Earlier this week, the cryptocurrency litecoin hit an all-time high, reaching just above $64. In fact, the litecoin price is up by almost 1,400 percent since the beginning of the year, when it was trading at $4.33, according to cryptocurrency industry website CoinMarketCap.com.
So, what’s the big deal about litecoin? And does the rising interest in cryptocurrencies mean that they’re about to go mainstream?
What is litecoin?
Litecoin is a cryptocurrency founded by Google alum Charlie Lee. Its market capitalization is about $3.28 billion, making it the fifth-largest cryptocurrency.
Like its rival the bitcoin, litecoin makes use of blockchain technology. Transactions are accomplished in blocks and recorded in a public ledger. (For more on how blockchain technology works, see our article on bitcoin.)
“Litecoin is a very well-known and trustworthy coin and blockchain,” said Ashe Whitener, a cryptocurrency enthusiast and expert. “It’s currently much faster and cheaper to send than bitcoin.”
Litecoin transactions currently take about two minutes to complete, as opposed to bitcoin transactions, which can take about 100 minutes. However, buying bitcoin will set you back more than $4,500.
Whitener uses cryptocurrencies in his own business and uses bitcoin for offline transactions when he can. “Unfortunately, litecoin isn’t accepted at nearly as many places as bitcoin and it’s not as liquid,” he said. Whitener hopes things will change soon, thanks to increased public interest in litecoin as a bitcoin alternative.
Litecoin creator Lee thinks there is potential for litecoin to fill a cryptocurrency need:
“So litecoin will provide a niche where it will be more used for payment, whereas bitcoin will be more used for storing,” he said in a YouTube interview with Crypto Hedge.
Lee added that while gold and silver have both been used as money, at certain times gold would be stored while silver would be used for purchases. He sees a similar relationship between bitcoin and litecoin.
What’s behind the rally in litecoin price?
First of all, litecoin benefits from increased interest in cryptocurrencies, according to Whitener. With bitcoin being so expensive, newer and more affordable cryptocurrencies are entering the spotlight.
Speculation offers another reason for the huge jump in cryptocurrencies. “Remember, the crypto tech is still very new and monetary coins like bitcoin, litecoin, and dash are competing against each other,” Whitener said. “No one knows which will reach mass adoption, but all have their distinct advantages.”
Finally, Whitener thinks that potential regulation for cryptocurrencies could be helping the rally. Authorities in South Korea are actively considering ways to regulate digital currencies, Whitener pointed out. Other government entities showing interest could further buoy all cryptocurrencies — not just litecoin.
Government interest in cryptocurrencies lends an aura of legitimacy to digital coins:
“It will give people a safer feeling about the new form of money,” Whitener said. “Regulation will allow cryptocurrencies to become accepted in the mainstream financial system of banks, brokerages, ETFs, and exchanges. Its risk will be lessened when everyone knows the rules of engagement.”
How to invest in litecoin
Whitener pointed out that there are exchanges and brokerages set up for investing in litecoin. You can use a debit card or bank transfer to purchase litecoins with Coinbase or BitPanda. Buying litecoins with cash is difficult because there aren’t as many options as there are for buying bitcoins.
You can also buy bitcoins and exchange them for litecoins. An exchange like Changelly will allow you to convert bitcoins to litecoins. However, because bitcoins are so much more expensive, you might not be able to afford this method unless you buy a partial bitcoin.
It’s possible to buy litecoins and keep them with the exchange, hoping the price continues to rise. Once you reach your target, you can sell your litecoins for U.S. dollars, much as you would trade a stock.
You can also download a digital wallet to your computer or mobile device and move your litecoins from the exchange to your wallet. This method makes sense if you expect to pay for goods and services with litecoins, or if you want to keep your cryptocurrency coins safe until you are ready to sell them at a profit.
Buyer beware when investing in cryptocurrencies
Just because litecoin is the latest trend doesn’t mean that you should jump in. “Consumers need to be aware that this is a very frothy market,” said Whitener. “The majority of the price value in cryptocurrencies is based on future hopes and speculation.”
He also pointed out that there are definite bubble tendencies in the current cryptocurrency craze: “Anything that rises so much has plenty of room to crash back down.”
As with any investment, it’s important to analyze the fundamentals and review whether an asset fits into your investment plan. Additionally, it’s important to take your risk profile into account before investing in litecoin — or any other cryptocurrency.
Whitener thinks cryptocurrencies have great potential for the future in terms of becoming a valid medium of exchange as well as an investment asset class. However, he also thinks investors should show caution because of the unknown future of bitcoin, litecoin, and other cryptocurrencies.
“Don’t invest more than you are willing to lose,” he said.