The Long-Term Bullish Case for Litecoin (LTC)

Litecoin (LTC/USD) is one of the bright spots, if not the brightest spot, in the cryptocurrency market. The altcoin is up by almost 150% from its 2018 low of $22.17. Its founder, Charlie Lee, was so hyped by the coin’s performance that on February 8, 2019, he tweeted how Litecoin is trying its best to lead all cryptos out of the market.

Charlie Lee on Litecoin’s big breakout

With huge gains over the last few months, one might suspect that Litecoin might be engineering a grand pump and dump scheme with its founder pulling the strings. While this is a possibility, we don’t believe that this is the case. Litecoin is a sound investment due to events and technological improvements that have massive bullish implications.

In this article, we reveal why Litecoin is a solid long-term investment.

Halvening

Halvening is an event that most members of the cryptocurrency community look forward to, including miners, traders, and even the developers. During this event, the reward for mining per block is halved. For instance, Litecoin’s first halvening occured in August 2015 when the block reward to miners was reduced from 50 LTC to 25 LTC. Supporters celebrated the event because the halving was designed to increase Litecoin’s value, decrease inflation and make Litecoin more scarce.

To help you understand how the halvening props up price, think of the Federal Reserve and their Quantitative Easing techniques. The value of the US Dollar plunges as the Fed prints more money since there is more money in circulation. This in turn causes inflation. If the Fed dramatically reduces the money being printed, the value of the US Dollar begins to stabilize. The supply reduction may have a significantly greater impact if a cap or a limit was placed on the amount of US Dollars to be printed.

Second Halvening

This is how halving in crypto works. The supply reduction not only helps to stabilize the price of Litecoin, but it also makes it more valuable. With Litecoin’s 84 million coin limit, the halving of block reward from 25 LTC to 12.5 LTC on August 7, 2019 is expected to have positive effects on Litecoin’s price.

LTC ETA Halvening

Also, the event is perceived to have a long-term bullish impact. When block reward halved in 2015, it helped Litecoin get out of the 2013-2014 bear market. It also greatly contributed to the stability of the coin’s price, which at the time was between $3 and $4. This eventually led to a parabolic run that catapulted the coin to over $374.

LTC first halvening

Many in the Litecoin community expect the second halvening to have a similar impact. With the event happening in about 145 days, many speculators are positioning themselves for the halvening. This is partly the reason why Litecoin continues to surge.

In addition to the halvening, the market’s resurgence can also be partly attributed to several technological features that the Litecoin development team is working on.

Fungibility

Litecoin’s purpose is to serve as the lighter version of Bitcoin that can be used for day-to-day payments. To facilitate this vision, Charlie Lee made sure that Litecoin offers faster transaction times and cheaper transaction costs.

Litecoin’s transaction confirmation time is 2.5 minutes compared to Bitcoin’s 10 minutes. In addition, Litecoin’s average transaction fee is $0.046 which is 90% cheaper than Bitcoin’s $0.488. In Charlie Lee’s mind, these properties are critical in achieving the goal of mass adoption for Litecoin.

Now, Charlie Lee wants to add a new feature that will put Litecoin one step closer to mass adoption: fungibility. This feature refers to the property of an asset where its units are mutually interchangeable. For instance, oil is fungible because one liter of oil from the Middle East has the same value as one liter of oil from North America, ignoring the political landscape of course.

Sample of assets that are fungible

Source: Markshirecrypto

Currently, fungibility does not exist in Litecoin and Bitcoin because both cryptocurrencies have transparent ledgers. This enables authorities, such as OFAC, to blacklist or put on sanctions list certain digital addresses or coins. For example, if a sketchy transaction like the buying of illegal arms was to take place, the authorities can look at the transaction history through the public ledger to trace where the coin landed. Once they detect the destination, the coins inside the wallet could theoretically be blacklisted or put on a sanctions list so that it loses value.

Confidential Transactions

Litecoin’s creator offers an innovative solution to this issue. On January 28, 2019, Charlie Lee took to Twitter to announce that they are working to add Confidential Transactions (CTs) into the altcoin’s blockchain.

Charlie Lee announcement of Litecoin upgrade

CTs are an upgrade that can be soft forked into the existing network. This means that the added feature will not impact the current structure of Litecoin in any way and no new coin will be created. With this improvement, transaction histories cannot be traced. No Litecoin will lose its value because it is considered tainted. One LTC will always be equal to one LTC.

This feature is huge for mass adoption. Users will never have to worry about the history of the coins they’re holding. They can go about their daily activities with the security that all the Litecoins they spend and buy will always be interchangeable.

In a follow-up tweet, Charlie Lee mentions that they expect this feature to be added into Litecoin this year.  

LTC CT upgrade in 2019

With the development team working around the clock to push for mass adoption, we are convinced that Litecoin is bullish long-term.

Atomic Swaps

On December 20, 2018, the Litecoin Foundation announced its collaboration with X9 developers. The partnership shares numerous goals but one that stands out to crypto enthusiasts is the implementation of the atomic swap functionality to the Lightning Network.

In a nutshell, atomic swaps enable two parties to trade different cryptocurrencies without the interference of a third-party. For instance, you can send someone Bitcoin and receive Litecoin in return without going through an exchange to facilitate the trade.

This is a technology that can be instrumental in Charlie Lee’s quest for mass adoption. To give you a better picture of its game-changing potential, let’s use an example. Let’s say you have 10 BTC and you want to exchange it for 500 LTC. Here are the available methods today:

  • Go to a centralized or decentralized exchange, send your BTC, trade it to LTC, and send the LTC back to your wallet. You pay transaction fees every step of the way.
  • Find someone to agree to the exchange. Minimal fees involved but there’s no guarantee that either party will complete the trade.

With Atomic Swaps, there is zero risk of losing coins in the trade. The technology ensures that either the trade goes through or not. There’s no middle ground. If the trade pushes through, you get your 500 LTC at the same time the other party receives 10 BTC. Otherwise, you retain your 10 BTC.

This may sound simple but there are numerous obstacles from making this a reality. Thus, the collaboration with X9 developers is a step in the right direction.

Bottom Line

Scarcity and Charlie Lee’s quest for mass adoption make Litecoin a sound long-term investment. With the second halvening months away, many are positioning early to reap the potential benefits of a coin that’s limiting its supply. On top of that, technological improvements such as Confidential Transactions and Atomic Swaps help set the stage for mass adoption.

With these key developments, Litecoin appears to have massive upside potential for long-term investors.

 

Disclaimer: The writer owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Kiril is a CFA Charterholder and financial professional with 5+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and funds, as he does his own crypto research and is a Product Manager at Mitre Media. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.