Litecoin proponents often claim that their cryptocurrency is “silver alongside bitcoin’s gold” and a means of settlement, while bitcoin is a store of value. Like real silver, Litecoin is currently trading well below its all-time high of $ 358 and is worth about $ 51, having lost 8% over the past 24 hours. However, the cryptocurrency hedge fund Multicoin Capital believes that this is not the limit, and even at current price levels calls Litecoin “significantly overvalued”.
Multicoin, which does not hide that it is holding a short position on LTC, recently published a report by Tashara Jane, where he outlined the reasons for his decision..
Jane argues that LTC is facing many negative factors that he does not find a bullish scenario to compensate for..
The Coinbase Effect
First, Jane states that Litecoin’s rise in 2017 was driven by the gullibility of individual investors and the immaturity of the cryptocurrency market. As confirmation of his point of view, he cites the fact that Litecoin had the lowest value per unit among all assets listed on the American exchange Coinbase at the time, which misled inexperienced investors who might not know that they could buy part of the coin..
Litecoin no longer has this advantage, because Coinbase added Ethereum Classic (ETC) in August and plans to further expand its listing, thus reducing the value of each individual coin.
Development and financing
Secondly, Multicoin claims that the Litecoin Foundation is at a financial disadvantage, which severely limits its ability to continue operating. The fund’s assets are $ 322,000, with 82% of them placed in LTC.
Moreover, the firm claims that Litecoin does not have a unique roadmap, which explains the oblivion of the cryptocurrency repository on GitHub, where most of the updates come from the Bitcoin Core repository..
Activity in the Litecoin GitHub repository Photo: Multicoin Capital
In light of these factors, Jane, like several other analysts, calls Charlie Lee’s decision to sell all of his LTCs “a wake-up call,” despite Lee’s own comments..
“Regardless of his motivation, there was incentive mismatch that diminished his drive to continue developing and add value,” writes Jane. “We would prefer if he temporarily blocked his assets or used them to finance the development of LTC.”.
Finally, Multicoin claims that Litecoin will not be able to overcome the selling pressure, which probably will not ease in the future. In favor of this version, the documents of the largest mining company Bitmain that got into the network speak, according to which it owns 1 million LTC. Multicoin suggests Bitmain will liquidate these assets in the first place to support Bitcoin Cash price or accelerate LTC decline.
However, Multicoin believes that alleged bullish scenarios such as using Litecoin as a medium of exchange or a testnet for Bitcoin do not hold up..
Jane refers to the statement “Bitcoin is gold, Litecoin is silver” and argues that the analogy is not relevant here. Unlike physical gold, he said, bitcoin could become a viable medium of exchange through technologies such as the Lightning Network..
“Comparing digital assets to precious metals may be a good analogy, but it has no basis. The point of comparing silver to gold is in the ratio of price to weight. The lower price-to-weight ratio makes small purchases more convenient. Digital assets have no mass, so a similar analysis cannot be done, ”he writes..
Even if there is room in the cryptocurrency ecosystem for a medium of exchange other than Bitcoin, Multicoin states that there is no reason to give this role to Litecoin..
“The distribution of Litecoin is usually shown as quantitative evidence of merchants accepting Litecoin. Merchants who accept Litecoin will in most cases accept a basket of other cryptoassets because BitPay payment service supports many cryptocurrencies. Merchants do not have a specific preference for Litecoin. They decide to accept payments in cryptocurrencies, one of which is Litecoin “.
Probably the more convincing argument of Litecoin supporters is that their cryptocurrency, being a representative of the Satoshi family tree, can be used to test technologies that are later integrated into Bitcoin, but Multicoin claims that there is no objective reason for maintaining a $ 3 billion test network not to mention the higher values that investors can look forward to.
To summarize, Multicoin writes that Litecoin may have meaning in a historical context, but its founding vision is outdated and never replaced by a viable roadmap. “In reality, Litecoin is a rudiment of a platform that was created before the advent of smart contracts. Perceptions emanating from outdated attitudes have created a large discrepancy between current price and fundamental value, ”writes Jane. “We believe that at around $ 50, LTC is significantly overvalued. Given the lack of convincing investment setups, lack of positives and strong negative factors, we expect LTC to continue to lag significantly behind the broader cryptocurrency market. “.
It is worth noting that not everyone shares the opinion of Multicoin. Last month, eToro senior analyst Mati Greenspan said Litecoin is trading “at a huge discount” to its fundamentals and technical factors..
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