Is Litecoin a Good Investment?


Cryptocurrencies have had a spectacular performance in the past decades. What started as a small project has grown to an industry valued at more than $2.6 trillion. Bitcoin, the first cryptocurrency, has grown its market capitalization to more than $1.3 trillion. Other altcoins like Ethereum and Litecoin have also done well over the years. In this article, we will look at whether Litecoin is a good investment for long-term investors.

What is Litecoin?

Litecoin, popularly known as LTC, is a blockchain project that has created a peer-to-peer payment network. The coin was created with the main goal of creating a faster, efficient, and cheaper alternative to Bitcoin.

At the time of writing, there were more than 68 million LTCs in circulation. These coins had a market capitalization of more than $13 billion, making it the 13th biggest cryptocurrency in the world.

Because of its high speed and low transaction costs, Litecoin has become a relatively popular digital currency. For example, it handles more than 6,000 transactions per hour and the number of active addresses has jumped to more than 360,000.

However, like Bitcoin, the biggest challenge for Litecoin is that it is not widely accepted by retailers and online sellers. Most of these entities have avoided the coin because of the rising volatility in the industry.

Another challenge it faces is that it uses proof-of-work technology. This means that new LTCs are created through mining, which is relatively power inefficient. At a time when many people are worrying about climate change, most of them are opting for cryptocurrencies like Cardano that are built using a proof-of-stake technology.

Litecoin and Bitcoin

Litecoin and Bitcoin have a close similarity. This characteristic has led to a close correlation between the two cryptocurrencies. Data compiled by MacroAxis shows that the two currencies have a correlation coefficient of 0.90%. This means that they tend to move in the same direction.

A quick look at their historical performance reveals this. For example, in May 2020, Litecoin jumped to an all-time high at a time when Bitcoin also rose to an all-time high. Shortly afterwards, the two cryptocurrencies made a major pullback and then started to rebound in July.

There are several reasons why this relationship exists. For one, many retail traders don’t have the funds required to buy Bitcoin at about $65,000. As such, they go for similar assets that are trading at a relatively cheaper price. In this, they go for Litecoin, which has similar characteristics.

Another reason for the relationship between LTC and Bitcoin is that the two are built using the same technology and are among the first cryptocurrencies to exist. As such, many traders believe that Litecoin will gain institutional adoption just like Bitcoin.

Indeed, it is now possible to buy Litecoin with a credit card and with mainstream payment options like PayPal and Skrill. It is not possible to buy many other altcoins using these options.

Therefore, since Bitcoin prices are expected to keep rising, there is a possibility that Litecoin too will keep doing well.

Litecoin price technical analysis

The 45-minute chart shows that the Litecoin price has been in a tight range in the past few weeks. The coin is trading at $196, which is about 10% above the lowest level in October. The price is along the 25-day and 50-day moving averages. It is also along the 50% Fibonacci retracement level.

Notably, it has formed an inverted head and shoulders pattern. In price action analysis, this pattern is usually a bullish sign. Therefore, there is a likelihood that the LTC will keep rising as bulls target the key resistance level at $250. This view will be invalidated if the price drops below $180.