Is there any merit to considering certain cryptocurrencies as digital forms of precious metals? If so, how does it affect your decision to invest in them or not? UAE investment experts shed light on this. Image Credit: Shutterstock

Dubai: Litecoin is seen as a digital currency that complements the top token Bitcoin, but it’s the reputation of being a largely stable form of cryptocurrency that led to it being referred to as the digital form of silver – just as Bitcoin is deemed ‘digital gold’ on similarities in nature to the metal.

Is there any merit to considering certain cryptocurrencies as digital forms of precious metals? Does this mean these cryptocurrencies show desirable traits of their so-called shiny counterparts? If so, how does it affect your decision to invest in them or not? UAE investment experts shed light on this.

What is a Litecoin? Why is it a ‘stablecoin’?
Litecoin is one of the earliest cryptocurrencies that was born after Bitcoin was released into the world. Inspired by Bitcoin, Litecoin was among the earliest ‘altcoins’ – alternative digital currencies to the market-dominant Bitcoin – starting in October 2011.

Litecoin is the 6th-largest digital currency by market capitalisation, with a value of $19.8 billion (Dh72.7 billion) and a daily trading volume of $5.2 billion (Dh19 billion). Compared to Bitcoin, the rise and fall of Litecoin has been far less extreme, making it more of a stable crypto, i.e. a ‘stablecoin’.

“Albeit widely debated, Bitcoin is seen as the gold of the digital world. This is primarily because even when cryptocurrencies are generally volatile in nature, Bitcoin has kept quite a stable value compared to its rivals,” agreed Brian Deshell, a UAE-based cryptocurrency trader and analyst.

“As there is no doubt that buying even a single Bitcoin in 2009 [when it started trading] was a great investment, this makes a valid case for being the digital gold of today. On the other hand, a smaller yet more convenient kind of currency is available for new and old investors, namely Litecoin.”

Litecoin is to Bitcoin, like silver is to gold

Similar to how the price of precious metals more or less move in tandem, the crypto market too works in a way that many cryptocurrencies move up and down together. So the boost of Litecoin helps Bitcoin’s price rise and vice versa, just as the prices of silver and gold are linked to each other.

“Litecoin is one of the earliest cryptocurrencies after Bitcoin was first released. It shares most features with Bitcoin, except one thing: its price. But its lower price is a feature that makes it resemble silver, when put against gold,” said UAE-based investment manager Brody Dunn.

“Unlike most alternate coins, Litecoin maintains its top ten position in the crypto market, a stability seen in No. 2 precious metal like silver against top positioned gold. So, Litecoin, like silver, garnered major backing from industry experts and big investors, giving it the ‘digital silver’ status.”

Furthermore, analysis firm Crypto Research sees Litecoin reaching $1,200 (Dh4,407) by 2025, and $2,250 (Dh8,263) in 2030. “Despite the rise and fall in price, Litecoin has a strong long-term price trajectory and the outlook suggests its potential is high as a stablecoin,” Dunn added.

Why is Litecoin’s value lesser than Bitcoin?
Industry experts attribute the main reason for the price difference between Litecoin and Bitcoin to the time it was launched, the process it uses to works, and availability of the cryptocurrency in the cryptocurrency market.

“Bitcoin’s launch was two years before Litecoin, giving it more hype and ground for survival. Bitcoin also has a strong network effect, which attracted early adopters and created a strong online community, so another reason for the price difference is network security,” added Deshell.

This is because the two tokens differ in the size of the ‘hashrate’, i.e. combined computational power used to process transactions. The higher the ‘hashrate’ the more secure the network. Bitcoin’s hashrate is larger than the Litecoin’s, making it one of the factors why Bitcoin is pricier.

“Additionally. Bitcoin is scarce and takes longer to make or ‘mine’. While Litecoin can be mined faster and is capped at 84 million; 4 times more than Bitcoin. Since the supply of Bitcoin is less, people value it more and are more willing to pay for it,” Deshell said.
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When compared to Bitcoin, Litecoin has a better transaction speed as its algorithm is newer.

What makes Litecoin better than Bitcoin?

When compared to Bitcoin, Litecoin has a better transaction speed as its algorithm is newer. This is why Litecoins are generated faster than Bitcoin and why Litecoin produces a larger number of coins. It then becomes better for you if you want more coins at a lesser value.

“As a lightweight version of Bitcoin, Litecoin is a good option for daily transactions globally. Litecoin may also be considered as a store-of-value investment, similar to Bitcoin due to its limited supply,” added Dunn.

“Additionally, considering its lower price, Litecoin is likely to make a larger move in terms of profit gains or returns when compared to Bitcoin, which is why it could be a good investment if your investment horizon is long-term.”

Again, experts reiterate that Litecoin being one of the top cryptocurrencies alone shows, despite millions of new cryptocurrencies popping out daily, it’s still a popular choice among investors. “Due to that, it’s likely to perform better than thousands of others in the long run,” said Dunn.

What are the risks to buying Litecoin?
Litecoin price today is trading at $72 (Dh264). Much like any cryptocurrency, it performs in accordance with the rest of the market sentiment. Litecoin’s price has fluctuated over the years, and plummeted over 80 per cent over the last 12 months along with many other coins.

“Macroeconomic factors can heavily influence investor behaviour and Litecoin’s price. With higher interest rates to combat inflation, borrowing money becomes more expensive. This, in turn, makes investors wary of deploying funds in riskier assets like crypto,” explained Dunn.

“Once interest rates drop next year, cryptocurrencies can see a price boost. Regulatory news is a risk factor as regulators widely view most cryptocurrencies as securities and most crypto exchanges aren’t regulated security brokers. A lot of Litecoin’s price relies on regulation or lack thereof.”

However, Dunn and Deshell both agreed that while cryptocurrencies have struggled in 2023, the Litecoin market has shown that it can weather the storm multiple times. Because of this, Litecoin is time and again prove it’s a good investment for those willing to take the plunge.

Bottom line: Is Litecoin an investment worth your money?

As the name suggests, Litecoin was made to be a lighter version of Bitcoin, or as its creator Charlie Lee, a former Google engineer, called the crypto “Silver to Bitcoin’s Gold”. When it comes to its use cases, there are plenty given that the digital currency is designed to be used for daily transactions.

“Considering that Litecoin is a better alternative for daily transactions than Bitcoin as it’s four times faster, it may tick all the boxes of a future digital currency,” opined Deshell. “But if you’re contemplating “Should I buy Bitcoin or Litecoin” know that Bitcoin is more widely accepted.

“Litecoin has a stronger potential than Bitcoin to become a peer-to-peer currency [platforms where users may trade digital currency directly with one another] with its faster transaction time and lower fees. This could help turn Litecoin into a practical digital currency in the future.”

As to whether or not Litecoin is a better short-term or long-term investment depends on several factors, including your investment goals and how much risk you can take and how long you plan to stay invested.

“If you thinking “how many Litecoin should I buy”, know that the amount directly depends on whether you want to invest in the short term or the long term. That’s because short-term moves are smaller and the reward potential is lower than if you plan to keep your coins for years,” added Dunn.

“If you’re wondering “should I buy Litecoin now?”, the answer may lie in how much money you’re willing to invest. If you find Bitcoin to be a more expensive investment for you per coin and you’re looking for the closest cheaper alternative as a store of value, Litecoin could be it.”