Not that this is surprising, but prices of alternative digital currencies have been on the defensive this month as the rally in bitcoin has waned. The price declines reflect that ultimately demand in alt-coins was driven by speculators seeking the ‘next big thing’ that could rise from pennies to hundreds or thousands of dollars.
A look at trading over the last two weeks and their November high (prices from Vircurex)
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First thing to remember is that even though prices are well below their November highs, they are still well above where they were a few months ago. Case in point, namecoin, which has fallen 95% from its highs against bitcoin, and 60% in dollar terms, is still about 10x higher than where it had been in the beginning of November. But, the declines from their highs do mimic a similar fall that occurred in bitcoins.
As stated above, this isn’t surprising, as it shows that demand for everything else has been primarily driven by bitcoin speculation and less to do with actual need and usage of any other digital currency. However, without any other external driver of demand, prices of alt-coins are vulnerable to the direction of bitcoin. In a way, they currently are trading like leveraged derivatives of the price of bitcoins; outperforming when it rises and falling harder on its declines.
Litecoin Interest Rises
The one exception is litecoins which appears to be developing their own ecosystem as of late. An example is the launch of additional digital currency exchanges beginning to not only provide LTC/BTC trading, but now offering conversions into fiat currencies such as the dollar or euro. In addition, a CFD was recently launched by broker Plus500 to provide traders with the ability to both short and buy synthetic positions in litecoins; thus expanding the digital currency to a larger audience. The effect is being seen in litecoin prices which have held up rather well during December.