. In the words of Charlie Lee, "Litecoin and Bitcoin will work together to solve the world's transaction needs in the future."

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As a Community

One thing that seems to escape many traditional investors is the community aspect of cryptocurrency. It is more in line with an open-source project than a stockā€”a community of contributors and coin owners responsible for its future success.

There is a forum on the Litecoin website where fans, contributors, and owners share their thoughts and enjoyment of the project. People even buy t-shirts to acknowledge their love for the coin. As such, the community directs initiatives.

The latest of these is privacy. Posting on Reddit, "In the coming surveillance era, privacy will be a valuable commodity and ANY technology that can deliver a reliable form of privacy, will win the next decade." Including a reference to the $21 Trillion in offshore private banking.

As Currency

The promise of crypto as an actual currency is yet to occur. Instead, it functions mainly as a vehicle for speculation. One caveat is that the Atari Token sale uses Litecoin as one of the approved currencies.

Outside of individual ATMs or debit like cards, there are no universal means of paying for items with Litecoin. The problem is that there are multiple coins in the market, and the crypto community has not drawn lines on each coin's purpose. Add to this, central banks muddying the waters with their digital currencies and Litecoin's (or any other crypto) acceptance as a universal currency looks doubtful.

Fungibility

According to Investopedia, "Fungibility is the ability of a good or asset to be interchanged with other individual goods or assets of the same type." The term applies to money, commodities, and other investment vehicles.

What it describes is that my oil future contract for RBOB, "Reformulated Gasoline Blendstock for Oxygen Blending," does not state where my gasoline comes is made. It can be from Bob's Gasoline Plant or Tom's Gasoline Refinery as the origin does not matter. One barrel of gas is the same as another barrel of gas.

For the record, Litecoin is fungible, as is Bitcoin. The reason is that my Litecoin can swap out with a Litecoin belonging to another - both equal in value. Like fiat currency, Litecoin can subdivide into smaller units. The smallest subunit of Litecoin is the "litoshi," which is a hundred-millionth of a Litecoin (0.00000001 LTC). So making change is not a problem.

As an Investment

I was introduced to crypto in 2013 while leading the technology side of a hedge fund. There was this idea in the investment community that one coin will rule them all, which is kind of like choosing an IPO. However, crypto is proving to be more like FOREX than equities.

For example, EUR (Euro) may be worth more than USD (US Dollar), but that is not the point in speculation. Instead, investors are looking for price discrepancies. "Can I buy more EUR with USD this hour than last," is the question.

Charlie Lee declared, "I wanted to create something that is kind of silver to Bitcoin's gold." The silver spot price at the time of writing is $15.72 per ounce, where the gold spot at the same time is $1,741.70. As a comparison, Litecoin is trading at $42.19, and Bitcoin is at $8,951.42.

With a value higher than silver and a market cap of 2.8 Billion at the time of writing, Litecoin is proving to have merit. Let us dig a little deeper.

SWOT Analysis

Having graduated from a top-5 business accelerator, I find it my duty to present an analysis of Strengths, Weaknesses, Opportunities, and Threats (SWOT) for Litecoin.

Strengths:

  • 2.8 Billion Market Cap or equivalent to a mid-cap stock
  • More than 65 Million Total Current Supply
  • More substantial than 213,000 Member Community
  • Listed as Number 7 on CoinMarketCap
  • Unlike Bitcoin, where a handful of people could crash the market, Litecoin is more decentralized. Making such an occurrence less likely.
  • Billionaire investor Paul Tudor Jones made news with his fund buying Bitcoin. This message is a strength for all cryptocurrencies.
  • Charlie Lee is a real person without a pseudonym.
  • Associated with Bitcoin

Weaknesses:

  • Unclear on future strategy to compete with newer coins. The deal with Atari shows a desire to be a currency. However, the security push points toward wanting to be a haven for wealth.
  • Like the rest of the cryptocurrencies, volatility is high.
  • Not as popular as the $14.5 billion poured into Gold ETFs.
  • Associated with Bitcoin

Opportunities:

  • Fear over fiat currency inflation as global economies take a hit could push more investors into cryptocurrency over gold and silver.
  • With bond yields becoming close to zero, major investors are looking for alternatives. Litecoin is probably not a consideration, but a jump in Bitcoin interest could help.
  • Cryptocurrency is banking on scarcity by limiting the total supply. While Litecoin will reach it much later than Bitcoin, this is a reason to buy and hold.
  • The current LTC/USD is near a 12-month low.

Threats:

  • As one of the oldest cryptocurrencies, Litecoin has tremendous pressure to innovate continually.
  • As a large Open Source project, the direction of new features comes from a consensus of top contributors.
  • The person called Satoshi Nakamoto owns around 980,000 BTC, which is roughly 4.6% of Bitcoin's maximum supply. If he or she decides to sell, it could crash Bitcoin with negative repercussions for Litecoin.
  • At the time of writing, ProjectSyndicate, the top contributor to TradingView, is advising investors to sell Litecoin. They believe it is setting up for a 15% dump in value.

Volatility

Litecoin experienced a 51% drop on March 7, 2020. Over the past 12-months, it has lost close to $100 per coin. However, this is on par with the asset class as a whole. Overall, the crypto market is volatile.

How volatile? As of this writing, Litecoin has a 2.45% 30-day volatility index. To compare, Bitcoin has 3.99%, gold averages around 1.2%, while most fiat currencies average between 0.5% and 1.0%.

Additional Information

Fund Manager Crispin Odey, told Bloomberg, "Gold is the only escape from global monetizing." Greenlight Capital and Blackrock Inc. both are urging investors to store their wealth in gold. At the same time, Paul Tudor Jones is bullish on Bitcoin.

Similar to Satoshi and Bitcoin, Charlie Lee is monitored closely by the community. He explains to Yahoo finance, "Whenever I tweet about the price of the Litecoin or even just good or bad news, I get accused of doing it for personal benefit." However, since 2017, Lee has very few actual holdings in Litecoin. Something he considers a conflict of interest.

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© 2020 Todd Moses

The strategies discussed are for illustrative and educational purposes and are not a recommendation, offer, or solicitation to buy or sell any currency or to adopt any investment strategy. There is no guarantee that any strategies discussed will be useful. Todd Moses is not a licensed securities dealer, broker, or US investment adviser or investment bank.