Litecoin on Fire as It Cracks $3, Gains 120% in a Month

Few expected litecoin to soar as high as $3.20, in so short a time, and during such a flat period.

One month ago, Litecoin (LTC/USD) was trading peacefully in a tight band between $1.40 and $1.60, showing few signs of recovery but at least satisfied that the bleeding had stopped.

Few expected litecoin to soar as high as $3.20, in so short a time, and during such a flat period. Previously, the coin had apparently been left for dead, losing over 95% of its value within a year. At least for now, its obituary will have to wait. By the numbers:

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  • Currently trading at $2.93 on BTC-e, litecoin hit $3.20 earlier, its highest point since mid-December.
  • 24h change: 32% (45% at peak)
  • 30-day return: 102% (120% at peak)
  • 24h volume: $13.5 million
  • Return, year-to-date: +7% (+17% at peak)
  • Return, 1 year: -69%
  • LTC/BTC rate: 0.0118 (0.0129 at peak)- highest in nearly a year

Genuine Gain or Speculative Bubble?

Most cryptocurrencies are participating in today’s rally, with top coins gaining 5% to 15% in dollar terms. Litecoin is therefore by far the top performer, reversing its behavior as the top loser among altcoins during 2014’s worst trading days.

Bitcoin (BTC/USD) has been on a winning streak as well, but not nearly of the same scale as that of Litecoin. It gained at most 5.4% during the past 24h, 18% from its April bottom of $210 and 10% from its recent mid-range of $230.

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Thus, there is a partial resemblance between today’s market and that of the more wild days during 2013-14. Litecoin has indeed amplified bitcoin’s movements. But back in the day, litecoin’s major rallies really only coincided with those of bitcoin- perhaps the question becomes if bitcoin’s recent jump can be constituted as a major rally in relative terms, considering its recent stability.

Furthermore, litecoin’s amplification factor was usually no more than 2-3x. These days, it is closer to 10x.

In general, such price explosions are not uncommon with volatile assets at highly depressed prices. After losing a majority of its value, the math dictates that subsequent changes, even of over 50%, barely make a dent in the grand scheme. In the case of litecoin, the recent surge means that it has trimmed its total loss (from a peak price of $49) from 97% to 94%.

Also worth noting is that the last time litecoin proceeded on a rally of such scale was in late January, when it sharply reversed course from below $1, soaring to $2.87. The rally was short-lived, and litecoin lost over 50% within a few days.

Frankly, there are practically no fundamental reasons for an increasing litecoin valuation. Relative to Bitcoin, there is little work ongoing to develop it further and bring it to the mainstream. Its technology is not unique, and there hasn’t been much progress in the community’s growth.

Therefore, it is most likely that a few small gains snowballed into a speculative frenzy. We will probably see a major correction in the coming weeks, even if in the meantime traders bid the price even higher.

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