What Will Drive Litecoin Price in 2021?
An analytical guide to investing in Litecoin in 2021
Where will Litecoin price go in 2021? Since crypto-assets are decentralised, investors have always wondered: What drives the Litecoin price?
Cryptocurrency took the world by storm, and the investment world went crazy. In a sense, the investment world still is in a bit of a storm because of the uniqueness of cryptocurrencies. It’s not like traditional investments, stocks, or commodities, at all.
The mind-boggling world of cryptocurrency investment is not for the faint-hearted. Litecoin, also called the “lite version of Bitcoin,” has been a dominant cryptocurrency since its inception in 2011 by founder Charlie Lee.
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But what really drives the Litecoin price?
There are four main factors that most affect the Litecoin price:
- Performance of competing coins
- Increased adoption
- Risk-taking appetite
- Unprecedented problems accompanying COVID-19
Litecoin, the silver to Bitcoin’s gold, has been designed to have increased efficiency in terms of transaction time and is more affordable than Bitcoin. It is a cheaper, faster, and more efficient version of Bitcoin.
Cryptocurrencies have been originally a store of value due to Bitcoin, but Litecoin is changing that perspective by being a medium of exchange. Litecoin’s low transaction fees, ease of transactions, and lightning-fast speed, two and a half minutes per block generation, has made it a popular choice for being the “transaction’s cryptocurrency.”
Litecoin is one of the oldest cryptocurrencies and has been in the top ten performing cryptocurrencies for the most part of its life, currently ranked the 15th largest cryptocurrency in terms of market capitalization, with a market cap of $12.5 billion.
At the beginning of 2021, Litecoin led the market and was one of the top-performing cryptocurrencies, which was quite puzzling to investors as the market was in a bit of uncertainty due to the COVID-19.
In May Litecoin reached its all-time high of $412.96. July was not as good for Litecoin, but it quickly gained momentum back in August and has been on a surge ever since.
What Drives Litecoin Price?
Now the question arises, what drives Litcoin price?
Litecoin until 2016 was going up, and it peaked at around $330. But that was short-lived, and the market caught up with Litecoin. Litecoin has seen some of the worst bear markets with a low of $3.
However, it has been on a steady rise ever since. Some approximations for its future are hopeful while others, not so much. COVID-19 has brought unprecedented problems with itself, problems that have shaken the traditional investment and cryptocurrency investment as well.
The short answer to this question is: The demand for Litecoin is what determines its price.
But it is not that simple.
Prices are determined in the market when demand meets supply. But that is the case for conventional goods & commodities. Nothing about cryptocurrency is conventional; neither is its price determination.
Whereas the supply is usually a determinant feature, the demand is the main factor that plays a deciding role in determining the price of Litecoin. Unlike other currencies, the supply of cryptocurrencies is fixed. The supply for Litecoin cannot increase by 84 million coins. Hence, the economics of the market fails us in regards to the price determination of cryptocurrencies as supply cannot be altered to adjust the prices, and prices are solely determinant on demand.
Essentially, the trade volume determines demand. A high volume of Litecoin being sold causes dips, and a high volume being bought causes spikes in prices. The founder Charlie Lee himself, caused a bear market trend when he decided to sell off his Litecoins at its all-time high.
Cryptocurrency prices are all just a reflection of their current demand, but various demand-side factors are at play, which eventually determines the price.
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4 Factors will drive the Litecoin price in 2021
1. Performance of competing coins
Another important factor determining the price of Litecoin is the number, quality, and prices of competing cryptocurrencies. To delve deeper into this, it is because competing cryptocurrencies also affect the demand for Litecoin. If a competing coin is gaining momentum, investors are going to opt for it, which will negatively affect Litecoin's demand. Ultimately, it all boils down to the demand for Litecoin.
Bitcoin is the name that comes to mind when one thinks about cryptocurrencies. Being the original cryptocurrency, as well as the dominant one, it plays a vital role in the demand for other cryptocurrencies. Litecoin is also associated very closely with Bitcoin due to its similar make, and hence it gets additional value due to that association.
Bitcoin and Litcoin have a very strong positive correlation of 0.83, which, in layman's terms, means that LTC prices are highly dependent on BTC. And as we are well aware of Bitcoin's solid position, it is highly unlikely that Litecoin prices will affect Bitcoin as much as Bitcoin's prices affect Litecoin.
Bitcoin and other cryptocurrencies' prices are by far the most significant factor that affects the prices of Litecoin. Some analysts have estimated that the share of Bitcoin's prices in Litecoin price determination is as much as 68%, which leaves only 32% for other factors.
Data courtesy of CoinPredictor.io
2. Increased adoption
Charlie Lee, the founder of Litecoin, crafted Litecoin with the vision to make it a medium of exchange. Bitcoin block generation can take up to 10 minutes to process, and currently, one Bitcoin is valued at $54,000; therefore, Bitcoin does not exactly encourage transactions but rather serves its original purpose of being a store of value.
