The risks of Litecoin in the wake of its crash

About three months ago I converted my assets in Litecoin to Bitcoin. This was a hard decision to make as i was originally a pretty big supporter of litecoin. In recent weeks we’ve seen the cryptocurrency take a big dive and I’d like to explain my belief as to the cause of this, and whether it is a good time to buy into the currency as it completes a strong correction, leveling around the $5 mark.

To begin, I want to acknowledge the cause of Litecoin’s devaluation, followed by major issues that still remain despite its significant rebound over the past week.

Litecoin’s value was on borrowed time.

Litecoin saw a lot of hype back in December from its coupled relationship with Bitcoin. There were rumors far and wide that helped fuel this speculative growth. The belief that (then) major U.S. exchanges like Mt.Gox or would jump on the Litecoin bandwagon and exchange the cryptocurrency. It was then further speculated that Litecoin would, through these exchanges, get the attention it deserved by both the media and potential adopters, bringing the currency closer to the theoretical 4-to-1 ratio of Litecoins to Bitcoins, following the growth of Bitcoin’s popularity in November 2013.

However, these anticipations have all but evaporated over the last six months. Mt.Gox is but a bitter memory for most in the cryptocurrency space and ultimately the anticipation of growth equal to Bitcoin didn’t take place. Litecoin has indeed grown, and at last Coblee’s familial relationship with BTC-China helped bring the currency to the exchange, but it did not grow as far and wide as everyone thought it would.

Litecoin is feeling the pain of a post-GPU era

Another difficulty for Litecoin is coming from its merger into a post-GPU environment. Over the past few months, the introduction of Scrypt ASICs has slowly, but surely driven the difficulty for Litecoin beyond what GPUs can efficiently mine. This is, like with Bitcoin, bringing Litecon’s ownership opportunity away from general PC owners and towards companies or individuals who invest into ASICs.

This presents a dilemma for Litecoin, partially because so few exchanges exist in regions such as the U.S. with wide visibility and ease-of-use for people to exchange fiat currencies into Litecoin. Adoption – from both new users and merchants – is key for Litecoin to remain a viable currency as Bitcoin accelerates forward and Scrypt currencys grow irrelevant to many. The lack of an easy route to adoption without the use of international exchanges or already owning other cryptocurrencies is what will make Litecoin’s journey into a post-GPU era more difficult than it has to be.

Litecoin still relies too heavily on BTC-E

Another challenge related to Litecoin is its relationship and reliance on BTC-E, the Bulgarian exchange known primarily for its anonymity for those who exchange currency on it. While currencies like Bitcoin can depend on services like Coinbase for direct, painless, and widely marketed fiat-to-BTC exchangin, Litecoin still depends too heavily on BTC-E for its U.S. and international transactions.

At first, getting into Litecoin is relatively easier than Bitcoin at first. As a younger currency it had both a lower difficulty plus an inherent easiness to start mining with the right computer hardware. Now that we’re entering this post-GPU era, exchanges like BTC-E are one of the limited ways to acquire Litecoin directly fiat currency. Even then, the fees, complicated deposit methods and long waiting periods are significant deterrents and create more obstacles than Litecoin needs.

There are also no exchanges running out and promoting Litecoin as the flagship currency. While Coinbase isn’t saying it’s Bitcoin-exclusive, it has yet to demonstrate a plan to adopt Litecoin or what goals would be needed of the currency to consider adoption. On the bright side, there are some growing merchant solutions for accepting Litecoin, such as BitStamp, that are relatively pain-free. Still, BTC-E is too often the face of the fiat-to-LTC world, and this needs to change.


Nobody has yet figured out how altcoins will succeed in a post-GPU era

Despite there being the potential for a rebound in the coming weeks, nobody has quite yet figured out what value Litecoin will have in a market dominated by ASIC-powered coins, rather than its origins of Scrypt as a GPU-friendly alternative.

The entire selling point of the altcoins  for some time was that they would remain longer in the hands of the masses by being GPU-resistant and having an extra few years without ASICs. That era has, more or less, passed. Now, Altcoins are more or less identical in usability as Bitcoins, and are sourced and used by a smaller and smaller group of people. Without any advantage, Litecoin will continue to see less interest by the exchanges it needs to remain accessible to merchants and adopters. It’s future however now depends on its ability to evolve like Coinbase to be more customer and merchant-friendly at the exchange level and grow the value as a currency.

Still, Litecoin has a lot of growing to do and many more unknowns than knowns about its future on the market. If at least a few of these concerns are addressed in the coming months though, then Liteoin could recover a fair amount of its once-speculated value as true, stable value on the market.