As we witness the world move towards digitalization, the adoption of Litecoin as a digital currency has been gradually increasing. More and more merchants are adopting Litecoin for general transactions.
It has been called “the cryptocurrency of payments” by merchants because of its high level of practicality. The ease, speed, and economics of transactions have made a popular choice with merchants. The transaction fees are not just low but were on a gradual decline in 2019, which all-the-more encouraged merchants to opt for Litecoin.
As more and more people accept Litecoin as a digital currency, its value will keep increasing. Charlie Lee and the Litecoin Foundation have been playing an active role in making Litecoin more and more practical.
3. Risk-taking appetite
Investment, in general, is not for the timid and shy. It requires sharp wit and a palate for risk-taking. The risk-taking and volatility of return on investment have increased drastically when it comes to cryptocurrencies. Cryptocurrencies are now considered high-risk and high volatility investments.
Litecoin, in particular, has been regarded as a more risky cryptocurrency, compared to others on the top 10 list, as it has seen some tremendous highs and lows in the past.
Investors' net worth, current income, and expectations for the future are some of the factors that determine their risk-taking appetite.
In light of COVID-19, the risk-taking appetite may have gone down on a global level. Unemployment levels have risen to record levels, and people are struggling to fulfil their daily necessities. Hence, investors might not be willing to take many risks.
These factors, albeit, are major but they do not depict the complete picture. Measuring demand for anything, let alone a cryptocurrency, is a tricky business as there are numerous factors that play a deciding role. Investor perception of the future, even if wrong, plays a vital role.
High profile support and good media coverage influence investors' perception and, in turn, their decisions. The prices are also highly affected by "hypes." The more people are talking about Litecoin optimistically, the more the demand is going to increase.
4. Unprecedented problems accompanying COVID-19
Most of us have learned to live with COVID-19 and the unique challenges it has brought with itself, and those of us who haven't, they soon will. After all, we are humans, and we are designed to adapt.
Cryptocurrency investment is a high-risk and high-reward system. The market is very volatile. Cue in COVID-19 and you have volatility that is off the charts. We do not have measures that can determine or even predict the prices of cryptocurrencies. The ones that we do have are flawed.
Global markets are in a recession, and investors are confused. In the past couple of months, we have witnessed many bear and bullish trends. With this uncertainty level, investors might want to stay on the safe side instead of taking on high risks.
Is Litecoin a Good Investment?
Invest in Litecoin or any kind of asset can be very risky if you don’t know what you’re doing. You may be asking yourself, “should I buy Litecoin right now?” So here’s a tidbit, investing your capital doesn’t have to be complicated.
Being one of the oldest cryptocurrencies, it has established itself. Investors are generally optimistic about Litecoin’s future. The repute that Litecoin has maintained by staying in the top ten cryptocurrencies ever since its inception does not go unnoticed with investors.
In 2019, Litecoin beat Bitcoin and was in the top 3 performing cryptocurrencies. Beating Bitcoin is a feat in itself, which, undoubtedly, brought it under the spotlight.
Predictions and estimations by top investors are hopeful. Crypto Research Report Group, a well-established crypto research firm, has given out particularly hopeful predictions in its report. According to the group, Litecoin could reach $1,200 in 2025 and a whopping $2,250 in 2030.
Dan Gambardello, the founder of Crypto Capital Venture, has announced to investors to expect a bullish market trend for all cryptocurrencies while emphasizing Bitcoin and Litecoin. Gambardello stated, “Litecoin consolidated at around $70 before [a] massive run to $1,000+”.
In the end, you can find many assurances of price increases, but it all depends on you. What kind of investor do you want to be? Figure out the answer to that question, you’ll definitely know if Litecoin is a good investment!
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- Litecoin, also called the “lite version of Bitcoin,” has been a dominant cryptocurrency since its inception in 2011 by founder Charlie Lee.
- Litecoin has been in the top ten performing cryptocurrencies for the most part of its life and it is currently ranked the 15th largest cryptocurrency in terms of market capitalization, with a market cap of $12.5 billion.
- The major determinants of Litecoin price are the performance of competing coins, increased adoption and risk-taking appetite.
- Bitcoin and Litcoin have a very strong positive correlation of 0.83, which, in layman's terms, means that LTC prices are highly dependent on BTC.
- As we witness the world move towards digitalization, the adoption of Litecoin as a digital currency has been gradually increasing.
- Litecoin, in particular, has been regarded as a more risky cryptocurrency, compared to others on the top 10 list, as it has seen some tremendous highs and lows in the past.
- Crypto Research Report Group, a well-established crypto research firm, has predicted that the Litecoin price could reach $1,200 in 2025 and a whopping $2,250 in 2030.
- Dan Gambardello, the founder of Crypto Capital Venture, has stated, “Litecoin consolidated at around $70 before [a] massive run to $1,000+”.
We hope that you have found this article helpful and that it has motivated you to start your LTC trading adventures. If so, give share it in case there is someone else who would like to benefit from it.